Scandinavian Working Papers in Economics

Working Paper Series,
IFAU - Institute for Evaluation of Labour Market and Education Policy

No 2008:7: Duration dependence versus unobserved heterogeneity in treatment effects: Swedish labor market training and the transition rate to employment

Katarina Richardson and Gerard J van den Berg ()
Additional contact information
Katarina Richardson: Swedish Ministry of Finance, Postal: 103 33 Stockholm, Sweden
Gerard J van den Berg: Department of Economics, VU University Amsterdam, Postal: De Boelelaan 1105, 1081 HV Amsterdam, The Netherlands

Abstract: The vocational employment training program is the most expensive training program in Sweden and a cornerstone of labor market policy. We analyze its causal effects on the individual transition rate from unemployment to employment by exploiting variation in the timing of treatment and outcome, dealing with selectivity on unobservables. We demonstrate the appropriateness of this approach in our context by studying the enrollment process. We develop a model allowing for duration dependence and unobserved heterogeneity (leading to spurious duration dependence) in the treatment effect itself, and we prove non-parametric identification. The data cover the population and include multiple unemployment spells for many individuals. The results indicate a large significantly positive effect on exit to work shortly after exiting the program. The effect at the inidividual level diminishes after some weeks. When taking account of the time spent in the program, the effect on the mean unemployment duration is small.

Keywords: Vocational training; progam evaluation; duration analysis; selectivity bias; dynamic treatments; active labor policy; identification

JEL-codes: C14; C21; C41; J64

49 pages, April 27, 2008

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