Treatment Versus Regime Effects of Carrots and Sticks

40 Pages Posted: 2 Nov 2015

See all articles by Patrick P. Arni

Patrick P. Arni

University of Lausanne - Department of Economics (DEEP)

Gerard J. van den Berg

VU University Amsterdam - Department of Economics; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics; Tinbergen Institute

Rafael Lalive

University of Lausanne - Department of Economics (DEEP); IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Abstract

Public Employment Service (PES) agencies and caseworkers (CW) often have substantial leeway in the design and implementation of active labor market policies (ALMP) for the unemployed, resulting in variation of usage. This paper presents a novel framework in which this variation is used for the joint assessment of different ways in which ALMP effects can operate. We examine an additional layer of impacts – beyond the treatment effects on the treated job seekers – called regime effects, which potentially affect all job seekers and which are defined by the extent to which programs are intended to be used in a market. We propose a novel method to jointly estimate regime effects for two types of programs, supportive (carrots) and restrictive (sticks) programs. We apply this to contrast regime and treatment effects on unemployment durations, employment, and post-unemployment earnings using register data that contain PES and case-worker identifiers for about 130,000 job seekers.The results show that "carrots" and "sticks" treatments prolong unemployment, but carrots increase earnings whereas sticks decrease them. We find regime effects of a similar order of magnitude. Higher intended usage of carrots and sticks reduces unemployment durations, but carrots raise earnings whereas sticks decrease them. We also find interaction effects between carrots and sticks policies. Regime effects are economically substantial. Our comprehensive cost-benefits analyses show that modest increases in the intended usage of carrots and sticks reduce the total cost of an unemployed individual by up to 10%.

Keywords: active labor market programs, policy regime, treatment effect, employment, earnings, unemployment, caseworkers

JEL Classification: J65, J68, J64

Suggested Citation

Arni, Patrick P. and van den Berg, Gerard J. and Lalive, Rafael, Treatment Versus Regime Effects of Carrots and Sticks. IZA Discussion Paper No. 9457. Available at SSRN: https://ssrn.com/abstract=2684287

Patrick P. Arni (Contact Author)

University of Lausanne - Department of Economics (DEEP) ( email )

BFSH1
Lausanne, 1015
Switzerland

Gerard J. Van den Berg

VU University Amsterdam - Department of Economics ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands
+31 20 444 6132 (Phone)
+32 20 444 6020 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Rafael Lalive

University of Lausanne - Department of Economics (DEEP) ( email )

BFSH1
Lausanne, 1015
Switzerland

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

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