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How effective are hiring subsidies in reducing long-term unemployment among prime-aged jobseekers? Evidence from Belgium

Sam Desiere
Sam Desiere
 e 
Bart Cockx
Bart Cockx
   | 07 mag 2022
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Pubblicato online: 07 mag 2022
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Accettato: 23 feb 2022
DOI: https://doi.org/10.2478/izajolp-2022-0003
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© 2022 Sam Desiere et al., published by Sciendo
This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Figure 1

The evolution of long-term unemployment in Flanders.Source: Monthly average from Arvastat (https://arvastat.vdab.be/, accessed April 2021).
The evolution of long-term unemployment in Flanders.Source: Monthly average from Arvastat (https://arvastat.vdab.be/, accessed April 2021).

Figure 2

Employment stability: share of individuals aged 45–48 years hired in Month 5 (not eligible for the subsidy) vs. in Month 6 (eligible for the subsidy) employed for 1–65 consecutive months after being hired.Notes: For clarity, only the 95% confidence interval for individuals hired in Month 6 are shown. The main message is that the employment rate of individuals hired in Month 5 (not eligible for the subsidy) is slightly higher than the employment rate of individuals hired in Month 6 (eligible for the subsidy), but the difference between both groups is not statistically significant. The CIs are constructed by regressing the employment rate on the number of months after registration (dummies), dummies indicating the group (jobseekers hired in Month 5 vs. hired in Month 6), and the interaction terms between these dummies.
Employment stability: share of individuals aged 45–48 years hired in Month 5 (not eligible for the subsidy) vs. in Month 6 (eligible for the subsidy) employed for 1–65 consecutive months after being hired.Notes: For clarity, only the 95% confidence interval for individuals hired in Month 6 are shown. The main message is that the employment rate of individuals hired in Month 5 (not eligible for the subsidy) is slightly higher than the employment rate of individuals hired in Month 6 (eligible for the subsidy), but the difference between both groups is not statistically significant. The CIs are constructed by regressing the employment rate on the number of months after registration (dummies), dummies indicating the group (jobseekers hired in Month 5 vs. hired in Month 6), and the interaction terms between these dummies.

Figure 3

Exploring the effect of the abolition of the subsidy in a DiD framework: the job-finding rate of jobseekers aged 45–48 years as a function of elapsed unemployment duration, before and after the reform.Notes: The vertical dashed line indicates the month in which jobseekers become eligible for the hiring subsidy prior to the reform. The pre-reform period consists of jobseekers who registered at the PES in 2015. The post-reform period consists of jobseekers who registered in 2017. DiD, difference-in-differences; PES, public employment service.
Exploring the effect of the abolition of the subsidy in a DiD framework: the job-finding rate of jobseekers aged 45–48 years as a function of elapsed unemployment duration, before and after the reform.Notes: The vertical dashed line indicates the month in which jobseekers become eligible for the hiring subsidy prior to the reform. The pre-reform period consists of jobseekers who registered at the PES in 2015. The post-reform period consists of jobseekers who registered in 2017. DiD, difference-in-differences; PES, public employment service.

Figure 4

The effect of abolition of the subsidy on the probability of finding employment lasting 1–12 (consecutive) months.Notes: Each graph shows the triple-interaction term with its 95% confidence interval obtained by estimating 12 triple-difference regressions following the benchmark specification as in Table 2. The outcome is an indicator taking the value of one if the jobseeker found a job and remained employed for 1–12 (consecutive) months, and zero otherwise. Full results of the triple-difference regressions are reported in Table A4 in Appendix A.
The effect of abolition of the subsidy on the probability of finding employment lasting 1–12 (consecutive) months.Notes: Each graph shows the triple-interaction term with its 95% confidence interval obtained by estimating 12 triple-difference regressions following the benchmark specification as in Table 2. The outcome is an indicator taking the value of one if the jobseeker found a job and remained employed for 1–12 (consecutive) months, and zero otherwise. Full results of the triple-difference regressions are reported in Table A4 in Appendix A.

Figure A1

The evolution of long-term unemployment in Flanders among jobseekers aged 40–48 years.Source: Monthly average from Arvastat (https://arvastat.vdab.be/, accessed April 2021).
The evolution of long-term unemployment in Flanders among jobseekers aged 40–48 years.Source: Monthly average from Arvastat (https://arvastat.vdab.be/, accessed April 2021).

Figure A2

The job-finding rate of jobseekers aged 40–43 years as a function of the elapsed unemployment duration, before and after the reform.Notes: The vertical dashed line indicates the month in which jobseekers aged 45–48 years become eligible for the hiring subsidy prior to the reform.
The job-finding rate of jobseekers aged 40–43 years as a function of the elapsed unemployment duration, before and after the reform.Notes: The vertical dashed line indicates the month in which jobseekers aged 45–48 years become eligible for the hiring subsidy prior to the reform.

