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In this paper, we analyse the labour market using a matching model. In our labour market, there are two types of workers: primary workers; and secondary workers. Primary workers are those workers who, when in employment, are fully productive and, when in unemployment, have a maximum search intensity. Secondary workers, on the other hand, may be less than fully productive when employed. In addition, they may have a lower search intensity than primary workers when unemployed. A primary worker becomes a secondary worker by first spending a length of time in unemployment. Thus the event of an unemployed primary worker becoming a secondary worker is duration dependent. An unemployed secondary worker can become a primary worker by either first being employed as a secondary worker or by taking a place on a labour market programme. However, in this model we allow for the possibility that taking a job or a place on a labour market programme may not guarantee that the worker will become a primary worker. In this paper, labour market programmes are directed at secondary workers in unemployment. The general result of this modus operandi is ambiguous. The proportion of primary workers, the proportion of secondary workers, and the rate of total unemployment can all either increase, decrease, or remain unchanged, when labour market programmes are used more intensively. The same is true of total production in the economy

Holmlund & Lindin (1993) analyse the usage of relief employment using a matching model with three stocks regular employment, relief employment, and unemployment. In their model, the usage of relief jobs has both a direct effect on unemployment (i.e., the placement effect) as well as an indirect wage effect on unemployment. The former relationship is negative. The latter effect refers to the change in wage setting which is in response to changes in how relief jobs are used. Holmlund & Lindin argue that the only usage of relief jobs which unequivocally reduces unemployment is the policy of directing relief jobs at the flow out of regular employment. They show that by using relief jobs in this way, the negative direct effect on unemployment is reinforced by a negative indirect wage effect on unemployment. In this paper, we argue that Holmlund & Lindin's concept of workers' fall-back position is mis-specified since it fails to take account of the wage bargaining undertaken by those in relief employment. And it is this mis-specification which drives their result. Once due consideration is made for those in relief employment, their result no longer holds.