In Discussion Paper No. 1205, Research Fellow Gilles Saint-Paul asks two: when will there be sufficient political support for active labour market policies? And will voters then be sufficiently interested in designing them adequately? These issues are studied in the context of a model where power is concentrated in the hands of 'unskilled' workers who can use policy so as to redistribute welfare in their direction.

In a democratic society, policies are designed to fit the interests of the majority. Thus, labour market policy will be mostly determined by the employed, and among the employed, by the 'lower middle class' or 'unskilled' workers. Why should these people care about active labour market policy, which is directed at the unemployed minority? The answer can be condensed into three effects: the taxation effect, the exposure effect, and the insider effect. Which effect dominates depends both on the economy's parameters and on the economic effects of active labour market policy. Here, two cases can be distinguished: a perverse case where ineffective policies are supported, but effective policies are not; and a normal case where voters favour policies that help unemployment. The paper analyses under which circumstances the two cases apply.

A Framework for Analysing the Political Support for Active Labour Market Policy
Gilles Saint-Paul

Discussion Paper No. 1205, June 1995 (IM)