Assessing Active Labor Market Policies in Transition Economies

With the beginning of economic reform in the formerly centrally planned economies of Central and Eastern Europe (CEE), open unemployment rapidly reached comparable levels to those in Western economies. Governments in the region reacted to this rise by adopting active labor market policies (ALMP) as an important tool in the fight against unemployment. Before reviewing the evidence on the efficacy of such policies we look at the scope and the rationale of ALMP measures in a transitional context. Since government budgets are very tight in these countries it is important to evaluate ALMP in a rigorous fashion. The paper analyzes macroeconometric and microeconometric methods of program evaluation, as they were applied in transition economies. Both these approaches have a raison d'être and should be understood as complementing. Providing a selective review of the literature, some of the strengths and the pitfalls of the two approaches are highlighted. We also point to the lessons one can draw from the surveyed studies for a better understanding of how active measures affect labor market outcomes in this set of countries.