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Imposed Benefit Sanctions and the Unemployment-to-Employment Transition: The German Experience

Discussion Papers 792, 29 S.

Kai-Uwe Müller, Viktor Steiner

2008. May.

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We analyze the effect of imposed benefit sanctions on the unemployment-to-employment transition of unemployed people entitled to unemployment compensation on the basis of register data from the German Federal Employment Agency. We combine propensity score matching with a discrete-time hazard rate model which accounts for the dynamic nature of the treatment. We find positive short- and long-term effects of benefit sanctions which are robust for men and women in East and West Germany. The effects diminish with the elapsed unemployment duration until a sanction is imposed. The limited use of benefit sanctions can thus be an effective activation tool if they take place not too late in an individual's unemployment spell.

Viktor Steiner

Head of Department in the Public Economics Department

JEL-Classification: J64;J65;H31
Keywords: benefit sanctions, unemployment transitions, German labor market reform, ex-post evaluation, propensity score matching, hazard rate model, unobserved heterogeneity
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