Integration Subsidies Improve Employment Opportunities of Older Unemployed Workers

Integration subsidies granted by the Federal Employment Agency help the older unemployed to find a job. Statistical proof of this effect, however, is available for eastern Germany only. There, particularly women benefit from the subsidies. These are the findings of a recent study conducted by the Centre for European Economic Research (ZEW), Mannheim, within the framework of the evaluation of the Hartz I-III Laws. The study was carried out in cooperation with the Institute for Employment Research, Nuremberg, and the Institute for Work and Technology, Gelsenkirchen, on behalf of the Federal Ministry of Labour and Social Affairs.

The study calculates the effect of integration subsidies on re-employment opportunities of people older than 50 by analysing the outflow from unemployment before and after the legislative amendment. Since January 1^st, 2002, unemployed people older than 50 years have been able to receive integration subsidies when assuming a job after even just a short period of unemployment. The study contrasts two groups of unemployed people. The balance of newly hired 50-to-51-year-old workers is compared to the equivalent of 48-to-49-year old people. The new regulation had now impact on the latter group. The estimations are based on original data provided by the Federal Employment Agency (Integrated Employment Biographies).

In the observation period from December 2000 to December 2002, the share of workers who have found employment decreased in both age groups. The main reason for this development is the deterioration of the economic environment. However, the re-employment rate of people eligible for the grant fell less sharply than in the control group. The difference between both groups can be put down to the integration subsidies since conditions on the labour market have developed equally for both age groups.

The estimated number of older workers who have found a job thanks to integration subsidies broadly corresponds to the estimated number of grantees. Among those eligible for the grant, there is one newly employed worker per person receiving the benefits. This trend illustrates that the measure is highly efficient. However, it is not possible to determine whether integration subsidies have generally increased employment rates or whether the additional employment has been generated at the expense of those without governmental backing.

The aim of integration subsidies is to overcome placement obstacles posed by certain characteristics of the unemployed. Age is the main employment barrier of older unemployed workers. Integration subsidies are paid to the employer on a monthly basis in form of additional employee earnings with the aim of incentivising the employer to hire older unemployed. Employment subsidies can be granted over a maximum period of 36 months. Local employment agencies determine the level of financial support, which can amount to 50 per cent of the employee earnings.

Contact

PD Dr. Bernhard Boockmann, E-mail boockmann@zew.de

Prof. Dr. Thomas Zwick, Phone +49 (0)621/1235-131, E-mail zwick@zew.de