How Do Employment Effects of Job Creation Schemes Differ with Respect to the Foregoing Unemployment Duration? Reinhard Hujer University Frankfurt/M. 3rd Conference on Evaluation Research, Mannheim Stephan L. Thomsen ZEW, Mannheim

Contents 1.Motivation 2.Job Creation Schemes in Germany 3.Evaluation Approach 4.Data Set 5.Employment Effects 6.Conclusion

1. Motivation Job Creation Schemes (JCS) are part of German ALMP since 1969:  Subsidised employment  For unemployed persons facing barriers to employment Purpose:  Re-integration of participants into regular employment  Provision of stable foundation and relevant qualifications Between 1997 and 2003:  About 1.6 million participants  Corresponding spending: about 23 billion Euros

1. Motivation (2) Scepticism about effectiveness  Lack of components that improve human capital, stigmatisation Recent empirical literature (e.g., Sianesi, 2004, Abbring/van den Berg, 2003):  Timing of treatment in the unemployment spell is important for evaluating effects Overall finding of previous empirical studies:  JCS do not improve the employment rate of the participants

1. Motivation (3) Previous empirical studies evaluating JCS do not account for the timing of the programme explicitly, but  Timing seems to be important for JCS  Differences should be analysed Data used for the analysis: merged data from administrative sources of Federal Employment Agency (FEA) Evaluation Approach:  Propensity Score Matching in Dynamic Setting

2. Job Creation Schemes Provide jobs at public and non-commercial institutions for unemployed persons facing barriers to employment  Long-term unemployed  Older unemployed  Young unemployed without professional training/ apprenticeship Financial assistance (paid to the employer)  Wage subsidy of 30 to 75% (until 2003)  Lump sum payment (since 2002 optional/ 2004 mandatory) Duration  Normally 1 year, but for two and up to three years

2. Job Creation Schemes – Pre-Conditions For jobs to be promoted –Additional in nature –For the collective good –Appropriate to the problems of the regional labour market For participants –(long-term) unemployment –Eligible for unemployment insurance benefits

2. Expected/Possible Effects of Job Creation Schemes ProsCons Microeconomic Dimension Adjustment (prevention) of human capital (loss) Bridge to regular employment/ retirement ‘Soft‘ human capital effects/ Improve Motivation Discreation of human capital Negative Signal to potential employers Reduce one‘s own initiative Locking-in effects Discourage People Macroeconomic Dimension Relief of labour market Investment in infrastructure Misallocation of Resources Competition with private production Displacement and substitution effects

3. Evaluation Approach (1) Standard framework: model of potential outcomes (Y 1, Y 0 )  Designed for the case where programme is exposed once and at one specific point of time Purpose: Estimation of causal effect, e.g., average effect of treatment on the treated (ATT): - - E(Y 0 |D=1) has to be estimated In comprehensive ALMP systems, unemployed persons  face a number of different programs,  could start at different points of time

3. Evaluation Approach (2) Definition of non-participation is not straightforward  All persons are potential non-participants as long as they do not join a programme or leave the labour market for work  Time until start of programme contains important information for the effects and has to be considered ATT with respect to the starting point of programmes:

3. Evaluation Approach (3) Parameter answers the following question: “What is the impact at time  of participation in JCS for an individual that joined the programme in time t of the unemployment spell?” Descriptive comparison of the estimated programme effects for the single points t  no causal interpretation of differences!

3. Evaluation Approach – Matching (4) Idea: Conditioning on all relevant characteristics, X, to make both groups comparable  X must be observable! Rosenbaum/Rubin (1983): not the single X, but  a scalar function, p(X), propensity score Identifying Assumption (Mean Conditional Independence Assumption for ATT): Dynamic Setting (see Fitzenberger/Speckesser, 2005):

4. Data Set (1) 6 Samples of part. and non-part. (1:20): Jul, Sep, Nov 00, Jan, Mar, May 01 Main sources:  Programme Participants’ Master Data Set  Job-Seekers Data Base  Employment Statistics Register Available information (objective and subjective):  socio-demographics (e.g., age, gender)  qualification/career variables (e.g., schooling, occupation)  labour market history (e.g., duration of last job),  information on regional labour market  Outcome variable: Regular employment (until Dec 03)

4. Data Set (2) Data of the six samples are pooled (32,641 participants/ 1,104,664 non-participants)  consideration of time individuals spent in unemployment Persons younger than 25 years or older than 55 are excluded  better homogeneity of group in analysis Employment effects are analysed separately for East and West Germany and gender Berlin is excluded from analysis

5. Employment Effects - Implementation Unemployment is discretised into quarters (u=1,…,12=U max )  Programme effects of JCS are analysed for programmes starting during the first three years of unemployment Programme effects are estimated until  =30 Estimation of four series of 12 probit models Only the first programme in the current unemployment spell is analysed, subsequent programmes are viewed as an outcome of the first

5. Employment Effects for Men (t=1, t=5, and t=9) West East  (1,30)= -6.3  (5,30)= 7.5  (9,30)= 5.8  (1,30)= -5.5  (5,30)= 1.0 n.s.  (9,30)= -.8 n.s.

5. Employment Effects for Women (t=1, t=5 and t=9) West East  (1,30)= -3.4  (5,30)= 2.3 n.s.  (9,30)= -1.6 n.s.  (1,30)= -2.6 n.s.  (5,30)= 11.9  (9,30)= 13.3

5. Employment Effects (3) West Germany  Negative employment effects when starting early  Positive when starting after one or two years, but: result could not be established for all groups East Germany  Negative effects when starting early  No positive effects for any of the groups in analysis

6. Conclusion Overall  Effects differ by t (descriptive comparison)  Participation is associated with strong locking-in effects  Persons who join after a short period of unemployment are worse off  Results tend to be better for long-term unemployed people  Programmes do not improve the re-employment chances of the participants compared to non-participation (in adequate time after start of programmes)  Results indicate a low target-oriented allocation of unemployed persons into programmes