Displacement Externalities in Active Labor Market Programs
RCTClinical Trial
Mandatory job search assistance programs improve search efficiency by reducing application friction, but simultaneously impose non-pecuniary costs by eliminating participants' non-market leisure time. Neglecting leisure disutility overestimates net participant surplus and understates the total economic burden of activation policies.
Picture this
Imagine a job coach who fills out job applications for you, making applying much easier, but forces you to sit in mandatory meetings all day, taking away your free time for personal errands and relaxation.
What the evidence says
Mandatory activation reduces job application costs from $\gamma_0 = 0.202$ to $\gamma_1 = 0.114$, but completely eliminates non-market time value $h = 0.013$ per month (equivalent to 1.3% of monthly productivity or ~2% of unemployment benefits).
- Who was studied
- N = 89,466 benefit spells in Denmark, including 3,751 trial participants in Storstrøm and South Jutland.
- How
- Indirect inference estimation of utility parameters within a structural discrete-time search model.
What to do
Include non-pecuniary leisure time losses alongside pecuniary administration costs when calculating the total economic cost of mandatory job search activation policies.
From the source
"The benefit of the program is that it reduces the costs of making job applications to $\gamma_{1}<\gamma_{0}$. ... The leisure costs of participating in the activation program are over one percent of productivity or almost two percent of the unemployment benefits level."
Estimating Equilibrium Effects of Job Search Assistance