From welfare to work. Financial incentives, active labor market policies, and integration programs

Author: Lillit Ottoson, And

Summary of Dissertation series 2022:1

Essay II has been published by IFAU as working paper 2021:12 and Swedish report 2021:16.

Essay I: I study the effects of increased social assistance (SA) generosity by exploiting exogenous variation induced by a ruling in the Swedish Supreme Administrative Court in 1993, mandating local governments to provide a minimum level of untied SA payments. The new rule forced some local governments to increase their SA generosity, while others were unaffected as they already complied with the stricter standards. I find that a 1 percent increase in SA generosity caused an increase in SA recipiency by 1.3 percent and a decrease in employment by 0.2 percent, among individuals with a high risk of receiving SA. For individuals who were already recipients of SA, the increase in SA payments was not offset by lower labor earnings, resulting in increased disposable income.

Essay II (with Eva Mörk and Ulrika Vikman): We evaluate a temporary public sector employment program targeted at individuals with weak labor market attachment. Using dynamic inverse probability weighting to account for non-random dynamic assignment into the program, we show that the program is successful in increasing employment and reducing social assistance. The positive employment effect is driven by individuals at a regular workplace; for participants with temporary employment at a constructed workplace, we find negative employment effects. The decrease in social assistance is partially countered by an increase in the share that receive unemployment insurance benefits. This indicates that municipalities are able to shift costs from the local to the central budget.

Essay III (with Cristina Bratu and Linna Martén): This paper studies a 2010 reform in Sweden that transferred responsibility for a refugee integration program from municipalities to the Public Employment Service (PES). Aiming to increase female participation in the program,
the reform strengthened economic incentives for the secondary earner in the household to participate. We show that the program improved women's earnings and employment, and that these effects emerge 2–3 years after program participation. The strengthened economic
incentives increased participation in the program for women, but this does not drive the labor market effects. Instead, the increased labor market focus brought on by transferring the program to the PES seems to be the main mechanism behind our findings.

Essay IV (with Ulrika Vikman): In this paper, we evaluate an active labor market program (ALMP) targeted toward immigrants with very limited language skills. The program combines support in the participant's native language with an ALMP in a regular workplace. We apply dynamic inverse probability weighting to account for dynamic selection and compare participants with observably similar non-participants. We find a positive 10 percentage point employment effect, mainly explained by the participants obtaining subsidized employment as part of the program. In the medium term, these positive effects disappear. Participation in the program also leads to improved Swedish language skills.

Keywords: Social assistance, Welfare, Labor supply, Public sector employment programs, Cost-shifting, Dynamic inverse probability weighting, Refugees, Integration, Active labor market policies, Language support