The Interplay between Individuals' Expectations, Active Labour Market Policies, Job Search Behaviour and Labour Market Outcomes

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In the last decades, a comprehensive part of the economic literature has analysed the effects of active labour market policies (ALMPs) on participants subsequent labour market outcomes. Recent meta-analyses show that traditional programs, e.g. training or workfare programs, have only limited success bringing participants back to regular employment, which raises questions about the underlying effect mechanisms. So far, only a few studies have taken into account that job seekers already adjust their search behaviour when anticipating a future treatment. Depending on the expected effect of a treatment on the individual utility, job seeker who anticipate a treatment are either encouraged to leave unemployment early to prevent the treatment or wait out until the program start. However, the actual mechanisms with respect to the formation of these expectations about future treatments, the presence of competing labour market programs and the long-term consequences of such a behavioural adjustment have not yet sufficiently investigated.The following research projects aims to close this gap and provide a more profound understanding of the job search process considering the interplay with job seekers expectations and consequences for realised labour market outcomes. The project combines the two strands of the literature, the ex-post and ex-ante evaluation of ALMP programs, incorporates subjective beliefs about future ALMP participation in a job search framework and tests the derived hypothesis by exploiting a unique combination of survey and administrative data for a sample of fresh entries into unemployment in Germany. The data allow us to investigate the anticipation effects of competing ALMP programmes with different costs of participating and different expected treatment effects. In a second step, we analyse the process of the individual formation of expectations and the interplay with labour market outcomes in general. Therefore, we will also provide evidence with respect to the precision and quality of the underlying expectation data, which is expected to provide evidence with respect to the reliability of studies that infer expectations or beliefs in general based on revealed preference analysis relying on observed outcomes. Finally, we relate job seekers’ expectations measured at the beginning of the unemployment spell to realized treatments and investigate consequences for the programme effectiveness. The findings are expected to help policy makers to increase the efficiency when allocating ALMP programmes and stimulate early exits from unemployment by exploiting anticipation effects. This is particular important since these programmes represent one of the major governmental instruments in order to re-integrate unemployed job seekers into the labour market.