Effectiveness of sequences of One-Euro-Jobs for welfare recipients in Germany

Empirical evidence reveals that German welfare recipients often participate in multiple active labour market programmes (ALMPs). However, evidence on the effectiveness of ALMPs exists mostly for single ALMP participations so far. This article evaluates the sequential participation in ALMPs for welfare recipients in Germany based on comprehensive administrative data to control for dynamic selection that arises in the evaluation of sequences. Using a dynamic causal model and an inflow sample of welfare recipients, the article analyses the effects of sequences of a public employment programme called One-Euro-Jobs on labour market outcomes. For female participants in One-Euro-Jobs in the first period, especially in West Germany, the results imply that participating in two consecutive One-Euro-Jobs compared with receiving only welfare benefits for two consecutive periods better facilitates integration into regular employment. Moreover, taking part in a One-Euro-Job directly after entry into welfare receipt is also more effective for participants in One-Euro-Jobs in the first period than taking part in a One-Euro-Job in a later period, especially for East German men (although not for West German women). However, I also find evidence of so-called programme careers and stepwise integration into regular employment.     

Reforming social security: assessing the effects of alternative funding strategies

Population ageing implies that the large pay-as-you-go social security programmes implemented in many OECD economies will run into severe financial problems. By means of a numerical overlapping generations model, this paper investigates the intergenerational welfare effects of a transition to funded security programmes. Such programmes imply permanent increases in the welfare of the young and unborn generations. It is demonstrated that the size of the welfare gains varies significantly between alternative funding strategies. A nonindividualized funding strategy characterized by increased government asset accumulation triggers considerable welfare gains through increased asset returns in the future. Even larger welfare gains may be realized by an individual funding strategy characterized by increased asset accumulation accompanied by an adoption of actuarial supplementary pensions (i.e. actuarial supplementary pensions combined with a fixed minimum pension) which reduces future tax distortions drastically.     

Effectiveness of sequences of classroom training for welfare recipients: what works best in West Germany?

Sequences of active labour market programmes (ALMPs) may be part of an intensified activation strategy targeting hard-to-place unemployed individuals. Such sequences are very common among welfare recipients in Germany, but most studies only evaluate either single ALMPs or unemployed individuals’ first ALMP. I analyse the effects of different sequences of classroom training for West German men and women on different labour market outcomes. Using rich administrative data and a dynamic causal model, I can control for dynamic selection problems that occur during a sequence. The results show that two classroom trainings are more effective than two periods of welfare receipt in helping welfare recipients find regular employment, especially among West German women. Moreover, immediately assigning individuals to classroom training is more effective than waiting and assigning them to classroom training in the second period. However, in some cases, avoiding participation in multiple programmes is preferable.

Abbreviations: ALMP, active labour market programme; CIA, Conditional Independence Assumption; CSR, Common Support Requirement; DATET, dynamic average treatment effect on the treated; IEB, Integrated Employment Biographies; IPW, inverse probability weighting; LHG, UBII-Receipt History (Leistungshistorik Grundsicherung); MSB, mean standardized absolute bias; SUTVA, Stable Unit Treatment Value Assumption; UBII, unemployment benefit II; UBI, unemployment benefit I; WDCIA, Weak Dynamic Conditional Independence Assumption     

Do German Welfare‐to‐Work Programmes Reduce Welfare Dependency and Increase Employment?

Abstract. During the last decade, many Western economies reformed their welfare systems with the aim of activating welfare recipients by increasing welfare‐to‐work programmes (WTWP) and job‐search enforcement. We evaluate the short‐term effects of three important German WTWP implemented after a major reform in January 2005 (‘Hartz IV’), namely short training, further training with a planned duration of up to three months and public workfare programmes (‘One‐Euro‐Jobs’). Our analysis is based on a combination of a large‐scale survey and administrative data that is rich with respect to individual, household, agency level and regional information. We use this richness of the data to base the econometric evaluation on a selection‐on‐observables approach. We find that short‐term training programmes, on average, increase their participants' employment perspectives. There is also considerable effect heterogeneity across different subgroups of participants that could be exploited to improve the allocation of welfare recipients to the specific programmes and thus increase overall programme effectiveness.     

A Reappraisal of the Virtues of Private Sector Employment Programmes*

This paper evaluates the employment effects of active labour market programmes for Danish welfare benefit recipients, focusing on private sector employment (PSE) programmes. Using a latent variable model that allows for heterogeneous treatment effects among observationally identical persons, we estimate commonly defined mean treatment effects and the distribution of treatment effects. We find no significant mean treatment effect of PSE programme participation as compared to participation in other programmes for PSE programme participants. However, we find substantial heterogeneity in the treatment effects, and those most likely to participate in PSE programmes are those who benefit the least from such programmes.     

