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New Evidence on Long-Term Effects of Start-Up Subsidies

  • The German start-up subsidy (SUS) program for the unemployed has recently undergone a major make-over, altering its institutional setup, adding an additional layer of selection and leading to ambiguous predictions of the program’s effectiveness. Using propensity score matching (PSM) as our main empirical approach, we provide estimates of long-term effects of the post-reform subsidy on individual employment prospects and labor market earnings up to 40 months after entering the program. Our results suggest large and persistent long-term effects of the subsidy on employment probabilities and net earned income. These effects are larger than what was estimated for the pre-reform program. Extensive sensitivity analyses within the standard PSM framework reveal that the results are robust to different choices regarding the implementation of the weighting procedure and also with respect to deviations from the conditional independence assumption. As a further assessment of the results’ sensitivity, we go beyond the standardThe German start-up subsidy (SUS) program for the unemployed has recently undergone a major make-over, altering its institutional setup, adding an additional layer of selection and leading to ambiguous predictions of the program’s effectiveness. Using propensity score matching (PSM) as our main empirical approach, we provide estimates of long-term effects of the post-reform subsidy on individual employment prospects and labor market earnings up to 40 months after entering the program. Our results suggest large and persistent long-term effects of the subsidy on employment probabilities and net earned income. These effects are larger than what was estimated for the pre-reform program. Extensive sensitivity analyses within the standard PSM framework reveal that the results are robust to different choices regarding the implementation of the weighting procedure and also with respect to deviations from the conditional independence assumption. As a further assessment of the results’ sensitivity, we go beyond the standard selection-on-observables approach and employ an instrumental variable setup using regional variation in the likelihood of receiving treatment. Here, we exploit the fact that the reform increased the discretionary power of local employment agencies in allocating active labor market policy funds, allowing us to obtain a measure of local preferences for SUS as the program of choice. The results based on this approach give rise to similar estimates. Thus, our results indicating that SUS are still an effective active labor market program after the reform do not appear to be driven by “hidden bias”.show moreshow less

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Metadaten
Author:Marco CaliendoGND, Stefan TübbickeGND
URN:urn:nbn:de:kobv:517-opus4-426798
DOI:https://doi.org/10.25932/publishup-42679
ISSN:2628-653X
Parent Title (English):CEPA Discussion Papers
Subtitle (English):Matching Estimates and their Robustness
Series (Serial Number):CEPA Discussion Papers (6)
Document Type:Working Paper
Language:English
Date of first Publication:2019/05/03
Year of Completion:2019
Publishing Institution:Universität Potsdam
Release Date:2019/05/03
Tag:Instrumental Variables; Matching; Policy Reform; Start-Up Subsidies
Issue:6
Pagenumber:41
RVK - Regensburg Classification:QV 202, QP 230, QV 200
Organizational units:Wirtschafts- und Sozialwissenschaftliche Fakultät / Wirtschaftswissenschaften
Zentrale und wissenschaftliche Einrichtungen / Center for Economic Policy Analysis (CEPA)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
JEL Classification:C Mathematical and Quantitative Methods / C1 Econometric and Statistical Methods: General / C14 Semiparametric and Nonparametric Methods
C Mathematical and Quantitative Methods / C2 Single Equation Models; Single Variables / C20 General
H Public Economics / H4 Publicly Provided Goods / H43 Project Evaluation; Social Discount Rate
J Labor and Demographic Economics / J6 Mobility, Unemployment, and Vacancies / J68 Public Policy
L Industrial Organization / L2 Firm Objectives, Organization, and Behavior / L26 Entrepreneurship
Peer Review:Nicht referiert
Licence (German):License LogoKeine Nutzungslizenz vergeben - es gilt das deutsche Urheberrecht