Active and passive labour-market policies: the outlook from the Beveridge curve

Abstract

We appraise the impact of various indicators of active and passive labourmarket policies within the framework of the Beveridge curve across 14 OECD countries from 1985 to 2013, controlling for a wide spectrum of other factors, both institutional (tax wedge, employment protection legislation) and structural (technological progress, globalisation). We embed the role of all these variables within the specification of the Beveridge curve, avoiding the potential pitfalls of twostep approaches. We find that the generosity of unemployment benefits has a detrimental impact on labour-market matching, with the duration of benefits taking a key role in driving this result. Among active labour-market policies, employment incentives and especially training have a favourable effect on matching. There is also some evidence of a virtuous interaction between active and passive policies. A significantly detrimental role emerges for the tax wedge. These results are consistent across various specifications, and structural relationships are stable throughout the 2008–2013 period.