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In many European countries, labor markets are characterized by high regional disparities in terms of unemployment rates on the one hand and low geographical mobility among the unemployed on the other hand. In order to counteract the geographical mismatch of workers, the German active labor market policy offers a subsidy covering moving costs to incentivize unemployed job seekers to search/accept jobs in distant regions. Based on administrative data, this study provides the first empirical evidence on the impact of this subsidy on participants' prospective labor market outcomes. We use an instrumental variable approach to take endogenous selection based on observed and unobserved characteristics into account when estimating causal treatment effects. We find that unemployed job seekers who participate in the subsidy program and move to a distant region receive higher wages and find more stable jobs compared to non-participants. We show that the positive effects are (to a large extent) the consequence of a better job match due to the increased search radius of participants.
Subsidizing the geographical mobility of unemployed workers may improve welfare by relaxing their financial constraints and allowing them to find jobs in more prosperous regions. We exploit regional variation in the promotion of mobility programs along administrative borders of German employment agency districts to investigate the causal effect of offering such financial incentives on the job search behavior and labor market integration of unemployed workers. We show that promoting mobility – as intended – causes job seekers to increase their search radius, apply for and accept distant jobs. At the same time, local job search is reduced with adverse consequences for reemployment and earnings. These unintended negative effects are provoked by spatial search frictions. Overall, the unconditional provision of mobility programs harms the welfare of unemployed job seekers.