Wage Determination and Active Labour Market Programme

This paper estimates the impact of active labour market programmes on wages in the UK. We estimate real wage equations, disaggregated by both region and industry, using a theoretical model which explicitly takes account of the welfare implications of labour market programmes for current employed workers who face the possibility of becoming unemployed. The industry results suggest that youth training programmes may have increased wages in the distribution sector whereas the regional estimates indicate that ÔRestart' interviews have put significant downward pressure on UK wages (by helping, or forcing, the long-term unemployed to search more effectively for jobs and/or encouraging them to take lower paid jobs than they otherwise would). In addition to the direct impact of ÔRestart', our disaggregated analysis suggests that the unusually high level of unemployment in the South East and the skill-composition of the unemployed may explain why recent earnings growth has been so subdued relative to previous recoveries.

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