Opening the Blackbox: How Does Labor Market Policy Affect the Job Seekers' Behavior? A Field Experiment

Empirically, not much is known about the mechanisms how labor market programs like job search assistance and training operate to support finding a job. This paper provides novel evidence to open the "blackbox": it causally links the program interventions to the dynamics of search behavior, beliefs and non-cognitive skills. The study is based on a unique combination of a randomized field experiment with detailed register data and a panel of repeated surveys. The tested coaching program, focused on older job seekers, turns out to increase the job finding of participants by 9 percentage points (72% vs. 63% in the control group). The treatment effect is driven by a reduction of reservation wages and an increase in search efficiency. Moreover, I find short-run effects on motivation, self-confidence and beliefs. The job seekers overestimate their chances slightly less with respect to job interviews and salaries. Overall, the focus on realistic expectations and on search strategy appears to be important for program success. The experiment shows that evaluation designs which directly assess behavior can provide a fruitful base for targeted policy design

What Drives Wage Effects of Unemployment Benefits? Evidence from Natural Experiments and Reservation Wage Data

How should we interpret wage effects of UI benefits? Policy conclusions are fundamentally different depending on whether the effects mostly operate through unemployment duration or through reservation wages. This paper combines for the first time all three necessary outcomes within the same natural experiments. We find reservation wage effects of about +1% per 20 days of extended potential benefit duration. Interestingly, the importance of the two channels of wage effects is age-dependent

Kausale Evaluation von Pilotprojekten: Die Nutzung von Randomisierung in der Praxis

Wirkungsevaluationen stehen oft vor der Herausforderung, Kausalität zwischen der betrachteten neuen Politikmassnahme und den resultierenden Outcomes herzustellen. Mangelnde Vergleichbarkeit zwischen der Programmgruppe (neue Politik) und der Kontrollgruppe (Status Quo) macht oft eine kausale Interpretation der gefundenen Effekte schwierig (sind wirklich Programmeffekte oder eher Selektionseffekte für das Ergebnis verantwortlich?). Randomisierung d.h. Zufallszuweisung in Programm- und Kontrollgruppe sorgt für eine sehr hohe Vergleichbarkeit. In diesem Beitrag werden die Möglichkeiten der Nutzung von randomisierten Studien in der Evaluation von Pilotprojekten diskutiert. Erstens werden Gründe, die für Randomisierung sprechen, sowie Einschränkungen in der Anwendung der Methode diskutiert. Im zweiten Teil des Beitrages wird aufgezeigt, wo aktuell randomisierte Evaluationsstudien in Europa bereits eingesetzt werden diese Beispiele demonstrieren die Einsatzmöglichkeiten und das Potenzial der Methode. Drittens wird auf die Praxis der Umsetzung und Planung von randomisierten Studien eingegangen: Eine Reihe von zentralen Punkten wird diskutiert, die bei der Implementierung von solchen kausalen Evaluationen im Auge behalten werden sollten

Strengthening Enforcement in Unemployment Insurance: A Natural Experiment

Enforcing the compliance with job search obligations is a core task of conditional benefit systems like unemployment insurance (UI) or welfare. For targeted policy design, it is key to understand how the enforcement regime affects job search outcomes. This paper provides first estimates that separately identify the effects of increasing enforcement strictness in UI. As a natural experiment, we exploit a reform which induced a sharp and unanticipated increase in the probability of being sanctioned after the failure to document job search effort. Using a difference-in-differences design, we find that the probability of job finding within six months increases by 6 percentage points in response to the policy change. This effect comes at the cost of lower job stability. As a consequence, early job finders experience losses in total earnings driven by fewer months in employment within the considered post-unemployment period. We use these estimates to quantify the elasticities to changes in enforcement strictness, trading off the short-run gains (job finding) against the mid-run costs (job quality)

The Effects of Binding and Non-Binding Job Search Requirements

Job search requirements constrain the effort choice of unemployment insurance recipients by enforcing a minimum number of monthly applications. This paper is the first to assess how individual search effort, job finding and job stability react to this constraint. Standard job search theory predicts that requirements affect each job seeker relative to her unconstrained effort choice. Therefore, the behavioral treatment intensity of interest is the incremental effort necessary to comply with the requirement. Using novel Swiss register data, we measure this intensity as the difference between the individual requirement threshold and the search effort provided just before requirement imposition. Our econometric approach exploits that conditional on a broad set of choice fixed effects the match between the job seeker's unconstrained effort choice and the caseworker's requirement setting behavior is arbitrary. Therefore, it provides exogenous variation in the treatment assignment. We find that binding search requirements that exceed the job seeker's unconstrained effort choice, increase job finding in a substantial way. These effects are highly heterogeneous with respect to the job seeker's characteristics. They come at the cost of increased non-compliance and sanction imposition rates. Moreover, binding requirements have striking negative effects on job stability. Finally, we find that non-binding requirements can also affect search outcomes. This suggests that requirements can operate as signals, thereby generating behavioral effects that are not predicted by standard job search theory

On or Off – Are Treatment Effects of Policy Changes Symmetric? Evidence from Unemployment Insurance Reform with Incomplete Information