Figure A3

The effect of the abolition of the subsidy on the probability of finding employment lasting 1–12 (consecutive) months using the more stringent definition of employment.Notes: Each graph shows the triple-interaction term with its 95% CI obtained by estimating 12 triple-difference regressions following the benchmark specification as in Table 2. The outcome is an indicator taking the value of one if the jobseeker found a job and remained employed for 1–12 (consecutive) months, and zero otherwise. The definition of employment follows a more stringent definition of work, thereby excluding temporary work lasting between 10 days and 20 days per month.
The effect of the abolition of the subsidy on the probability of finding employment lasting 1–12 (consecutive) months using the more stringent definition of employment.Notes: Each graph shows the triple-interaction term with its 95% CI obtained by estimating 12 triple-difference regressions following the benchmark specification as in Table 2. The outcome is an indicator taking the value of one if the jobseeker found a job and remained employed for 1–12 (consecutive) months, and zero otherwise. The definition of employment follows a more stringent definition of work, thereby excluding temporary work lasting between 10 days and 20 days per month.

The impact of abolition of the hiring subsidy on the job-finding rate: full results of the benchmark specification

Benchmark
Unemployment duration (base level: Month 1)
Month 2 −0.0407*** (0.00183)
Month 3 −0.0841*** (0.00181)
Month 4 −0.0998*** (0.00183)
Month 5 −0.109*** (0.00185)
Month 6 −0.111*** (0.00213)
Month 7 −0.122*** (0.00213)
Month 8 −0.129*** (0.00213)
Month 9 −0.132*** (0.00214)
Month 10 −0.141*** (0.00212)
Month 11 −0.141*** (0.00215)
Month 12 −0.143*** (0.00217)
Post-reform 0.0250*** (0.00275)
Age 45–48 years −0.00487*** (0.00144)
Age 45–48 years ## post-reform 0.0101*** (0.00261)
Post-reform ## long-term unemployed −0.0231*** (0.00247)
Post-reform ## age 45–48 years ## long-term unemployed −0.0118*** (0.00358)
Year of registration at the PES (base level: 2012)
2013 −0.00498*** (0.00147)
2014 0.00309** (0.00154)
2015 0.0131*** (0.00159)
2016 0.0115*** (0.00205)
2017 0.0162*** (0.00283)
2018 0.0205*** (0.00298)
Education (base level: high level)
Low −0.00236** (0.00116)
Medium 0.00423*** (0.00115)
Man 0.00759*** (0.000845)
Proficiency in Dutch (base level: no proficiency)
Limited proficiency −0.00967*** (0.00332)
Good proficiency 0.00455 (0.00325)
Excellent proficiency 0.00491 (0.00329)
Origin (base level: EU-15)
EU-13 −0.0196*** (0.00261)
Other −0.0250*** (0.00110)
Constant 0.197*** (0.00387)
No. of unemployment spells 104,437
No. of observations 602,916
R2 0.032

Placebo tests for the benchmark analysis

Parallel trend Placebo test for the short-term unemployed
Age 45–48 years ## long-term unemployed ##
2012 0.00494 (0.00613)
2013 0.00441 (0.00534)
2014 −0.000794 (0.00559)
2016 Q1–Q2 0.00574 (0.00762)
2016 Q3–Q4 −0.00516 (0.00715)
2017 −0.0101* (0.00616)
2018 −0.0137* (0.00721)
Age 45–48 years ## after reform ## unemployed for (base level: 5 months)
Less than 5 months 0.00134 (0.00668)
6–12 months −0.0112* (0.00650)
No. of unemployment spells 104,437 104,437
No. of observations 602,916 602,916
R2 0.032 602,916
Pre-reform parallel trend (F-test, p-value) 0.74
Post-reform parallel trend (F-test, p-value) 0.59
No effect on the short-term unemployed (p-value) 0.84

The effect of the subsidy for different populations

Job-finding rate Job stability: remaining employed for 6 consecutive months
Benchmark specification −0.0118*** (0.00358) −0.00408 (0.00286)
Population: all jobseekers −0.0101*** (0.00269) −0.00521** (0.00209)
Population: all jobseekers who worked 4 months prior to registration + jobseekers whose unemployment history is not known −0.0110*** (0.00330) −0.00417 (0.00265)

The effect of the abolition of the hiring subsidy on finding a job and remaining employed for 1–12 consecutive months (Figure 4, left panel in the main text plots the results)

