Comparison of Optimal Control Solutions in a Labor Market Model

Table 3

Flows that Contain Endogenous and Exogenous Components.

Table 4

Numerical values for baseline model (*=Number of persons/jobs x 1000, annual
averages).

rate to 5% and has no participants in ALMPs. This unemployment target is
a substantial reduction from the baseline rate of nearly 8%, and is a target
that will be difficult for any method to achieve.

The input to the model (or control) is the proportion of the long-term un-
employed on ALMPs (λ). The control target is zero. There is no constraint
within the model on this proportion so the control method should incorporate
a realistic constraint. We use the constraint of 0 ≤ λ ≤ 0.5 so that a maxi-
mum of 50% of the long-term unemployed can participate in ALMPs in any
one month.

We follow the convention of using a quadratic objective function where the
optimization aims to reduce the sum of squared deviations from the output
(unemployment) and control (λ) targets. The deviations are weighted and we

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