The Role of Sickness in the Evaluation of Job Search Assistance and Sanctions

Abstract

Unemployment insurance agencies often combat moral hazard by punishing refusals to apply to assigned vacancies. However, the possibility to report sick creates an additional moral hazard, since (at least in Germany) during sickness spells, minimum requirements on search behavior do not apply. We analyze the effects on unemployment duration and job quality, as measured by the wage and employment stability. To evaluate sanction effects and the impact of receiving vacancy referrals, we take the endogenous probability of reporting sick into account. We estimate multi-spell duration models with selection on unobserved characteristics. We find that vacancy referrals and imposed sanctions increase the exit rate to work. Jobs found after receiving a vacancy referral as well as after the imposition of a sanction are less stable and go along with a lower wage. Our results suggest that around 8.5% of sickness absence during unemployment are induced by receiving a vacancy referral. The impact of vacancy referrals on sickness absence is decreasing over time spent in unemployment.Keywords: unemployment, vacancy referrals, sanctions, sickness absence, moral hazard. JEL codes: J64, J65, C41, C21 * University of Mannheim, IFAU Uppsala, VU University Amsterdam, IZA Bonn † University of Mannheim, IAB Nuremberg ‡ University of Mannheim, IAB Nuremberg, DIW Berlin, IZA BonnWe thank John Ham, Bo Honore, Per Johannson, Johan Vikström, Nikolas Ziebarth and seminar participants at CREST, University of Dortmund, University of Munich, NIW in Hannover, and at several workshops and conferences for valuable comments.

Sanctions for Young Welfare Recipients

“…However, it is important to note that the quality of the jobs taken up by sanctioned and not sanctioned individuals might differ, see e.g. van den Berg and Vikström (2013) for corresponding evidence for sanctions in the unemployment insurance system in Sweden. The analysis of the impact of sanctions on job quality and long--term employment prospects goes beyond the scope of this paper, but it is an important dimension of the policy evaluation of sanctions in social welfare systems.…”

“…If the effect is mostly driven by the monitoring threat then it is preferable to use mild sanctions for any violation, at least in case of a first punishment during a welfare spell. Van den Berg and Vikström (2013) argue that mild sanctions may be easier to apply by case workers if they have a personal bond with their clients, as is the case in e.g. Sweden.…”

The Signal of Applying for a Job Under a Vacancy Referral Scheme

“…While some studies find positive results of this kind of program with respect to exit out of unemployment (Bollens and Cockx ; Fougère, Pradel, and Roger ; van den Berg, Kjærsgaard, and Rosholm ), others find no impact at all (Engström, Hesselius, and Holmlund ; van den Berg and van der Klaauw ). Moreover, some of the studies that present positive effects of job‐vacancy referrals show that the higher job‐finding rate as a result of referral goes hand in hand with a lower job quality (van den Berg, Hofmann, and Uhlendorff ; van den Berg and Vikström ).…”

The Effectiveness of Early Vacancy Information in the Presence of Monitoring and ALMP

“…Johnson and Klepinger (1994), Dolton and O'Neill (2002) and Hägglund (2014) in contrast find significant positive effects of the combinations of counseling and monitoring. An recent empirical analysis by van den Berg, Hofmann, and Uhlendorff (2013) shows that vacancy receivers in Germany exit unemployment more quickly. They find that monitoring may drive part of the employment exit, as vacancies also increase the risk of sanctions and entry into sickness absence.…”