The effects of job creation schemes on the unemployment duration in East Germany

Job creation schemes (JCS) have been one of the most important programmes of active labour market policy in Germany throughout the 1990s and into the first decade of the new century. A number of studies have analysed the effects of job creation schemes in Germany, presenting an overall disappointing picture. JCS seem to perform poorly in improving the employability or the chances of leaving unemployment for the participating individuals. The study extends the existing literature by an evaluation of JCS with the timing-of-events methodology in the duration context using administrative data for eastern Germany. The analysis is based on a multivariate mixed proportional hazard rate model that accounts for observable and unobservable characteristics. The results show that JCS increase the individual unemployment duration of the participants. The negative effect results from a locking-in effect and a strong negative effect after the programme has finished. Therefore, the results suggest that JCS do not improve the employment prospects for the participants. * This paper was released for publication in November 2007. ** The authors thank two anonymous referees for valuable comments. We thank Steffen Kaimer and Melanie Stamm for their help in the preparation of the data. Financial support from the Institute for Employment Research (IAB) within the project ‘Effects of Job Creation and Structural Adjustment Schemes’ is gratefully

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