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Direct job creation in Germany revisited: Is it effective for welfare recipients and does it matter whether participants receive a wage?

Katrin Hohmeyer, Joachim Wolff
Institute for Employment Research, Germany

Bringing welfare recipients into jobs is a major goal of a German labour market policy reform in the year 2005. To achieve this goal major emphasis was given to job creation schemes which provide participants with temporary subsidized jobs mainly in the non-profit sector and differ only with respect to a few features. We study and compare the effectiveness of three job creation schemes for welfare recipients for the programme inflow in mid 2005. This enables us to study the implications of single programme features for effectiveness. A major difference is that the traditional job creation scheme and work opportunities as contributory jobs provide participants with regular earnings, while in the One-Euro-Job scheme they only receive their benefit and additionally a small allowance to cover costs of working. Hence, participation in the latter programme in contrast to the other two programmes should provide higher incentives to search for regular jobs. We estimate participation effects on employment outcomes, earnings and welfare benefit levels with propensity score matching using rich administrative data. We find that the programmes are partly effective in moving welfare recipients to work and reducing their welfare benefit dependency. Moreover, our findings do not imply that for participants in the two schemes offering regular wages the incentives to search for regular jobs are much lower than for the alternative One-Euro-Jobs. Only with work opportunities as contributory jobs commercial jobs can be subsidized. This may explain why we find the most beneficial impacts for participants in this programme.

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