Optimal welfare and in-work benefits with search unemployment and observable abilities

This paper explores the optimal interaction between the tax system and social assistance in insuring people against the risks of involuntary unemployment and low ability. To that end, we introduce search unemployment in a model of optimal non-linear income taxation. The relationship between welfare benefits and the optimal level of in-work benefits is U-shaped. This explains why in-work benefits are called for both in countries that grant low welfare benefits and countries that provide high welfare benefits. An earned-income tax credit optimally induces all agents to look for work if job search is cheap and effective, agents are not very risk averse, and the least-skilled agents are relatively productive.     

The role of economies of scale in justifying free trade: the Canada-USA Free Trade Agreement and Europe 1992 compared

In what way will the benefits of free trade emerge? This analysis looks at the role of economies of scale in justifying free trade. It takes the 1989 Canada-USA Free Trade Agreement and the European 1992 programmes as two recent examples of analyses in which economy of scale arguments were central to the economic evaluation of welfare gains. The official assessments of both policy moves are scrutinized and compared. It is suggested that the advantages of economies of scale are exaggerated in each account. The policy implications of the critique are drawn out for the case of both internal and external economies of scale. The argument is that a move away from traditional mass production process technologies and business strategies is underway, which requires a radically different approach to trade and scale issues.     

Economic liberalization and welfare in a model with an informal sector

The paper reexamines the conventional results relating to inflow of foreign capital, removal of protectionism and structural reform programmes, in a small open economy in terms of a two-sector general equilibrium model with an informal sector. The paper shows that in the presence of labour market distortion and a protectionist policy, inflow of foreign capital may be desirable irrespective of the pattern of trade of the economy due to its favourable impact on welfare. But the welfare implications of tariff reductions and/or structural adjustment programmes, such as deregulating the formal sector labour market, depend crucially on the economy's trade pattern. The paper provides an answer to the question as to whether in a developing economy labour market reform and tariff reform should go hand-in-hand or whether one should precede the other for welfare improvement.
JEL classification: F10, F13, F21, O17.     

Immigration and welfare magnets

"This paper investigates if the location choices made by immigrants when they arrive in the United States are influenced by the interstate dispersion in welfare benefits. Income-maximizing behavior implies that foreign-born welfare recipients unlike their native-born counterparts, may be clustered in the states that offer the highest benefits. The empirical analysis indicates that immigrant welfare recipients are indeed more heavily clustered in high-benefit states than the immigrants who do not receive welfare, or than natives. As a result, the welfare participation rate of immigrants is much more sensitive to changes in welfare benefits than that of natives."     

Environmental Abatement and Intergenerational Distribution

This paper employs an overlapping-generations model to explore the impactof public abatement on private investment and the intergenerationaldistribution of welfare. Whereas public abatement benefits the oldestgenerations in terms of non-environmental welfare, future generations gainmost in terms of environment welfare. The overall benefits tend to besmallest for generations born at the time of the unanticipated policy shock.Public debt policy, however, can be employed to ensure that welfare gainsare distributed more equally across the various generations. Such a policyimplies that natural capital crowds-out man-made capital.     

Wage-distance regulation in social-welfare programs: An option-theory perspective

It is often argued that low-skilled workers have an incentive to escape to the unofficial sector if welfare benefits come too close to the net wage in the official sector. Upper limits of welfare benefits often serve as an instrument to ensure a sufficiently high income differnetial between sectors. However, if unofficial-sector income is insecure, and if a change of sectors is costly, an option value of working in the official sector has to be taken into account. This option value reduces the incentive for lowly skilled workers to give up official-sector jobs. Upper limits of welfare benefits might therefore be defined less restrictively.     

Decomposing poverty changes into vertical and horizontal components

Variations in aggregate poverty indices can be due to differences in average poverty intensity, to changes in the welfare distances between those poor of initially unequal welfare status and/or to emerging disparities in welfare among those poor of initially similar welfare status. This note uses a general cost‐of‐inequality approach that decomposes the total change in poverty into a sum of indices of each of these three components. This decomposition can serve inter alia to integrate horizontal and vertical equity criteria in the poverty alleviation assessment of social and economic programmes. The use of these measures is briefly illustrated using Tunisian data.     

Targeting child benefits in a transition economy

Transition economies use their child benefit programmes to provide additional economic support for families with children. However, budgetary pressures limit social spending in many countries. Therefore, targeting child benefit programmes to the poorest households may be a sensible solution to the problem of supporting families with children when social spending is in decline. Few transition economies have attempted to target child benefits. Hence evidence on the efficacy of means‐testing for child benefits is scarce. This study considers the implementation of one of the few means‐tested child benefit programmes in a transition economy and finds relatively little evidence of targeting problems. Moreover, means‐testing for child benefit substantially alters the distribution of benefits in comparison with the distribution in the more typical universal child benefit programme.     

