Should Local Public Employment Services be Merged with the Local Social Benefit Administrations?

term unemployment rates and unemployment assistance recipient rates are not statistically
significant, the differences in social assistance benefits recipient rates are highly significant.

Prior to the Hartz IV reform short- and long-term unemployed as well as unemployment
assistance recipients were cared for by local public employment services, which are
controlled by the Federal Employment Agency. Social assistance recipients, however, were
cared for by local social benefit administrations, which are under the control of the local
authorities. One would therefore expect that regions primarily looked at the social assistance
recipient rates in order to evaluate whether they are better able to care for the long-term
unemployed on their own.

Table 1: Labour market conditions in 2000 - 2003 (weighted averages)

a) In percent of working age population (18 to 64 year olds).

Confidence intervals with * and ** indicate significance at a 5 % and 1 % level, respectively.

Source: Own calculations based on data from the Federal Employment Office.

The significantly different social assistance recipient rates suggest some degree of
positive self-selection of regions into Approved Local Providers. The positive self-selection
of regions with advantages in activating long-term unemployed is likely to lead to higher job
finding rates in regions with Approved Local Providers and an upward biased estimate of the
Approved Local Provider indicator variable in the absence of a good instrument.

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