The tougher, the better? How the interplay of search requirements and sanction threats affects compliance behavior and job findingPatrick Arni (IZA Bonn)Amelie Schiprowski (IZA Bonn and DIW Berlin)

1. MOTIVATION

� Enforcement of job search requirements increasingly employed to counteract moral hazard problems in Unemployment Insurance (UI) schemes

� Not a 0-1 treatment, but a combination of requirement and enforcement parameters

– Their design varies largely across OECD countries (c.f. Venn (2012))

� The understanding of the interplay of these parameters is crucial to determine how a job seeker is affected by the job search moni-toring regime

Our aim & contributions: Provide empirical evidence on the joint determination of job search behavior through requirement thresh-

olds and enforcement threats

� Unique register data: Monthly information on job search requirements, effort, (non-)compliance, warnings and enforced sanctions

� Intensive margin approach ´ We analyze the policy parameters of an implemented search monitoring regime

5. PRELIMINARY RESULTS

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Effect of a 30% increase in p0 by requirement policyEffect of requirement policy

95% CI

Effect on Probability of Non-Compliance

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Effect of requirement policyEffect of a 30% increase in p0 by requirement policy95% CI

Effects on Job Finding Hazard

3. IDENTIFYING REQUIREMENT AND ENFORCEMENT POLICIES

3a. Requirement s r Identification challenges: Exclude (i) contact-related endogeneity and (ii) correlation with Public Employment Service (PES) enforcement policy from

variation in requirement levels

´ Solution: exploit that different profession-groups are differently affected by PES-requirement policy

– Background: some PES implement a profession-specific, others a “one-fit-all” requirement threshold

´ Estimate s r = ! + x’" + # PES + $ profession + % PES,profession + &And retain ̂ % PES,profession as an indicator for the profession-PES specific requirement policy (In final outcome equation, distribu-tion of ̂ % PES,profession enters in categories D ̂ s r ).

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3b. Enforcement probability p 0 Identification challenge: Obtain policy-driven change in enforcement threat that does not capture changes in compliance behaviors

´ Solution: Quasi-experimental variation resulting from reform of UI law in April 2011:

– Strengthened deadline for submission of job applications list

– Moved some PES from “second deadline policy” to “no excuse policy”

Reform induced harmonization of enforcement practices across PES ´ Treatment intensity varies according to PES-level pre-enforcement strictness

´ D-i-D setting with continuous treatment intensity:

– Measure treatment intensity as p(sanction|detection) registered by each PES during the 6 pre-reform months ́ p(s|d) pre – Average p(s|d) post : 0.75 ´ How far is a PES' p(s|d) pre ? – Treatment intensity: inten = .75-p(s|d) pre ; inten = 0 if p(s|d) pre > 0.75 – Good predictor of observed increase in enforcement probability:

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6. PRELIMINARY CONCLUSIONS

� Empirics confirm theory: Requirement and enforcement parameters jointly determine the job seeker’s compliance trade-off:

– Non-compliance increases with requirement regime

– Non-compliance is reduced by an increase in the sanction threat under a high-requirement regime

� Design of requirement and enforcement policies matters for the job seeker’s job finding probability:

– High requirement can have negative impact on search success (quality-quantity tradeoff?)

– Job finding increases with sanction threat under high-requirement regime

2. GRAPHICAL ILLUSTRATION OF THEORETICAL PREDICTIONS

Policy changes of interest: Increase in Requirement Threshold (' s r > 0) and Increase in Sanction Probability (' p 0 > 0)Predictions result from Abbring/van den Berg/van Ours (EJ, 2005)

Main predictions for Empirical Analysis:

´ Relevance of sanction threat p0 increases with requirement s r ´ Non-compliance behavior is a suitable outcome to indicate relevance of requirement policy

from the job seeker’s perspective

´ Impacts on job finding ambiguous

s 1 : no of applications realized

s 1 *: no of applications realized in absence of requirement re-gime

(R1: value of unemployment (=reservation wage)

(R1*: value of unemployment (=reservation wage) in absence of requirement regime

(R1 nc : value of unemployment (=reservation wage) under non-compliance with re-quirement

4. FINAL OUTCOME EQUATION

1. Estimate joint effects of s r and p 0 on non-compliance probability

p(nc) = x'" + ) ̂ s r D ̂ s r + ( ̂ s r * inten ' p o + + ̂ s r * post + # ̂ s r ,PES + µ season + , year + u

2. Estimate joint effects of s r and p 0 on duration to job finding (controlling for realized sanction events)

ln - e = ln .( t e ) + x'" + ) ̂ s r D ̂ s r + ( ̂ s r * inten ' p 0 + + ̂ s r * post + # ̂ s r ,PES + # PES + µ season + , year