Net Social Benefit of Intensified Active Policies
Observational StudyReview
High administrative expenditures associated with operating intensive active labor market policies create uncertainty regarding whether program costs outweigh overall economic gains.
Picture this
Running an intensive job-search regime is like paying for a commercial building maintenance contract up front. Although administrative operation costs money, those expenses are outweighed by paying out fewer welfare benefit checks and collecting new tax revenues as workers enter jobs faster.
What the evidence says
Intensified active policies produced a net benefit to society of €2,000 per unemployed individual exposed to the intensive regime, driven by a 2.2-week (15%) reduction in average unemployment duration.
- Who was studied
- Evaluation conducted by the Danish Economic Council (2007) based on trial data of N = 4,513 unemployed individuals across two Danish counties.
- How
- Societal cost-benefit framework integrating administrative operational costs, benefit payment reductions, tax distortion multipliers (marginal cost of public funds), and production value increases.
What to do
Incorporate tax distortion multipliers and benefit expenditure reductions into comprehensive societal cost-benefit calculations before determining active labor market program budgets.
From the source
"They ignore general equilibrium effects, but find nevertheless that the programme has a value to society of €2000 per unemployed individual exposed to the intensive policy regime."
bc5b372e-5470-4162-9864-568cdcec4a00-Experimental Evidence on the Nature of the Danish Employment Miracle.pdf