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The Effect of Active Labour Market Programmes and Benefit Sanctions on Reducing Unemployment Duration

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Abstract

The purpose of this paper is to simultaneously investigate whether the active labour market programmes (ALMPs) and the imposition of benefit sanctions help unemployed insured workers in Denmark to find a job sooner than those who do not get any activation. Earlier studies have modelled ALMPs and benefit sanctions separately, which may have resulted in over- or underestimation of the true effect. As part of our empirical methodology, we used a multivariate mixed proportional hazard model and optimally selected the number of support points for the specification of unobserved heterogeneity distribution in our sample. Our results revealed that the impositions of both benefit sanctions and employment subsidies in the private sector have a positive impact on reducing unemployment duration. Some policy implications are drawn.

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Notes

  1. The detail discussion about characteristics are presented in Section 4 ‘Data and Descriptive Analysis’.

  2. We are very grateful to reviewer for improving our explanation about these scenarios.

  3. For details, see Van den Berg et al. (2004), Lalive et al. (2005), Svarer (2011), Rosholm and Svarer (2008).

  4. Sanctions data for individuals on social assistance are only available from 2007, and we do not have access to that data set.

  5. ALMPs is a special offer given to unemployed insured individuals only. Additionally, those who are not insured cannot get UI benefits but social assistance (SA). However, individuals receiving SA can participate in ALMPs and can get guidance from the public employment service (PES) for job search.

  6. There are 32 different UI funds in Denmark. They each represent different levels and types of education. UI funds that operate across types of education and industries have emerged and the main part of the UI recipients are however still organised according to their main education and occupation National Directorate of Labour (2006).

  7. The UI funds are under supervision by the National Directorate of Labour, which may imply minor differences in the administration of the rules. There are, however, still rather larger discrepancies, as will be clear later in the paper.

  8. In Danish: Bekendtgørelse om rådighed and Bekendtgørelse om selvforskyldt ledighed, June 172,003.

  9. The Danish labour directorate tried to map individuals who leave public income transfer to employment, and they found that more than 90% move to employment.

  10. In practice, an individual is registered to have become employed when the individual has not collected benefits for four consecutive weeks.

  11. We choose January 2003 as a starting point, because major regulation on sanction changes on this date. These changes imply a stricter set of requirements and that the number of sanctions per unemployed individual increases afterwards. To have a period of comparable rules we disregard the period prior to 2003.

  12. For details, see Isaksen et al. (Isaksen and Karlsen 2012).

  13. For details, see Van den Berg et al. (2004), Abbring et al. (2005), Lalive et al. (2005).

  14. We also carried out an analysis including the 10-week sanction. The main results are unaffected by this but, not surprisingly, the magnitude of the effects is somewhat smaller when they are left out.

  15. For details on the Youth programme, see Jensen et al. (2003).

  16. Marital status is defined if an individual is unmarried and does not cohabit either.

  17. We have two indicators for whether the individual is an immigrant from more or less developed countries. The reference category is native Danes.

  18. For the UI funds, we have a set of indicators for unemployment insurance fund membership. There are 32 UI funds in Denmark, and membership is in most cases categorised according to education/skills and/or by industry. These funds may be seen as broad proxies for the missing information concerning education and skills. Most UI funds only accept members with certain types of education or people who work in certain types of industries. Take, for example, a trained economist. She will qualify for membership of the UI fund for academics, but not for the mental workers UI fund. This observation is important in the subsequent analysis.

  19. For detail about timing-of-events method, see Abbring et al. (2005).

  20. This section is based on Røed and Westlie (2012) and Gaure et al. (2007). Detailed derivations can be found in these papers.

  21. We also verified the model selection based on the Bayesian Information Criterion (BIC), and the results are coincided with the AIC.

  22. The Broyden–Fletcher–Goldfarb–Shanno algorithm is an iterative method for solving unconstrained nonlinear optimization problem.

  23. The detail results on other transitions including all explanatory variables for men and women can be found in Table B3 and B4 respectively.

  24. It is a non-linear model where parameter estimates cannot be directly interpreted, therefore, the percentage effect is calculated by using this formula: =(eβ − 1) × 100. For example, in the case of sanction, the parameter estimate is 0.538 and the percentage effect is 71.2% {=(e0.538 − 1) × 100}. All parameter estimates are interpreted in terms of percentage. The detail results are available upon request to the authors.

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Authors and Affiliations

  1. Department of Economics and Finance, Sultan Qaboos University, Muscat, Oman

    Nisar Ahmad

  2. Department of Economics and Business Economics, Aarhus University, Aarhus C, Denmark

    Michael Svarer

  3. Department of Business Development and Technology, Aarhus University, Herning, Denmark

    Amjad Naveed

Authors
  1. Nisar Ahmad
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  2. Michael Svarer
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  3. Amjad Naveed
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Correspondence to Amjad Naveed.

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Appendices

Appendix A: Literature summary and descriptive statistics

Table 5 Summary of previous literature
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Table 6 Descriptive statistics (averages)
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Appendix B: Results about the optimum selection of mass point

Table 7 Effect of sanctions and ALMP on exit rate out of unemployment for men
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Table 8 Effect of sanctions and ALMP on the exit rate out of unemployment for women
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Table 9 Full estimation results for all six transitions for men
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Table 10 Full estimation results for all six transitions for women
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Table 11 Treatment effect of ALMPs without control of sanctions
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Ahmad, N., Svarer, M. & Naveed, A. The Effect of Active Labour Market Programmes and Benefit Sanctions on Reducing Unemployment Duration. J Labor Res 40, 202–229 (2019). https://doi.org/10.1007/s12122-019-09288-x

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  • DOI: https://doi.org/10.1007/s12122-019-09288-x

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