ZEW Economic Studies. Publication Series of the Centre for European Economic Research (ZEW), Mannheim, Germany

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1 ZEW Economic Studies Publication Series of the Centre for European Economic Research (ZEW), Mannheim, Germany

2 ZEW Economic Studies Vol. 1: O. Hohmeyer, K. Rennings (Eds.) Man-Made Climate Change Economic Aspects and Policy Options VIII, 401 pp. ISBN Vol. 2: Th. Biittner Agglomeration, Growth, and Adjustment A Theoretical and Empirical Study of Regional Labor Markets in Germany XI, 206 pp. ISBN Vol. 3: P. Capros et al. Climate Technology Strategies 1 Controlling Greenhouse Gases. Policy and Technology Options XVIII, 365 pp. ISBN Vol. 4: P. Capros et al. Climate Technology Strategies 2 The Macro-Economic Cost and Benefit of Reducing Greenhouse Gas Emissions in the European Union XIII, 224 pp. ISBN Vol. 5: P. A. Puhani Evaluating Active Labour Market Policies Empirical Evidence for Poland During Transition XVI, 239 pp. ISBN X Vol. 8: H. Legler et al. Germany's Technological Performance X, 191 pp. ISBN Vol. 9: O. Biirgel The Internationalization of British Start-up Companies in High-Technology Industries XIV, 230 pp. ISBN Vol. 10: J. Hemmelskamp et al. (Eds.) Innovation-Oriented Environmental Regulation Theoretical Approaches and Empirical Analysis VI, 348 pp. ISBN Vol. 11: K. L. Brockmann, M. Stronzik (Eds.) Flexible Mechanisms for an Efficient Climate Policy Cost Saving Policies and Business Opportunities VIII, 130 pp. ISBN Vol. 12: W. Smolny Endogenous Innovations and Knowledge Spillovers A Theoretical and Empirical Analysis VIII, 277 pp. ISBN Vol. 6: B. Fitzenberger Wages and Employment Across Skill Groups An Analysis for West Germany XII, 251 pp. ISBN Vol. 7: K. Rennings et al. (Eds.) Social Costs and Sustainable Mobility Strategies and Experiences in Europe and the United States VI, 212 pp. ISBN

3 Michael Lechner. Friedhelm Pfeiffer (Eds.) Econometric Evaluation of Labour Market Policies With 16 Figures and 29 Tables Springer-Verlag Berlin Heidelberg GmbH ZEW Zentrum für Europäische Wirtschaftsforschung GmbH Centre for European Economlc Research

4 Series Editor Prof. Dr. Wolfgang Franz Editors Prof. Dr. Michael Lechner University of St. Gallen Swiss Institute for International Economics and Applied Econornic Research (SIA W) Dufourstr St. Gallen Switzerland Dr. Friedhelm Pfeiffer Centre for European Economic Research (ZEW) L 7, Mannheim Germany Cataloging-in-Publication Data applied for Die Deutsche Bibliothek - CIP-Einheitsaufnahme Lechner, Michael; Peiffer, Friedhelm: Econometric evaluation of labour market policies. ZEW, Zentrum für Europäische Wirtschaftsforschung GmbH. - Heidelberg; New York: Physica-Verl., 2001 (ZEWeconomic studies; Vol. 13) ISBN ISBN (ebook) DOI / This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the Gennan Copyright Law of September 9, 1965, in its current version, and permission for use must a1ways be obtained from Physica-Verlag. Violations are liable for prosecution under the German Copyright Law. Springer-Verlag Berlin Heidelberg 2001 Originally published by Physica-Verlag Heidelberg New York in 2001 The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free tor general use. Cover design: Erich Dichiser, ZEW, Mannheim SPIN / I 0 - Printed on acid-free paper

5 Foreword Due to high unemployment rates, active labour market policies are widely used in many countries to integrate the unemployed into the labour market. Training and employment programmes, wage subsidies, subsidies for firm start-ups and public works are among the most prominent programmes of active labour market policies. Despite its importance not very much quantitative knowledge exists on the impact and performances of these programmes. Until now such knowledge has been accumulated mainly for US programmes. Probably due to tight budgets and an increased public awareness of the use of public funds, European governments are also becoming increasingly aware the possible deficiencies of some current programmes. Therefore, reliable empirical measurement of direct and indirect impacts of active labour market programmes both at the individual and aggregate level has started to become a central task of economic researchers. Parallel to the renewed interest in empirical evaluation studies, researcher have developed improved econometric methods that will probably influence future empirical work in various other fields of economics as well. This volume contains a selection of original papers addressing these econometric issues at the theoretical and empirical level. Some of the papers were presented at the ZEW research conference on Econometric evaluations of active labour market policies in Europe held in Mannheim, June, 26-27, The conference was organised by the Swiss Institute for International Economics and Applied Economic Research (SlAW) of the University of St. Gallen, and the Centre for European Economic Research (ZEW) in Mannheim. The aim of this volume is to continue the lively discussion we had at the evaluation conference in Mannheim. Four papers deal mainly with current methodological issues and five papers concentrate on empirical applications based on micro data. The methodological part starts with Jim Heckman and Ed Vytlacil who study tight bounds of average treatments effects based on instrumental variables (pp. 1 to 15) and Guido Imbens who enters with some remarks on the long lasting debate on structural versus statistical evaluations with an emphasis on the application of instrumental variables (pp. 17 to 42). Michael Lechner studies methods of impact measurement when there are multiple programme options (pp. 43 to 58). Mark Berger, Dan Black and Jeff Smith discuss the virtues and limits of the burgeoning field of profiling based on econometric models (pp. 59 to 84). The empirical part provides the reader with econometric evaluations of active labour market programmes, using recently developed parametric and nonparametric estimators. Thomas Brodaty, Bruno CN}pon and Denis Fougere investigate the impacts of alternative youth employment programmes in France using multiple treatment matching estimators (pp. 85 to 123). Jan C. van Ours' paper deals with the effects of temporary subsidised jobs and training programmes in the Slovak-Republic (pp. 125 to 152) and Erich Battistin, Andrea Gavosto and Enrico

