Active Labour Market Policy by a Profit‐Maximizing Firm
| Author | Joan Muysken,Ruud Gerards,Riccardo Welters |
| Published date | 01 March 2014 |
| DOI | http://doi.org/10.1111/j.1467-8543.2012.00915.x |
| Date | 01 March 2014 |
Active Labour Market Policy by
a Profit-Maximizing Firm
Ruud Gerards, Joan Muysken and
Riccardo Welters
Abstract
This article investigates the effectiveness of an employment programme exclu-
sively run by a private sector firm in order to find out whether such a programme
can be beneficial to both the participating individuals and the private firm. To
answer these questions, we use a unique dataset on a private employment
programme covering 23 years of operations and data on 1,000 participating
unemployed individuals. Using conservative estimates, we show that a private
employment programme is more effective in reintegrating the unemployed than
public efforts, while providing tangible benefits to the firm.
1. Introduction
It is well documented that subsidized private sector employment programmes
(SPSEPs), in which the government pays firms to provide experience to
unemployed workers, seem to perform relatively well in bringing the unem-
ployed back to work.1This article investigates the effectiveness of a pure
private employment programme to find out whether such a programme can
also be beneficial for both unemployed workers and firms. We explore this
question by analysing the effectiveness of a large Dutch firm’s employment
programme, based on a unique dataset covering a period of 23 years and data
on 1,000 participating persons. We find that this pure private programme
performs markedly better than public programmes.
One of the private components that give SPSEPs an advantage over other
forms of active labour market policy (ALMP) is that SPSEPs more closely
resemble a regular work environment, and hence facilitate the build-up of
relevant human capital (Sianesi 2008). Other advantages of private involve-
ment are that participation in an SPSEP works as a positive signal towards
Ruud Gerards and Joan Muysken are at Maastricht University. Riccardo Welters is at James
Cook University.
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British Journal of Industrial Relations doi: 10.1111/j.1467-8543.2012.00915.x
52:1 March 2014 0007–1080 pp. 136–157
© John Wiley & Sons Ltd/London School of Economics 2012. Published by John Wiley & Sons Ltd,
9600 Garsington Road, Oxford OX4 2DQ, UK and 350 Main Street, Malden, MA 02148, USA.
future employers (Gerfin et al. 2005), and that similarly it is a very direct way
of demonstrating one’s abilities to employers (Graversen 2004). Although
these benefits can be ascribed to private sector involvement, these pro-
grammes are still initiated, designed, administrated and evaluated by the
public sector. Several aspects of this programme set-up create scope for
cream-skimming. First, since these programmes are mostly evaluated based
on their post-programme effects, caseworkers have an incentive to select the
most employable — who are not always those who stand to benefit most from
it (Aakvik et al. 2005). Second, Martin and Swank (2004) show that persuad-
ing firms to participate in AMLP entails more than just a wage subsidy, and
somewhat related, Martin and Grubb (2001) present results that suggest that
firms’ participation in these programmes is positively linked to the quality of
participants they can expect. Thus, even if caseworkers were able to identify
flawlessly those who would benefit most from participation, they would need
to think twice before actually selecting them, as these participants might not
satisfy the firm’s expected quality.
In case of a pure private programme, there is obviously no need to per-
suade the firm to participate since it is its own program. Hence, the delicate
balancing act is no longer required. A pure private programme would still
enjoy the advantages already mentioned. In addition, it may be attractive for
a firm to run a private ALMP for reasons we will investigate.
The remainder of this article is structured as follows. We elaborate on the
programme we study in Section 2. In Section 3, we analyse the outflow data
of the programme, and in Section 4 we discuss the performance of the
programme. In Section 5, we present a number of benefits for the firm when
running a pure private labour market programme. Section 6 concludes.
2. A private initiative: the Philips Employment Scheme (WGP)
The unemployment rate in the Netherlands rose dramatically in the early
1980s, peaking at a record high of 10.2 per cent in 1983 (CPB 2009). Among
the unemployed were a large number of youngsters, below age 23. This
development induced the government and unions to agree on a package of
reforms called the Wassenaar Agreement in 1982. An important element of
this agreement was an economy-wide reduction in working hours to split the
same amount of work into more jobs. However, Philips Electronics, the
Dutch multinational known for, among others, its household appliances and
lighting products, preferred a different approach to combat unemployment
and make its contribution in these times of need. Since it was one of the
largest employers in the Netherlands, it was able to implement its own course
of action. Instead of reducing working hours, Philips created the ‘Youth
Work Plan’ (YWP). The YWP offered unemployed youngsters one year of
work and training with Philips, and had 639 participants by the end of 1983,
its inaugural year (van der Bruggen and van Schagen 2001). The YWP ran
successfully until 1986, at which time the number of unemployed youth had
Private Sector Initiated Employment Programme 137
© John Wiley & Sons Ltd/London School of Economics 2012.
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