Employed for at least:
1 month 2 months 3 months 4 months 5 months 6 months 7 months 8 months 9 months 10 months 11 months 12 months
Effect −0.0118*** (0.00358) −0.00934*** (0.00337) −0.00786** (0.00322) −0.00445 (0.00308) −0.00459 (0.00297) −0.00408 (0.00286) −0.00361 (0.00273) −0.00383 (0.00264) −0.00347 (0.00256) −0.00191 (0.00248) −0.000313 (0.00238) −0.000546 (0.00230)
No. of unemployment spells 104,437 104,437 104,158 103,949 103,699 103,444 103,157 102,837 102,726 102,601 102,430 102,280
No. of observations 602,916 602,323 601,458 600,846 600,165 599,403 598,250 597,607 597,227 596,763 596,209 595,688
R2 0.032 0.028 0.026 0.024 0.022 0.021 0.021 0.022 0.022 0.022 0.021 0.020
Post-reform placebo test (F-test, p-value) 0.58 0.73 0.81 0.62 0.84 0.88 0.64 0.96 0.93 0.78 0.32 0.37
Effect on the short-term unemployed (p-value) 0.91 0.85 0.75 0.94 0.94 0.77 0.89 0.87 0.73 0.50 0.44 0.39

The Breusch–Godfrey LM test on grouped errors

Weighted OLS
Lagged grouped error 0.0526*** (0.0109)
Number of observations 9,742
R2 0.021

DiD exploiting differences across unemployment duration among older jobseekers and placebo tests

DiD: short-term vs. long-term unemployed, among jobseekers aged 45–48 years Placebo test 1: post-reform parallel trends Placebo test 2: jobseekers aged 40–43 years
Post-reform ## long-term unemployed −0.0352*** (0.00264) −0.0230*** (0.00248)
Long-term unemployed ## year (base level: 2015)
2012 0.00626 (0.00444)
2013 0.0162*** (0.00384)
2014 0.00572 (0.00403)
2016 Q1–Q2 −0.000136 (0.00548)
2016 Q3–Q4 −0.0194*** (0.00523)
2017 −0.0283*** (0.00448)
2018 −0.0377*** (0.00522)
No. of observations 283,469 283,469 319,447
R2 0.034 0.034 0.031
Post-reform parallel trend (F-test, p-value) 0.012**

The impact of the abolition of the hiring subsidy on the job-finding rate: triple-difference estimates

Benchmark Ruling out: More stringent definition of “work” (excluding short-lived temporary work)
Substitution between age groups Substitution between the short-term and long-term unemployed Anticipation effects
Age 45–48 years ## post-reform ## long-term unemployed (base level: 40–43 years)
−0.0118*** (0.00358) −0.0119*** (0.00377) −0.0133*** (0.00408) −0.00636** (0.00273)
Post-reform ## long-term unemployed (base level: 35–37 years)
## Age 38 years 0.00779** (0.00389)
## Age 39 years 0.000466 (0.00394)
## Age 40 years 0.00170 (0.00399)
## Age 41 years −0.00158 (0.00404)
## Age 42 years 0.00222 (0.00413)
## Age 43 years −0.000159 (0.00410)
## Age 44–44.5 years 0.000781 (0.00558)
Age 45–48 years ## post-reform ## unemployed for 5 months
−0.000717 (0.00667)
No. of unemployment spells 104,437 281,701 104,437 89,291 104,437
No. of observations 602,916 1,686,890 602,916 516,196 753,119
R2 0.032 0.033 0.032 0.032 0.013
Placebo tests
Post-reform parallel trend test (F-test, p-value) 0.59 0.93 0.75 0.63 0.20
Effect on the short-term unemployed (p-value) 0.84 – – 0.86 0.91

The effect of the subsidy by gender and level of education

Job-finding rate Job stability
Benchmark specification More stringent definition of “work” (excluding short-lived temporary work) Remaining employed for 6 consecutive months
Sex
  Men −0.0076 (0.0118) −0.0048 (0.0039) −0.0044 (0.0039)
  Women −0.0168*** (0.0052) −0.0083** (0.0038) −0.0041 (0.0042)
Education
  Less than a bachelor's degree −0.0074*, a (0.004) −0.0051* (0.003) −0.0005a (0.0032)
  At least a bachelor's degree −0.0264***, a (0.0077) −0.0113* (0.0062) −0.0163**, a (0.0064)

DiD exploiting differences across age groups for the long-term unemployed and placebo tests

DiD: young vs. older long-term unemployed jobseekers Placebo test 1: post-reform parallel trends Placebo test 2: short-term unemployed
Post-reform ## age 45–48 years −0.00138 (0.00245) 0.0101*** (0.00261)
Age 45–48 years ## year (base level: 2015)
2012 0.00769* (0.00394)
2013 0.00220 (0.00346)
2014 0.00463 (0.00363)
2016 Q1–Q2 0.00444 (0.00495)
2016 Q3–Q4 0.00652 (0.00473)
2017 0.00102 (0.00407)
2018 −0.00195 (0.00538)
No. of observations 241,611 241,611 361,305
R2 0.005 0.005 0.020
Post-reform parallel trend (F-test, p-value) 0.34

