The Rise (and Fall) of Labour Market Programmes: Domestic vs. Global Factors

Abstract

We provide a simple model to illustrate that tax and redistributive considerations as well as increasing globalization may lead workers unexposed to the threat of unemployment to prefer government spending on active labour market programmes to passive spending, e.g., on unemployment benefits. In the empirical work, panel data for OECD countries are used to examine the relationship between active and passive labour market spending and various controls relevant for analysing the political economy of labour market policies. Overall, we find that domestic concerns, such as government indebtedness, are far more important determinants of labour market expenditures than global influences.