End-of-Year Spending and the Long-Run Effects of Training Programs for the Unemployed
This study re-estimates the employment effects of training programs for the unemployed in West Germany using exogenous variation in participation caused by budget rules in the 1980s and early 1990s. As funds could not be transferred to the next year or to other programs, a budget surplus (deficit) after the first half of the year increases (decreases) overall training participation at the end of the fiscal year (“end-of-year spending”) irrespective of the situation of the unemployed. For all programs affected by this budget mechanism, our instrumental variables estimates imply sizeable lock-in effects on
employment in the short run, but heterogeneous effects later-on. While retraining programs improve employment in the medium and long run, our findings imply long-lasting negative effects of short-term training and practice firms.