Labour market effects of retraining for the unemployed: the role of occupations

We analyse the impact of retraining for unemployed low-skilled job-seekers in Germany. This extensive training programme leads to a formal vocational degree, which is often required to access certain professions. Applying statistical matching methods, we find that on average, after a period with large lock-in effects, retraining strongly increases the employment probability of participants, especially women. We add to the literature by estimating the employment effects for different occupations for which participants are trained. Our results show that there are substantial differences depending on the occupation. As the composition of trained occupations differs for men and women, segregation could be a driver of higher employment effects for women. However, comparisons of men and women trained for the same occupations reveal that even after controlling for segregation, women profit more from retraining. While caseworkers are instructed to choose professions with high labour demand, other aspects, such as working conditions, preferences and aptitudes of participants, should be crucial in the choice of a suitable occupation. An individual assessment of the suitability of an occupation could therefore improve the overall effectiveness of the programme.     

Evaluating active labor market programs in Romania

Using unusually rich (for transition economies) follow-up survey data and propensity score matching techniques, this paper seeks to increase our knowledge on what active labor market programs (ALMPs) work in South-East European countries by providing estimates of the effects of four ALMPs implemented in Romania in the late 1990 s. We find that three programs (training and retraining, self-employment assistance, and public employment and relocation services) had success in improving participants’ economic outcomes. In contrast, public employment was found detrimental for the employment prospects of its participants. Our sensitivity analysis also finds evidence that, in the case of training and retraining, self-employment assistance, and public employment and relocation services, operators “cream off” the most qualified candidates among the unemployed; whereas public employment seems to be used as a regional policy by “bringing work to the workers”, that is, creating jobs in high unemployment regions.     

Retraining the Unemployed in a Model of Equilibrium Employment

An equilibrium model of search and matching is developed to analyse the effects of retraining the unemployed on the market for skilled (or semi-skilled) workers. Versions of the model with free entry of vacancies and fixed numbers of jobs are considered. The latter environment exhibits multiple equilibria. While subsidized training (and enforced participation) is justified on employment grounds, it cannot be justified on efficiency grounds. Policies that, ceteris paribus , lower unemployment, also reduce the incentive to train. When such policies are introduced to a training economy, training may cease and unemployment can rise.     

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     

Participation in and Completion of Vocational Education and Training for People with a Disability

Improving the educational outcomes of people with a disability is seen as key in helping improve their employment and life prospects. This article uses Household, Income and Labour Dynamics in Australia Survey data and multivariate estimation to examine whether people with a disability face barriers in participating in and completing a vocational education and training qualification, a highly accessible and flexible mode of education. Overall, we find that people with a disability are not disadvantaged in terms of participation, but are disadvantaged in terms of completion, especially those with more limiting conditions and those with mental health issues who have low levels of social support.     

Do the French pension reforms increase re-employment of older unemployed workers?

ABSTRACT

The sustainability of Social Security financing has pushed authorities to reform their policy to increase the labour market participation of older workers. While most of the studies have focused on the consequences of pension reform on retirement decisions, we analyse the effects of two French pension reforms, which increased the period of contribution and the minimum retirement age, on transitions out of unemployment and into employment with a difference-in-differences approach. We find that both retirement reforms have positive effects on the re-employment of older unemployed workers. The pension reforms are also accompanied by an increase of the transitions into inactivity. The results suggest that the reforms have delivered significant effects by reducing the unemployment of older workers.     

Horizontal mismatch and vocational education

ABSTRACT

Recent literature suggests that vocational education and training (VET) provides individuals with smoother transitions into the labour market but lower wages over the lifecycle, compared to general education. A possible mechanism explaining lower wages is horizontal mismatch, defined as a mismatch between the type of qualifications acquired by individuals and those required for their current job. Some studies have found higher mismatch wage penalties when individuals’ education is more specific, suggesting higher penalties for workers with VET. Therefore, we analyse horizontal mismatch in Switzerland, the country with the highest proportion of firm-based VET in the OECD. We use two measures from the Swiss Household Panel that cover different aspects of horizontal mismatch. While we find sizable mismatch wage penalties in OLS estimations, effects are small or insignificant in fixed-effects regressions. This holds for workers with vocational and general education background alike. We conclude that VET is more transferable than often assumed. We finish with recommendations on concept and methods for future analyses of horizontal mismatch.     