Does introducing or abolishing a policy measure affect the eligible individuals in the same way - just with opposite signs or are the reform effects of moving to a more or less generous policy symmetric? This is an important question that standard program evaluation results cannot answer and policy designers may thus implicitly assume symmetry of the effects. To address this issue, it is necessary to have access to a specific policy shock, which preferably implies both positive and negative news to the target group. In this paper, we try to answer the proposed policy evaluation question with opposite signs by exploring a large-scale quasi-experiment in unemployment insurance with imperfectly informed UI claimers: Job seekers are confronted with either an upgrade or a downgrade of their benefit eligibility within their unemployment spell, without being initially fully informed about the change. They face, however, exactly the same size of treatment: an increase or decrease of the potential benefit duration (PBD) by 200 days. We first compare the treatment effects of these update cases with the reference case, in which individuals are fully informed about their PBD. We identify the treatment effect around the threshold of age 25 where PBD rules change in the Swiss UI system. We find substantial differences in the treatment effects across cases with different expectations on benefit change. This applies to job finding and earnings outcomes. Secondly, the effects are asymmetric both quantitatively and qualitatively. The differences are consistent with patterns of loss aversion or of consumption commitment behavior. We also show that policy uncertainty reinforces the job finding effect of a downgrade shock

Strengthening Enforcement in Unemployment Insurance. A Natural Experiment

Imposing benefit cuts to job seekers who do not comply with rules and requirements has become a commonly used enforcement device in unemployment insurance (UI) systems. This paper provides first estimates of how non-compliant job seekers react when confronted with a stricter enforcement regime. We exploit an administrative reform which induced a sharp and unanticipated increase in the probability of receiving a benefit cut in response to the failure of documenting job search effort. Our difference-in-difference framework uses as a control group job seekers with other types of non-compliances, whose enforcement rules stayed constant. We find that the probability of job finding within the three months following non-compliance detection increases by 5 p.p. in reaction to the reform. This effect is however purely driven by exits to unstable jobs. Increased enforcement strictness thus appears to pressure job seekers into accepting job matches of lower quality. Estimating the effects on post-unemployment earnings is work in progress

Job search requirements, effort provision and labor market outcomes

How effective are effort targets? This paper provides novel evidence on the effects of job search requirements on effort provision and labor market outcomes. Based on large-scale register data, we estimate the returns to required job search effort, instrumenting individual requirements with caseworker stringency. Identification is ensured by the conditional random assignment of job seekers to caseworkers. We find that the duration of un- and non-employment both decrease by 3% if the requirement increases by one monthly application. When instrumenting actual applications with caseworker stringency, an additionally provided monthly application decreases the length of spells by 4%. In line with theory, we further find that the effect of required effort decreases in the individual's voluntary effort. Finally, the requirement level causes small negative effects on job stability, reducing the duration of re-employment spells by 0.3% per required application. We find a zero effect on re-employment wages

How Effective Are Unemployment Benefit Sanctions? Looking Beyond Unemployment Exit

This paper provides a comprehensive evaluation of benefit sanctions, i.e. temporary reductions in unemployment benefits as punishment for noncompliance with eligibility requirements. In addition to the effects on unemployment durations, we evaluate the effects on post-unemployment employment stability, on exits from the labor market and on earnings. In our analysis we use a rich set of Swiss register data which allow us to distinguish between ex ante effects, the effects of warnings and the effects of enforcement of benefit sanctions. Adopting a multivariate mixed proportional hazard approach to address selectivity, we find that both warnings and enforcement increase the job finding rate and the exit rate out of the labor force. Warnings do not affect subsequent employment stability but do reduce post-unemployment earnings. Actual benefit reductions lower the quality of post-unemployment jobs both in terms of job duration as well as in terms of earnings. The net effect of a benefit sanction on post-unemployment income is negative. Over a period of two years after leaving unemployment workers who got a benefit sanction imposed face a net income loss equivalent to 30 days of full pay due to the ex post effect. In addition to that, stricter monitoring may reduce net earnings by up to 4 days of pay for every unemployed worker due to the ex ante effect.unemployment duration, earnings effects, benefit sanctions, competing-risk duration models

How effective are unemployment benefit sanctions? Looking beyond unemployment exit

This paper provides a comprehensive evaluation of benefit sanctions ,i.e. temporary reductions in unemployment benefits as punishment for noncompliance with eligibility requirements. In addition to the effects on unemployment durations, we evaluate the effects on post-unemployment employment stability, on exits from the labor market and on earnings. In our analysis we use a rich set of Swiss register data which allow us to distinguish between ex ante effects, the effects of warnings and the effects of enforcement of benefit sanctions. Adopting a multivariate mixed proportional hazard approach to address selectivity, we find that both warnings and enforcement increase the job finding rate and the exit rate out of the labor force. Warnings do not affect subsequent employment stability but do reduce post-unemployment earnings. Actual benefit reductions lower the quality of post-unemployment jobs both in terms of job duration as well as in terms of earnings. The net effect of a benefit sanction on post-unemployment income is negative. Over a period of two years after leaving unemployment workers who got a benefit sanction imposed face a net income loss equivalent to 30 days of full pay due to the ex post effect. In addition to that, stricter monitoring may reduce net earnings by up to 4 days of pay for every unemployed worker due to the ex ante effect.Benefit sanctions; earnings effects; unemployment duration; competing-risk duration models