Studies on the effectiveness of private employment programs for the long-term unemployed included in the review by Card et al. (2018) (studies not included in the bibliography)

Title Authors Year of publication Journal Country
Active labor market policies in Denmark: A comparative analysis of postprogram effects Blanche 2011 U Denmark
Evaluating the impact of a well-targeted wage subsidy using administrative data Cseres-Gergely, Scharle, Földessy 2012 U Hungary
The effectiveness of targeted wage subsidies for hard-to-place workers Jaenichen, Stephan 2011 Applied Economics Germany
Evaluation of subsidized employment programs for long-term unemployed in Bulgaria Mihaylov 2011 Economic Studies Bulgaria
Do long-term unemployed workers benefit from targeted wage subsidies? Schünemann, Lechner, Wunsch 2013 German Econ Rev Germany
Employment subsidies: A fast lane from unemployment to work? Forslund, Johansson, Lindquist 2004 U Sweden
Income support policies for part-time workers: A stepping-stone to regular jobs? Cockx, Robin, Goebel 2010 U Belgium
An application to young long-term unemployed women in Belgium
Dynamic treatment assignment: The consequences for evaluations using observational data Fredriksson, Johansson 2008 U Sweden
Do active labor market policies help unemployed workers to find and keep regular jobs? Van Ours 2000 Book Slovakia
The locking-in effect of subsidized jobs Van Ours 2004 Journal of Comparative Economics Slovakia

Characteristics of jobseekers by age group and unemployment duration: Age group; Unemployment duration, before and after the reform

Jobseekers aged 40–43 years Jobseekers aged 45–48 years Triple difference2
Short-term unemployed Long-term unemployed Short-term unemployed Long-term unemployed
Before After Before After Before After Before After Hired with a subsidy1
Age, years 41.48 41.44 41.49 41.44 46.47 46.47 46.48 46.46 47.13 0.77
Men, % 54.12 54.77 54.76 54.10 53.80 54.84 54.83 54.13 56.84 0.43
Education, %
Low 38.74 37.66 40.99 39.50 42.73 39.37 44.15 41.56 43.33 −1.18
Medium 39.69 39.01 38.72 37.59 37.47 38.53 36.41 37.10 43.73 −0.08
High 21.57 23.34 20.30 22.91 19.80 22.11 19.44 21.34 12.94 1.25
Proficiency in Dutch, %
No 1.26 2.80 1.35 2.83 1.07 2.58 1.20 2.71 2.22 −0.05
Limited 11.22 14.17 13.25 16.06 10.06 13.08 11.79 15.48 9.61 −0.81
Good 37.40 32.47 37.70 32.32 39.04 35.13 39.50 35.32 37.60 −0.18
Excellent 50.13 50.57 47.70 48.79 49.83 49.21 47.51 46.50 50.57 1.04
Origin, %
EU-15 74.46 68.08 70.33 63.86 80.16 73.80 76.42 70.15 77.97 −0.17
EU-13 2.16 3.46 2.44 3.58 1.76 2.97 1.95 3.35 3.11 −0.34
Other 23.38 28.47 27.24 32.56 18.08 23.23 21.63 26.50 18.92 0.52
No. of individuals 34,318 21,127 18,259 8,332 30,405 18,587 16,381 7,192 1,221 –

The five most important sectors in terms of new hires with a subsidy in each quarter (2015Q2–2016Q4)

Sector Share of new hires with a subsidy, 2015Q2–2016Q4
Temporary employment agency activities 61%
Cleaning activities 4%
Restaurants and mobile food service activities 2%
Retail sale in nonspecialized stores 2%
Other social work activities without accommodation 2%

The effect of the subsidy on the job-finding rate: robustness checks

Censor spells when jobseekers leave the labor market Treatment group includes jobseekers aged 44.5–48 years Sensitivity to classification of jobseekers into pre-reform and post-reform periods Effect by month
Using July 1, 2016, as cutoff date Excluding jobseekers registering in June 2016 Excluding jobseekers registering in the period April–June 2016
Effect −0.0125*** (0.00394) −0.0113*** (0.00347) −0.0113*** (0.00363) −0.0116*** (0.00364) −0.0115*** (0.00365)
Age 45–48 years ## post-reform
## Unemployed for 6 months −0.0168** (0.00664)
## Unemployed for 7 months −0.00731 (0.00678)
## Unemployed for 8 months −0.00979 (0.00684)
## Unemployed for 9–12 months −0.0262*** (0.00292)
No. of unemployment spells 104,437 110,930 104,437 103,322 101,296 104,437
No. of observations 545,580 640,138 602,916 596,171 583,026 602,916
R2 0.028 0.032 0.032 0.032 0.033 0.032
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