reform. We can, however, compare some labour market variables before the Hartz IV reform
in order to investigate whether regions with better performing social benefit administrations
applied for being Approved Local Providers. The descriptive statistics show that the regions
which later became Approved Local Providers had significantly lower social assistance see
above recipient rates. To account for the positive self-selection, we use an instrumental
variable approach. As an instrument we use information about the involvement of local
political representatives in the German County Association (“Deutscher Landkreistag”), a
political lobbying institution that promoted the introduction of Approved Local Providers in
all German regions and that therefore had a large influence on which regions applied for
becoming an Approved Local Provider.
Being able to consistently estimate the effect of the institution “Approved Local
Provider” compared to the institution “Joint Local Agency” on the job finding rate of the
long-term unemployed will provide us with an idea which institution is overall better suited
to integrate the long-term unemployed into the labour market. To gain further insight into the
organisational features that determine the success of an institution, we are able to use a
unique dataset on the major organisational characteristics of all job centres. Many
organisational features are not unique to one of the two institutions, but can be found in
either Approved Local Providers or Joint Local Agencies. Thus, our dataset allows us to not
only to shed some light on the factors that determine a successful institution, but also to
control for those organisational characteristics that both institutions have in common. This
brings us closer to the pure effect of having the local public employment service and the
local social benefit administration merged. Of course, we cannot claim to control for all
characteristics that are orthogonal to having the local public employment service and the
local social benefit administration merged, but our dataset allows us to get closer to the pure
effect.
The OLS-estimate and the IV-estimate for the overall effect of being an Approved Local
Provider (without controlling for organisational characteristics) are insignificant, but they
indicate that long-term unemployed in regions with Approved Local Providers have lower
unemployment to employment transition rates than long-term unemployed in regions with
Joint Local Agencies. We also find that regions that later became Approved Local Providers
had better labour market conditions before the Hartz IV reform. Thus, despite the evidence
that regions with better labour market conditions prior to the Hartz IV reform selected into
being Approved Local Providers, regions with Approved Local Providers seem not to
perform better than Joint Local Agencies.
Comparing the overall effect of being an Approved Local Provider (without controlling
for organisational characteristics) with the effect after controlling for organisational