An alternative method of estimating the worker's reservation wage

Abstract

This study follows the standard bivariate decision theory of employment and proposes an alternative technique to estimate reservation wages of employed, unemployed and out-of-labor-force (OLF) workers. The validity of this approach is demonstrated by testing several reservation wage hypotheses recommended in earlier studies. Using reservation wages estimated under this new approach, the study further examines the determinants of this important variable.     

Re-employment after Retrenchment: Evidence from the TCF Industry Study

Industry Commission inquiries into the passenger motor vehicle and textiles clothing and footwear (TCF) industries have focused attention on the employment prospects of workers who are displaced as a result of structural change. The fact that older and less skilled workers face considerable difficulty finding new employment is now widely recognised. In this paper we examine the post-retrenchment outcomes for workers retrenched from jobs in the TCF sector. The method of analysis–discrete-time event history analysis–improves on previous studies of post-retrenchment out-comes because labour market conditions are incorporated into the statistical model, redressing the over-emphasis on supply-side issues that characterise previous research. The analysis shows that local and national labour market conditions are important determinants of employment outcomes. Personal characteristics, household circumstances and ascribed skill are also important as employers use these attributes to filter potential recruits. The analysis suggests that the utility of retraining is variable, enhancing the employability of workers with the best prospects (based on their personal characteristics and skills) before taking up retraining but decreasing the employment chances of those with poorer prospects.     

Wage subsidies, work incentives, and the reform of the Austrian welfare system

We analyze the employment and income effects of a needs-based minimum benefit system (“Bedarfsorientierte Mindestsicherung”) which has recently been introduced in Austria. The aim of this reform was to reduce poverty as well as to increase work incentives for recipients of social assistance. On the basis of a behavioral microsimulation model we show that this new system slightly increases employment but reduces incomes for the poorest households remaining unemployed. As an alternative, we analyze a budgetary neutral reform proposal which reduces financial incentives for marginal employment and provides a wage subsidy rewarding working longer hours. This alternative reform would yield larger positive employment effects, but more households would suffer from income losses. Overall, income inequality and poverty are affected little, however, both under the new social welfare system and the alternative reform proposal.     

Competition between Employed and Unemployed Job Applicants: Swedish Evidence*

We use the Swedish Applicant Database to investigate empirically whether being unemployed per se reduces the probability of getting contacted by a firm. All searchers looking for a new job are invited to submit their personal details to this database over the internet. Since we have access to exactly the same information as the firms, we can minimize the problems associated with unobserved heterogeneity. Our results show that an unemployed applicant faces a lower contact probability than an otherwise identical employed applicant, thus supporting the notion that firms view employment status as a signal of productivity.     

Informality and productivity in the labor market in Peru

This article analyzes the evolution of informal employment in Peru from 1986 to 2001.

Contrary to what one would expect, the informality rates increased steadily during the 1990s despite the introduction of flexible contracting mechanisms, a healthy macroeconomic recovery, and tighter tax codes and regulation. We explore different factors that may explain this upward trend including the role of labor legislation and labor allocation between/within sectors of economic activity. Finally, we illustrate the negative correlation between productivity and informality by evaluating the impacts of the Youth Training PROJOVEN Program that offers vocational training to disadvantaged young individuals. We find significant training impacts on the probability of formal employment for both males and females.     

Unemployment insurance design: Inducing moving and retraining

Evidence suggests that unemployed individuals can affect their job prospects by undertaking a costly action like deciding to move or retrain. Realistically, such an opportunity only arises for some individuals and the identity of those may be unobservable ex ante. The problem of characterizing constrained optimal unemployment insurance in this case has been neglected in previous literature. We construct a model of optimal unemployment insurance where multiple incentive constraints are easily handled. The model is used to analyze the case when an incentive constraint involving moving costs must be respected in addition to the standard constraint involving costly unobservable job-search. Absent wealth effects on behavior, we derive closed-form solutions showing that when the moving/retraining incentive constraint binds, unemployment benefits should increase over the unemployment spell, with an initial period with low benefits and an increase after this period has expired.     

Estimating the employment effects of education for disabled workers in Norway

In this paper we evaluate the effectiveness of educational programmes used as an employment strategy for disabled workers in Norway. To obtain these estimates we follow the employment career of a sample of participants in educational programmes and nonparticipants three years after they had left the vocational rehabilitation benefit system. We specify an employment outcome model that includes both unobserved heterogeneity and selection bias due to correlation between unmeasured factors and a person's training status. Even though participants in educational programmes have employment rates that are around eight percentage points higher than those who did not participate in such programmes, econometric selection models produce a training effect for education not significantly different from zero. First version: Jan 2001/Final version received: April 2002  The data were provided by The Norwegian Social Data Service in Bergen. I would like to thank Dag Kiberg for preparing the raw data. All the data are gathered from sources at The Directorate of Labour, The Social Insurance Organization and Statistics Norway. None of the mentioned institutions are in any circumstances responsible for the analysis or for the conclusions drawn from it.     

