IZA’s special focus on "Labor Policy" reflects the great importance of evidence-based policy making. With its team of policy experts, IZA analyzes and evaluates existing policies on the national and international level, utilizes the results of the IZA program areas, and develops concrete policy proposals. The term "labor policy" covers a wide range including all areas of government activity which have direct or indirect effects on the labor market. These include measures of so-called active labor market policy, which are generally carried out by the government, such as job placement, training programs, job creation programs, or wage subsidies. Another aspect of labor market policy is the design of various labor market institutions, such as collective bargaining, employment protection, workplace regulations, education, immigration law, and many others. Of particular importance is the social security system, which not only guarantees a minimum standard of living, but also covers unemployment benefits, short-time compensation, partial retirement, and other benefits that have a substantial impact on worker behavior and, hence, on the efficiency of the labor market.
With its own behavioral techniques, IZAΨMOD (IZA Policy Simulation Model), IZA is able to analyze the labor supply reactions and employment effects of tax and benefit reforms. IZAΨMOD enables the institute to give policymakers information about appropriate modifications of planned initiatives even prior to their adoption.