1. www.akf.dk Labour class Cost and Benefits of Danish Active Labour Market Programmes Lars Skipper Anvendt KommunalForskning (+Svend & Jakob)

2. www.akf.dk Labour class Why evaluate  Evaluation – taken seriously – represents a method for ensuring that program managers further the goals of their principals – namely taxpayers – rather than simply transferring resources to interested stakeholders, such as program operators, politically favored firms, or themselves.  In practice, many low quality evaluations exist mainly to cover up exactly such behavior;

3. www.akf.dk Labour class Why evaluate THERE IS NO SHORTAGE OF POLICY PROPOSALS. THERE IS, HOWEVER, A SHORTAGE OF EMPIRICAL EVIDENCE ON THE EFFICACY OF THESE POLICIES… (James Heckman )

4. www.akf.dk Labour class Why evaluate  When programs do not produce benefits in terms of economic development, finding this out allows scarce funds to flow into other, more beneficial activities, or back to the longsuffering taxpayer.  When programs do produce benefits, finding this out can generate political support for program persistence or even expansion.

5. Goal of Paper  Measure the net benefits of the Active Labor Market Programs in Denmark – Subtracting the programs’ cost from their discounted stream of benefits – Benefits: Earnings gains (11 years), saved public transfers – Cost: administration, education, training, cost of public funds – Exclude: Value of leisure, GE-effects (such as displacement), ex-ante effects (threat) www.akf.dk Labour class

6. www.akf.dk Labour class Econometric Theory  Consider three types of programs: – Classroom training – Private On-the-Job Training – Public On-the-Job Training  Problem: Self-selection among participants – Participants are NINJAs! – Ashenfelter’s Dip

7. www.akf.dk Labour class Ashenfelter’s Dip

8. www.akf.dk Labour class Ashenfelter’s Dip

9. www.akf.dk Labour class Econometric Theory  Selection on observable characteristics – Assumption: The decision to participate becomes random once we condition on a set of observable characteristics – The observed data contains variables that relate to all of the major factors identified by theory (and evidence on similar programs) as affecting both participation and outcomes – This is potentially a very strong assumption. Cannot test it without running social experiments

10. Econometric Theory www.akf.dk Labour class  Selection on observable characteristics – Is this plausible? We base it on 1.Economic theory telling us what variables should mean something for both participation and 2.Knowledge about the institutions that affect both the selection- and outcome-processes 3.The existing knowledge in the literature, including comparisons of effects estimated based on mathcing and experimental estimates

11. Results  Private and public On-the-Job training come out as investments with positive returns – Net present value of quarter of a million DKK for private and 100,000 DKK for public. – Differences in institutional set-up (public employers cannot keep trainees after funds run out) – Main source: Moving unemployed from passive income support to productive activity – Main neglect: Displacement! www.akf.dk Labour class

12. Results  Classroom training comes out as a really expensive investment for the taxpayers – Net present loss of almost 100,000 DKK per trainee – Main reason: Expensive courses wasted on non-trainable individuals or equipping trainees with non-marketable skills www.akf.dk Labour class