Labor Market Policies and Equilibrium Employment : Theory and Application for Belgium

This paper is concerned with the general equilibrium effects of active labor market programs and the unemployment insurance system (the replacement ratio and the level of sanctions). It develops an equilibrium job matching model where active programs and the rate of sanctions have an ambiguous impact on the equilibrium employment rate. The model is simulated for Belgium. The simulations suggest that passive and active labor market policies do not have a substantial net impact on the employment rate.