Asset accumulation and short-term employment

If access to credit is limited (especially when young or unemployed) but “bad” jobs are easy to come by, then job seekers might use short term employment in undesirable jobs as a way to finance consumption during subsequent unemployed search for a “good” job. In this paper we explore this idea by building a theoretical model of job search by risk averse, debt constrained agents. In this model we characterise analytically conditions under which voluntary planned separations occur as agents cycle between accumulating assets in short term employment and unemployed search for more desirable employment.     

Rejoinder to Peltzman

Since 2008, the U.S. economy has been mired in the second worst economic crisis in its history. Conceivably, massive government spending could bring the economy out of this slump as massive war spending ultimately ended the Great Depression of the 1930s. However, a far superior strategy exists: guaranteeing employment accompanied by retraining to enable all unemployed workers to become absorbed into the regular work force. Beyond ending the crisis, the superiority of this strategy is that it would institutionalize a procedure for insuring that, in an increasingly technologically dynamic and open economy, workers would possess the necessary skills for available jobs. Guaranteeing employment would also eliminate the ecological costs associated with the need to seek growth to generate employment at practically any cost. Finally, it would establish a new moral social contract, whereby everyone is granted the dignity that accompanies being a productive member of society. Welfare for those able to work could disappear, along with the degradation and humiliation accompanying it.     

Human capital and the re‐employment of retrenchment labor in urban China

The inefficiency of state‐owned enterprises, followed by the economic reform in urban China, resulted in large‐scale retrenchment during the late1990s. The laid‐off workers were middle‐aged, not well educated and had accumulated a lot of firm‐specific human capital that was unlikely to be of value in the product market. In this study, we investigate how differently human capital affects laid‐off workers’ occupation choices: self‐employment, re‐employment and remaining unemployed. Using 2002 Chinese Household Income Project and 2009 Urban Household Survey datasets, we find that although general human capital measured by education is positively related to the probability of finding a job, it is negatively associated with the probability of self‐employment. Displaced workers with more sector‐specific work experience are more likely to be self‐employed than to be employed by others. Government‐sponsored training significantly increases the likelihood of finding a job. Health is positively associated with re‐employment.     

Vouchers and caseworkers in training programs for the unemployed

This paper studies the role of vouchers and caseworkers in training programs for the unemployed. We explore the unique features of the Hartz reform in Germany which simultaneously introduced training vouchers and imposed more selective criteria on participants. This allows us to go beyond the standard approach when we estimate the treatment effects for the most important type of training. Next to assessing the overall impact of the reform on the training’s effectiveness, we isolate the impact induced by changes in the composition of program participants (selection effect) from the impact based on the introduction of vouchers and related institutional changes (institutional effect). Our results show a small positive overall impact of the reform. The decomposition suggests that the selection effect is, if at all, slightly negative, and that the introduction of the voucher and related institutional changes increased both employment and earnings of participants. It furthermore appears that our findings are driven by skilled participants.     

Employee Training in Australia: Evidence from AWIRS*

We use linked data for 13 991 employees and 1494 workplaces to analyse the incidence of employer‐provided training in Australia. We find potential experience, current job tenure, low education levels, skilled vocational training and part‐time or fixed‐term employment status are all associated with a lower probability of recent training. In contrast to studies for other countries, we find no evidence of discrimination on the basis of demographic characteristics in the provision of this job‐related training. Finally, and in support of recent non‐competitive training models, higher levels of wage compression are found to be positively related to a greater incidence of employee training.     

Indirect Re–employment Wage Discrimination

This paper looks at unemployed individuals and investigates wage differences generated by re–employment selection. It shows that discriminatory re–employment selection can result, indirectly, in discriminatory re–employment pay. A Heckman two–stage selection model is combined with an extension of Gomulka–Stern non–linear decompositions to explain how re–employment selection generates indirect discrimination. The paper uses data from pre–unification Germany in the late 1980s and finds that female human capital suffers more from unemployment and that the market is harsher to males for becoming unemployed. New policies should encourage a regime where the hiring process is more transparent and hiring decisions are monitored on a regular basis.