6 vi Foreword Rettore (pp ) investigate the question why, in Italy, those young entrepreneurs who are publicly subsidised survive longer. Almas Heshmati and Lars Gunnar Engstrom estimate the effects of vocational rehabilitation programmes in Sweden (pp ), and Michael Lechner, Friedheim Pfeiffer, Hannes Spengler and Matthias Almus study the impact of non-profit temping agencies (pp. 211 to 242), an active labour market programme that existed between 1994 and 1998 in Germany. The volume may serve as a starting point for a more systematic and critical scientific accompanying of active labour market policies in Europe. Econometric research can help to improve its efficiency and transparency, although only if politicians are precise about their objectives and if the access to individual data for specific programmes is improved. Then the large gap between the progress in the theory and practice of econometric evaluation in social sciences and its application into real life programmes particularly in Europe can be bridged. These efforts should help to improve programme effectiveness. The organisation of the conference and the book are projects which were not possible without support from many people. First we would like to express our warm thanks to the authors with whom we shared the joy and burden of producing the book. The Centre for European Economic Research (ZEW) in Mannheim provided financial help. We are especially indebted to Wolfgang Franz, ZEW's president, for his encouragement at the various stages of the conference and the book preparation. Furthermore we would like to thank the participants from Europe and the US at the conference for their constructive and professional discussions. All papers have passed a refereeing process and we are strongly indebted to the referees for their high-quality work and timely response. University of St. Gallen, Switzerland ZEW, Mannheim, Germany January 2001 Michael Lechner FriedheIm Pfeiffer

7 Contents Foreword... v List of contributors....ix Instrumental variables, selection models, and tight bounds on the average treatment effect... 1 James 1. Heckman, Edward 1. Vytlacil Some remarks on instrumental variables Guido W Imbens Identification and estimation of causal effects of multiple treatments under the conditional independence assumption Michael Lechner Evaluating profiling as a means of allocating government services Mark C. Berger, Dan Black, Jeffrey A. Smith Using matching estimators to evaluate alternative youth employment programs: Evidence from France, Thomas Brodaty, Bruno Crepon, Denis Fougere Do active labor market policies help unemployed workers to find and keep regular jobs? Jan C. van Ours Why do subsidised firms survive longer? An evaluation of a program promoting youth entrepreneurship in ltaly Erich Battistin, Andrea Gavosto, Enrico Rettore Estimating the effects of vocational rehabilitation programs in Sweden Almas Heshmati, Lars-Gunnar Engstrom The impact of non-profit temping agencies on individual labour market success Michael Lechner, FriedheIm Pfeiffer, Hannes Spengler, Matthias Almus

8 List of contributors Matthias Almus, Centre for European Economic Research (ZEW), Germany Erich Battistin, Universita di Padove, Italy and IPS, London, UK Mark C. Berger, University of Kentucky, USA Dan Black, Syracuse University, USA Thomas Brodaty, EUREQUA, Universite Paris 1, France Bruno Crepon, Institut National de la Statistique et des Etudes Economique (INSEE), France Lars-Gunnar Engstrom, University of Karlstad, Sweden Denis Fougere, Centre de Recherche en Ecomomie et Statistique (CREST), France fr Andrea Gavosto, Ente Studi Economici Fiat, Torino, Italy James J. Heckman, University of Chicago and American Bar Foundation, USA Almas Heshmati, Stockholm School of Economics, Sweden Almas. Guido W. Imbens, University of California at Los Angeles, USA Michael Lechner, University of St. Gallen, SlAW, Switzerland FriedheIm Pfeiffer, Centre for European Economic Research (ZEW), Germany Enrico Rettore, Universita di Padove, Italy enrico. stat. unipd. it Jeffrey A. Smith, University of Western Ontario, Canada Hannes Spengler, Centre for European Economic Research (ZEW), Germany Jan C. van Ours, Kath. Universiteit Brabantarxl, Center fer Economic Research, The Netherlands j.e. Edward J. Vytlacil, Stanford University, USA