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This paper investigates the effect of sanctions of unemployment insurance benefits on the exit rate from unemployment for a sample of Danish unemployed. According to the findings are that even moderate sanctions have rather large effects. For both males and females the exit rate increases by more than 50% following imposition of a sanction. The paper exploits a rather large sample to elaborate on the basic findings. It is shown that harder sanctions have a larger effect, that the effect of sanctions wear out after around 3 months and that particular groups of unemployed are more responsive to sanctions than others. Finally, the analysis suggests that men react ex ante to the risk of being sanctioned in the sense that men who face higher sanction risk leave unemployment faster.

We combine two techniques to consistently estimate the effect of active labour market programmes and, in particular, active labour market policy regimes. Our aim is to explicitly estimate the threat effect of active labour market programmes. Based on Danish data (1998- 2002) from administrative registers we find a strong and significantly positive threat effect. The threat effect is shown to reduce average unemployment duration by approximately three weeks. The implications of this result are discussed.

Unemployment insurance tends to distort incentives in the labour market, affecting job search and wage formation adversely. We show in a search‐matching model that this moral hazard problem can be reduced by attaching a workfare requirement to the eligibility conditions for claiming unemployment benefits. Even when workfare has no effects on human capital or productivity, it is possible to improve labour market performance to create more jobs and lower unemployment by the introduction of workfare, and also to improve welfare. Hence the incentive structure in the labour market can be improved by workfare policies rather than benefit reductions.

A major labour market challenge following the Great Recession is to avoid an increase in long-term unemployment and thus the structural unemployment rate. Active labour market policies may play an important role in this respect. We consider these issues with outset in Denmark which is a country relying extensively on active labour market policies. It is also characterised by high flows into and out of employment, implying that most unemployment spells are rather short and the unemployment rate is relative low. These features have been maintained despite the crisis, and in this sense the Danish flexicurity model has coped reasonably well with the crisis. The Danish active labour market policies have been continuously changed in light of experience, new knowledge and changes in the labour market situation. This paper reviews and discusses these changes in light of the recession and considers how the labour market has coped with the recession.

A major labour market challenge following the Great Recession is to avoid an increase in long-term unemployment and thus the structural unemployment rate. Active labour market policies may play an important role in this respect. We consider these issues with outset in Denmark which is a country relying extensively on active labour market policies. It is also characterised by high flows into and out of employment, implying that most unemployment spells are rather short and the unemployment rate is relative low. These features have been maintained despite the crisis, and in this sense the Danish flexicurity model has coped reasonably well with the crisis. The Danish active labour market policies have been continuously changed in light of experience, new knowledge and changes in the labour market situation. This paper reviews and discusses these changes in light of the recession and considers how the labour market has coped with the recession.

Workfare policies are often introduced in labour market policies to improve the trade-off between incentives and insurance as an alternative to benefit reductions. Most of the debate on such policies has focussed on the direct effect of those participating in the scheme, and in particular the possible locking-in effect reducing job search. In a general equilibrium search framework, we show that the effects of workfare policies critically depend on the response of those not in the programme when they take into account that workfare is a condition for remaining eligible for unemployment benefits. This implies that unemployed not yet in workfare may search more for regular jobs, and employed may accept lower wages since the outside option becomes less attractive. Introduction of workfare policies into an unemployment insurance scheme is shown to contribute to a reduction in both open and total unemployment. It is also shown that the direct search effects of workfare policies are a poor indicator of the overall effect workfare policies have on labour market policies.