Getting the unemployed back to work: The role of targeted wage subsidies

This paper examines alternative approaches to wage subsidy programmes. It d oes this in the context of a recent active labour market reform for the you ng unemployed in Britain. This "New Deal'' reform and the characteristics o f the target group are examined in detail. We discuss theoretical considera tions, the existing empirical evidence and propose two strategies for evalu ation. The first suggests an ex-post `trend adjusted difference in differen ce' estimator. The second, relates to a model based ex-ante evaluation. We present the conditions for each to provide a reliable evaluation and fit so me of the crucial parameters using data from the British Labour Force Surve y. We stress that the success of this type of labour market programmes hing e on dynamic aspects of the youth labour market, in particular the pay-off to experience and training.