Working Paper: CEPR ID: DP15037
Authors: Gerard van den Berg; Arne Uhlendorff; Joachim Wolff
Abstract: The reintegration of young welfare recipients into thelabor market is a major policy objective in many European countries. Inthis context, monitoring and sanctions are commonly used policy tools.We analyze the impact of strict sanctions for young welfare recipients in Germany. TheGerman benefit system is characterized by harsh sanctions for thisgroup, effectively cancelling benefits forthree months after detection of non-compliance withjob search requirements. We analyze the impacts of thesesanctions on job search outcomes and on dropping out of the laborforce, using administrative data on a large inflow sample. We estimate multivariateduration models taking selection on unobservables intoaccount. Our results indicate anincreased job entry rate at the expense of an increased withdrawal from thelabor force and lower entry wages. Combining quantitativewith qualitative evidence reveals that the latterside-effects of sanctions can have dramatic consequences for thequality of life of the youths involved.
Keywords: social assistance; unemployment; sanctions; post-unemployment outcomes; youth unemployment
JEL Codes: J64; J65; C41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Imposition of strict sanctions (Z28) | Increase in job entry rate among young welfare recipients (J68) |
| First sanction (Y20) | Increase in job entry rate among young welfare recipients (J68) |
| Second sanction within 12 months (Y20) | Further increase in job entry rate among young welfare recipients (J68) |
| First sanction (Y20) | Decrease in entry wages (J39) |
| Sanctions (F51) | Increase in probability of dropping out of the labor force (J29) |
| Second sanction within a year (K40) | Exit rate out of the labor market (J63) |
| Sanctions (F51) | Push individuals into lower-paid jobs or the shadow economy (J46) |