How to help unemployed find jobs quickly: Experimental evidence from a mandatory activation program☆
Introduction
Labor market programs aim at bringing unemployed back to work, preferably quickly. For many programs it is not clear whether or not they are effective and if they are why they are effective. This paper concerns the evaluation of a mandatory activation program in Denmark which was implemented in an experimental setting. In two Danish counties about half of the workers who became unemployed in the period from November 2005 to March 2006 were randomly assigned to the program while the other half got a regular treatment. Randomization is based on birthday. If born in the first half of a particular month an individual is assigned to the treatment group, otherwise the individual belongs to the control group. The experimental set-up enables us to study potential “treatment” effects of the program in great detail.
Our paper contributes to the small literature of experimental studies that were performed in the U.S. and Europe to assess the effectiveness of labor market programs.1 Meyer (1995) presents an overview of unemployment insurance experiments in the U.S. distinguishing between cash benefits and job search programs. He shows that economic incentives affect the speed with which people leave unemployment. The economic incentives not only refer to cash bonuses but also to increased enforcement of work search rules and a strengthening of the work test. The size of the effects vary a lot but does not go beyond a reduction of 1 week of UI benefits. Klepinger et al. (2002) analyze a 1994 experiment in Maryland in which the control group of unemployed workers had the standard obligation to contact 2 employers per week. Several treatment groups were used, who were informed about their duties within one week after registering for a benefit claim. One group had to make 4 employer contacts per week, another group had to attend a 4 day job search workshop early in the unemployment spell. A third group was informed that their claimed employer contacts would be verified. Increasing the required weekly number of employer contacts from 2 to 4 and indicating that employer contacts would be verified reduced the duration of unemployment benefit spells with almost 8% (1 week). Also the obligation to attend a job search workshop reduced unemployment benefit duration. Black et al. (2003) analyze an experiment on mandatory employment and training programs finding that some unemployed workers who were informed about the mandatory character left unemployment before they had to enter a program. On average the duration of the unemployment spell was 2.2 weeks shorter for the treatment group than for the control group. Compared to previous U.S. studies this is quite a large impact which the authors attribute to the more intensive employment and training services being offered.
In Europe similar experiments were performed. In an experiment in the Netherlands, Gorter and Kalb (1996) find that intensive counseling and monitoring reduced unemployment duration with 10% for some groups of workers. Dolton and O'Neill, 1996, Dolton and O'Neill, 2002 analyze the so-called Restart experiments in the UK, where unemployment benefit claimants were obliged to attend meetings with a counselor to receive advice on for example search behavior and training courses. They find that the interviews reduced the male unemployment rate five years later by 6 percentage points, as compared to a control group for whom participation in the first six-monthly interview took place six months later. Van den Berg and Van der Klaauw (2006) investigate the effect of counseling and monitoring on Dutch UI recipients finding that counseling and monitoring doesn't help the unemployed to find a job more quickly but shifts their search from informal to formal channels.
We analyze data from a Danish experiment in which individuals in the treatment group are confronted with mandatory job search programs, intensive counseling and mandatory training programs.2 Our study differs from previous U.S. and European studies in a number of ways. The Danish labor market is different since it has high unemployment benefit replacement rates (compared to the U.S.), short unemployment durations and a low level of unemployment (compared to Europe). However, the main difference between the Danish experiment and previous experiments concerns the long duration and high intensity of the activation program. Whereas some experiments focus on one particular program the Danish experiment concerns a long sequence of programs. Whereas some experiments consider either the effect of intensive counseling and monitoring or a job search program the Danish experiment combines different types.
In the empirical analysis we find that the average treatment effect is robust and of the same magnitude for different groups and at different unemployment durations. We find that the median duration of unemployment is 2.5 weeks shorter for the treatment group than for the control group. This effect is quite large but is presumably related to the intensity and the duration of the activation program.3
While the overall effect of the activation program is clear and beyond doubt because of the experimental set-up, the question why the program worked is much harder to address. Labor market programs often consist of a combination of “carrot” and “stick”. The carrot concerns help to the unemployed worker in building up human capital through for example training or work experience programs or help through advice on job search strategies. The stick concerns an increase in the cost of being unemployed either through reductions of benefits — benefits sanctions — or through mandatory activities that need time from the unemployed worker.4 The separate impact of the different elements of the activation program is not easy to establish. Randomization is only carried out once at the beginning of the experiment and there is potential selectivity in program participation later on in the unemployment spell. Nevertheless, to get some idea of the nature of the treatment effect we carry the analysis beyond the experimental set-up. From this additional analysis we conclude that threat effects are important. Therefore, we speculate that the effectiveness of the activation programs is driven more by the stick than by the carrot.
The set-up of the paper is as follows. In Section 2 we provide details of the Danish labor market, the policy experiment and our data. In Section 3 we present an exploratory analysis in which we investigate whether the probability to leave unemployment in a particular time period is different for the treatment group and the control group. We find that indeed there is a substantial treatment effect. In Section 4 we study the treatment effects in more detail using hazard rate models of job finding. Section 5 concludes.
Section snippets
The Danish labor market
Denmark is one of the smaller countries in the European Union with 5.4 million inhabitants and one of the highest GDP per capita in the world. During recent years Danish labor market policies have received considerable international attention of economists and policy makers because the unemployment rate has been decreasing to a level significantly below the unemployment rate of most other OECD countries while social security schemes have remained relatively generous. In 2006 the OECD
Exploratory analysis
By way of exploratory analysis we investigate how long workers stay unemployed. Fig. 5 presents the survival functions separately for the treatment group and control group.15 As shown the treatment group leaves unemployment more quickly than the control group. After 3 months 47% of the control group and 54% of the treatment group have left unemployment. After 6 months 28% of the control group is still
The baseline model
To understand the mechanisms through which the treatment program affects unemployment dynamics, we analyze job finding rates, which are defined as transitions out of the benefit system. Fig. 6 shows the job finding rates separately for the treatment group and the control group. Clearly the job finding rates fluctuate a lot but in the first 6 months of unemployment the job finding rate of the treatment group is always higher than the job finding rate of the control group. After 6 months this
Conclusions
To analyze the effectiveness of a mandatory activation program we analyze data collected during a field experiment in Denmark. Over a period time, workers that became unemployed in two Danish counties were randomly assigned to a treatment group which had to attend intensive labor market programs and a control group which was given normal services. The treatment program consisted of an intensive two weeks job search course. After this course the unemployed had to attend frequent meetings with
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Benefit duration, job search behavior and re-employment
2021, Journal of Public EconomicsThe impact of lower caseloads in public employment services on the unemployed
2023, Journal for Labour Market Research
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Financial support from the Danish Social Science Research Council is gratefully acknowledged. The authors thank the Danish National Labor Market Authority for making their data available. Furthermore, they thank two anonymous referees for their excellent comments on a previous version of the paper. And, the authors thank participants of seminars and conferences at Bank of Portugal, Chicago (ESPE), Copenhagen (Danish National Centre for Social Research), Essen (RWI), Helsinki (VATT), Lausanne (HEC), Louvain-la-Neuve (UCL), Oslo (EALE), Sydney (University of New South Wales), and Tilburg for their comments.