Long-term employment and health effects of active labor market programs

Active labor market programs (ALMPs) are widely used to speed up return to work among the unemployed. We examine their long-run effects on employment- and health-related outcomes for different target groups, arguing that ALMPs are associated with heterogeneous effects for different target groups and may even detrimentally influence the mental health for the most disadvantaged groups. To this end, we use evidence from randomized controlled trials conducted in Denmark in 2005-2008, in which treatment groups were exposed to intensified active labor market policies in the form of more frequent compulsory meetings with case workers and/or early activation and estimate effects over a period of 10 y. In line with expectations, we find that while ALMPs have the potential to increase labor market participation among resourceful clients even 10 after the original intervention, they have long-run negative effects on the mental health for the most disadvantaged groups among the unemployed. The negative effects are entirely driven by clients who already prior to the trial had mental health issues. These findings suggest that the effects of ALMPs are lasting, but at the same time greatly depend on how they fit with the resources of clients.