Getting the Unemployed Back to Work:  The Role of Targeted Wage Subsidies

Jon Van Reenen

ABSTRACT

This paper examines alternative approaches to wage subsidy
programmes. It does this in the context of a recent active labour
market reform for the young unemployed in Britain. This ``New Deal''
reform and the characteristics of the target group are examined in
detail. We discuss theoretical considerations, survey the existing
empirical evidence and propose two strategies for evaluation. The
first suggests an ex-post `trend adjusted difference in difference'
estimator. The second, relates to a model based ex-ante evaluation. We
present the conditions for each to provide a reliable evaluation and
fit some of the crucial parameters using data from the British Labour
Force Survey. We stress that the success of this type of labour market
programmes hinge on dynamic aspects of the youth labour market, in
particular the pay-off to experience and training.