Displacement Externalities in Active Labor Market Programs

In Simple Words

Imagine a crowded musical chairs game where some players are suddenly given fast running shoes. While those runners grab available chairs much faster, they bump into and push away the barefoot players, making it significantly harder for the non-runner players to find a seat.

Research question

Standard microeconometric evaluations assume that treating job seekers does not impact untreated individuals. However, when activated job seekers search more intensively, they overcrowd the labor market and reduce job finding rates for nonparticipants competing for the same positions.

Participants

N = 89,466 unemployed benefit applicants (40,403 in the 2005–2006 experiment cohort and 49,063 in the 2004–2005 pre-experiment cohort) across 15 Danish counties, including 3,751 trial participants in Storstrøm and South Jutland.

Study Design

Stratified partial likelihood duration model and difference-in-differences linear probability model comparing nonparticipants in trial counties against unemployed job seekers in non-experiment counties.

Results

Mandatory job search assistance increased participant exit rates from unemployment by 17.9% to 20% (p < 0.01), but reduced nonparticipant exit rates by 4.8% to 5.0% overall (p < 0.10) and by 7.9% in South Jutland (p < 0.05). At three months, nonparticipants were 2.7 percentage points less likely to find employment (p < 0.05).

Takeaway

Evaluate active labor market interventions by comparing non-treated individuals in treatment regions to external control populations rather than relying on internal regional control groups.

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Plain-English glossary

Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.

Percentage points

The difference between two percentages.

ExampleA rise from 40% to 50% is 10 percentage points. Relative to the starting value, that is a 25% increase.

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Related findings

• Randomized Saturation Spillover Dynamics →Labour & employment

  Varying the percentage of treated individuals across neighborhood clusters tests whether helping one worker harms neighboring job-seekers. It operates like testing different concentrations of water purification in distinct villages to see if clean water in one household improves or restricts neighbor access.

• Caseworker Meeting Intensity Superiority →Labour & employment

  Frequent caseworker meetings act like weekly check-ins with a personal fitness trainer. Knowing someone will ask for a progress report every few days keeps individuals consistently accountable and searching for work, whereas long training classes take them out of the job hunt without boosting job offers.

• Bundled Digital Literacy and Active Job Search Training →Labour & employment

  Imagine giving a traveler a vehicle to a destination miles away but expecting them to drive without ever teaching them how to operate a car. Providing hardware (a tablet and internet connection) combined with intensive driving lessons (100 hours of hands-on digital skills instruction) equips job seekers to navigate digital highways toward employment opportunities and administrative benefits independently.

• Double-Sided Randomization Design →Labour & employment

  Imagine a musical chairs game where organizers want to know if giving subsidized tickets to new players adds total active players or merely pushes out un-subsidized participants. By flipping a coin to select both which players receive subsidized tickets and which chairs host subsidized players, organizers can directly observe whether new total chairs are created or existing participants are displaced.