Willingness to Pay for Ancillary Benefits of Climate Change Mitigation

Assessing the Willingness to Pay (WTP) of the general public for climate change mitigation programmes enables governments to understand how much taxpayers are willing to support the implementation of such programs. This paper contributes to the literature on the WTP for climate change mitigation programmes by investigating, in addition to global benefits, the ancillary benefits of climate change mitigation. It does so by considering local and personal benefits arising from climate change policies. The Contingent Valuation Method is used to elicit the WTP for ancillary and global benefits of climate mitigation policies in the Basque Country, Spain. Results show that WTP estimates are 53–73% higher when ancillary benefits are considered.     

Are Lone Mothers Responsive to Policy Changes? Evidence from a Workfare Reform in a Generous Welfare State*

There is a heated debate in many developed countries about how to design a welfare system that moves lone mothers off welfare and into work. We analyze the consequences of a major Norwegian workfare reform of the generous welfare system for lone mothers. The reform imposed work requirements and time limits on welfare receipt, while raising in‐work benefits. Our difference‐in‐differences estimates show that the reform was successful in improving labor‐market participation and in increasing the earnings of lone mothers. However, the reform was associated with income loss and increased poverty among a sizeable subgroup of lone mothers, who were unable to offset the loss of out‐of‐work benefits with gains in earnings.     

THE WELFARE EFFECTS OF MANDATORY REEMPLOYMENT PROGRAMS: COMBINING A STRUCTURAL MODEL AND EXPERIMENTAL DATA

This article estimates a model of job search with utility costs and benefits triggered by mandatory reemployment programs. I use data from an experiment that generates exogenous variation in the threat of program participation and an increase in the job finding rate. I calculate the impact of the experiment on worker welfare, and find that participants would be willing to give up 1.5–1.7 weeks of unemployment benefits to avoid participation. These welfare costs vary across workers and are larger for workers with weaker employment prospects. Overall, welfare costs are substantial and therefore important to take into account.     

A discrete choice equilibrium approach to valuing large environmental changes

This study develops a discrete choice locational equilibrium model to evaluate the benefits of the air quality improvements that occurred in the Los Angeles area following the 1990 Clean Air Act Amendments (CAAA). The discrete choice equilibrium approach accounts for the fact that air quality improvements brought about by the 1990 CAAA will change housing choices and prices. The study also provides new evidence for the distributional welfare impacts of the 1990 CAAA in the Los Angeles area. Findings suggest that the air quality improvements that occurred in the Los Angeles area between 1990 and 2000 provided substantial general equilibrium benefits to households. The analysis reveals noticeable differences between partial and general equilibrium welfare gains, demonstrating that ignoring equilibrium effects will likely misrepresent the benefits of large environmental changes. In addition, we find that the equilibrium welfare impacts of the 1990 CAAA in the Los Angeles area varied significantly across income groups.     

The impact of state economic differentials on household welfare and labor force behavior

This paper calculates state-specific income expectations for low-income households, using a simultaneous model of household labor force and welfare participation decisions. A variety of simulations indicate the interlocking effects of existing state differences in welfare, wages and taxes on work/welfare choices and income. Significant differences among similar households in different states occur. Equalization of welfare benefits eliminates some but not all of these differences, but generates potentially serious policy problems for the states.     

Social Employment of Welfare Recipients in Belgium: An Evaluation

In Belgium, welfare agencies receive a subsidy to employ welfare recipients for a period sufficiently long to entitle them to unemployment benefits. We investigate the effect of this programme on the exit rate from welfare. We propose a grouping/IV estimator of the programme effect that eliminates selection bias. The estimator is consistent, even if the selection into the programme depends on the average unobserved characteristics of welfare recipients in a region and in a welfare duration interval. Without correction for selectivity we find that the programme reduces welfare dependence, but after correction this conclusion is reversed.     

Microfinance and gender empowerment

In this paper, we develop a theoretical model of household production, bargaining and credit to analyse how access to microcredit affects intra-household decision-making and welfare, and identify conditions under which female household members are most likely to benefit. We show that, consistent with ethnographic accounts of the impact of microcredit programmes on poor households, access to loans can lead to a variety of outcomes for intra-household decision-making and welfare depending on initial conditions and that, in some instances, women borrowers may experience a decline in welfare. We identify two instances in which a woman is most likely to benefit: when there is scope for investing the loan profitably in a joint activity, and when a large share of the household budget is devoted to household public goods.