Are Active Labor Market Policies Directed at Firms Effective? Evidence from a Randomized Evaluation with Local Employment Agencies

Active labor market policies (ALMPs) have primarily focused on jobseekers through job-search assistance or training programs and numerous studies have shown that these programs can be effective at improving labor market outcomes for participants. Yet their employment effects may be limited in equilibrium because they can induce substantial displacement effects between jobseekers. In this study, we explore the effectiveness and potential limitations of a symmetric intervention that assists firms in their recruitment operations. The motivation for this study comes from the fact that, in the standard equilibrium job search and matching theory that labor economists use, the recruitment, or "vacancy", cost is a key parameter that helps determine both labor demand and the unemployment rate. These models tell us that if these costs fall it will stimulate firm labor demand as the threshold for job creation is lowered. Yet we lack, perhaps surprisingly, direct evidence on the impact of a change in these costs. Hence we evaluate the effect of an innovative active labor market policy (ALMP) implemented by the French Public Employment Service (PES) that targeted the vacancy costs of thousands of small and medium sized firms. Using administrative data, we focus on vacancy creation and hiring in sample firms to measure whether the treatment did or did not stimulate labor demand. We also use this data to explore mechanisms through the types of services implemented to vacancies. Finally we use theory and simulations to discuss the validity of the empirical results in equilibrium and address the question of potential scale-up of this type of firm-based intervention.