Does the impact of active labor market programs depend on the state of the labor market? The case of the UK new deal for young people

There is much debate, but surprisingly little evidence, concerning the impact of primarily supply side Active Labor Market Programs (ALMPs) in labor markets characterised by weak labor demand. The usual argument is that we might expect ALMPs to have greater impacts in tight labor markets than in slack ones because more (and perhaps better) job vacancies exist. On the other hand, the added value of such programs may be lower in tighter labor markets. In this paper we explore whether a mandatory ALMP for unemployed young people introduced in 1998 – the UK New Deal for Young People – has had differential impacts on the probability of unemployment exits in different local labor markets. Our results show this to be the case, with robust evidence indicating that the program impact on the hazard rate for entry to employment decreases with the local unemployment rate.