DP4304 Regional Treatment Intensity as an Instrument for the Evaluation of Labour Market Policies

Author(s): Markus Fröhlich , Michael Lechner

Publication Date: March 2004

Keyword(s): local average treatment effect , active labour market policy , state borders , geographic variation , weak instruments , small sample problems of IV , switzerland , fuller estimator

JEL(s): C14 , J68

Programme Areas: Labour Economics

Link to this Page: www.cepr.org/pubs/dps/DP4304.asp

The effects of active labour market policies (ALMP) on individual employment chances and earnings are evaluated by non-parametric instrumental variables based on Swiss administrative data with detailed regional information. Using an exogenous variation in the participation probabilities across fairly autonomous regional units (cantons) generated by the federal government, we identify the effects of ALMP by comparing individuals living in the same local labour market but in different cantons. Taking account of small sample problems occurring in IV estimation, our results suggest that ALMP increases individual employment probabilities by about 10% in the short term for a weighted subpopulation of compliers.