DP15037 The impact of sanctions for young welfare recipients on transitions to work and wages and on dropping out

Author(s): Gerard van den Berg, Arne Uhlendorff, Joachim Wolff
Publication Date: July 2020
Keyword(s): post unemployment outcomes, sanctions, Social Assistance, unemployment, youth unemployment
JEL(s): C41, J64, J65
Programme Areas: Labour Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=15037

The reintegration of young welfare recipients into the labor market is a major policy objective in many European countries. In this context, monitoring and sanctions are commonly used policy tools. We analyze the impact of strict sanctions for young welfare recipients in Germany. The German benefit system is characterized by harsh sanctions for this group, effectively cancelling benefits for three months after detection of non-compliance with job search requirements. We analyze the impacts of these sanctions on job search outcomes and on dropping out of the labor force, using administrative data on a large inflow sample. We estimate multivariate duration models taking selection on unobservables into account. Our results indicate an increased job entry rate at the expense of an increased withdrawal from the labor force and lower entry wages. Combining quantitative with qualitative evidence reveals that the latter side-effects of sanctions can have dramatic consequences for the quality of life of the youths involved.