Effects of active labour-market policies on welfare state finances

Abstract

Abstract This study seeks to determine the effectiveness of the active labour-market policies (ALMPs) of employment-oriented welfare states contribute to the financial soundness of welfare states. Even if they are insignificant, overall, the results show that ALMPs lead to higher employment rate and sounder public finances as could be expected by the central idea of employment-oriented welfare states. However, extending ALMPs does not always create a virtuous circle among government interventions, employment rate and fiscal soundness. That is, the results for employment and public finances depend on how the government intervenes in the labour market. We argue that the critical point goal should be to improve employability, not just to increase the employment rate.