From Job Creation to Social Inclusion: OECD Maps the Future of Smarter Labour Market Policies

The OECD finds that Active Labour Market Policies should be evaluated not only by employment outcomes but also by their impact on health, confidence, wellbeing, and social inclusion, as these factors are critical for long-term workforce participation. The report urges governments to strengthen data systems, impact evaluations, and cost-benefit analysis so public investments in employment programmes deliver greater economic, social, and development returns for citizens, businesses, and policymakers.

Governments across the OECD are under growing pressure to create more jobs while managing tighter public finances, and a new OECD report argues that employment programmes should no longer be judged only by how many people they place in work. The study finds that labour market policies are increasingly expected to improve confidence, health, wellbeing, and social inclusion alongside employment. Researchers identified more than 200 Active Labour Market Policies (ALMPs) with explicit social objectives across 37 OECD and European Union countries, showing that governments are redesigning employment programmes to address the complex barriers keeping vulnerable groups out of the workforce.

Beyond Jobs: Labour Market Policies Become Tools for Social Inclusion

The report shows that labour market policies are evolving from traditional job placement services into broader social inclusion programmes. Around 40% of identified ALMPs combine multiple interventions, including job-search assistance, vocational training, counselling, wage subsidies, rehabilitation, and supported employment. Nearly half of all programmes provide employment placement and related services, while training remains the second most common intervention.

These programmes mainly target the long-term unemployed, persons with disabilities, and young people, but also support migrants, ethnic minorities, women, older workers, low-skilled individuals, people with health conditions, carers, and socially disadvantaged communities.

One of the report's most significant findings is that improving self-confidence, motivation, independence, and personal resilience has become the most common social objective across labour market programmes. Governments increasingly recognise that many disadvantaged people need psychological and social support before they are ready to enter sustainable employment. Better mental well-being, stronger social connections, improved life skills, and greater community participation are now viewed as essential steps toward long-term workforce participation.

Data Gaps Prevent Smarter Employment Policies

Despite expanding programme goals, the OECD finds that governments continue to evaluate success mainly through employment outcomes.

While more than half of OECD and EU countries routinely conduct impact evaluations measuring employment outcomes, only around one in ten systematically evaluate broader social outcomes such as health, confidence, well-being, or social participation. Likewise, only around one-quarter of countries regularly monitor participants' social progress during programme implementation.

The report also highlights weaknesses in administrative data systems. About 65% of countries have health-related datasets, 63% maintain education records, 58% have migration databases, and 50% collect income-related information. However, these datasets are rarely connected with unemployment records, making it difficult to understand the full impact of labour market programmes. Information on volunteering, civic participation, housing, and social inclusion remains particularly limited, leaving governments without a complete picture of how employment programmes change people's lives.

Why Better Evaluation Matters for Governments and Development Partners

The report argues that governments risk underestimating the true value of labour market programmes because they rarely measure long-term social benefits. Successful ALMPs can reduce welfare dependency, improve physical and mental health, strengthen productivity, increase tax revenues, lower healthcare costs, and reduce crime. However, these wider benefits are often excluded from policy evaluations.

Only 20% of responding countries have dedicated frameworks for comprehensive cost-benefit analysis, while fewer than one in five conduct such assessments regularly. As public budgets become increasingly constrained, the OECD recommends expanding cost-benefit analysis to include both economic and social outcomes so governments can invest in programmes delivering the highest long-term returns.

For international development partners such as the European Commission, World Bank, regional development banks, UN agencies, and bilateral donors, the findings highlight the importance of supporting digital government systems, integrated administrative databases, evaluation capacity, and evidence-based policymaking alongside financing employment programmes.

Stronger Partnerships Can Build More Inclusive Labour Markets

The study finds that 82% of identified programmes are managed at the national level, while the remaining initiatives operate through regional or joint governance arrangements. National budgets remain the primary funding source, complemented in many European countries by the European Social Fund Plus (ESF+) and the Recovery and Resilience Facility.

Successful implementation increasingly depends on collaboration between public employment services, ministries, employers, universities, NGOs, healthcare providers, and local governments. Around 63% of countries report using specialised staff such as psychologists, rehabilitation specialists, occupational therapists, and case managers to provide personalised support for vulnerable participants.

For private-sector employers, stronger labour market programmes offer opportunities to expand access to skilled workers, reduce recruitment costs, improve workforce diversity, and address persistent labour shortages. However, the report also warns that generic, one-size-fits-all programmes may fail vulnerable participants or even worsen outcomes for those with mental health challenges. The OECD therefore recommends more personalised interventions, stronger data integration, regular impact evaluations, and comprehensive cost-benefit analysis. According to the study, combining employment outcomes with broader measures of wellbeing and social inclusion will help governments, development partners, and businesses build more productive, resilient, and inclusive labour markets while delivering better value for public investment.