Scandinavian Working Papers in Economics

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

No 2017:25: Treatment versus regime effects of carrots and sticks

Gerard J. van den Berg (), Patrick Arni () and Rafael Lalive ()
Additional contact information
Gerard J. van den Berg: IFAU; University of Bristol; IZA; ZEW, CEPR, Postal: Bristol, Great Britain
Patrick Arni: University of Bristol; IZA; CAFE; DEEP (University of Lausanne)
Rafael Lalive: University of Lausanne; CESifo; CEPR; IFAU; IZA, Postal: Lausanne, Switzerland

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 in the intensity of usage per policy. This paper presents a novel framework in which this variation is included to achieve a comprehensive assessment of different ways in which ALMPs can operate and interact. In addition to treatment effects, we consider regime effects which capture how CW and PES affect outcomes through different policy intensities and interactions with job seekers. We propose a novel method to jointly estimate regime effects for two sets of programs, supportive (carrots) and restrictive (sticks) programs. We apply this to contrast regime and treatment effects on unemployment durations, employment, and postunemployment earnings using register data that contain PES and caseworker identifiers for about 130,000 job spells. The results show that “carrots” increase earnings whereas “sticks” decrease them. We find regime effects of a similar order of magnitude. More intensive carrots and sticks regimes each reduce unemployment durations, but with carrots regimes this raises earnings whereas with sticks regimes it decreases them. We also find complementarity between carrots and sticks regime effects. The regime effects are economically substantial. Our comprehensive cost-benefits analyses show that modest increases in the intensity of the carrots and sticks regimes 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-codes: J64; J65; J68

39 pages, December 11, 2017

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