Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

Abstract: While job search theory predicts that active labour market policies (ALMPs) can a ect post-unemployment outcomes, empirical evaluations investigating transition rates have mostly focused on the impact of ALMPs on exit rates from the current unemployment spell. We use a social experiment, which was conducted in Denmark in 2005-6, to investigate the e ects of a dramatic intensi cation of ALMPs on reemployment stability. We investigate the nature of this impact. We estimate a duration model with lagged duration dependence to separately identify \indirect" (via shorter unemployment duration) and \direct" (through a more ecient matching process) e ects of ALMPs on subsequent employment duration. We nd that overall intensive activation signi cantly reduces unemployment recurrence for men, but not for women. When we control for dynamic selection into employment and lagged duration dependence, the positive impact of the treatment becomes smaller but remains signi cant. 80% of the global impact of intensi cation acts through the direct channel for men.

Keywords: Social experiment; labour market policy regime; treatment effect; post-unemployment outcome; duration model; lagged duration dependence; dynamic selection

JEL-codes: C21; C41; J64; J68

39 pages, March 1, 2011

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