All the groups had to be unemployed and to have worked less than 3 of the

last 6 months.

The labor market policy instrument which was tested on these groups was a type of sheltered or half-sheltered employment with four characteristics.

First, the work was limited to 12 or 18 months. Naturally, the employees could voluntarily leave their jobs earlier and they could be fired if they deserved it, but it was clearly stated that the job was over after 12 (or 18) months. Second, the work was carried out in groups in which the participants had similar backgrounds. The idea behind this was that the participants would be able to support each other both by understanding each other's problems and by setting examples for each other. Third, the work teams were supported by staffs who were knowledgeable both in the work area and in the field of the participants' special problems. Fourth, the demands on the work done by the participants were increasingly heightened, so that they would ultimately equal the requirements existing on the open labor market. One instrument to achieve this aim was a special wage and bonus system. The basic wage was not permitted to be under the legal minimum wage, but was somewhat below the monthly wages for local blue-collar workers. The bonus was depending on individual productivity, and since the demands were

-heightened it became gradually more difficult to receive bonus.

This type of labor market policy instrument was enacted in 15 locations spread all over the USA. In 10 of them, the use of random selection was employed, that is, classical experiments. In each place, extensive work was required to get the project to work. To start with, close cooperation with the authorities able do direct participants to the program was necessary. These authorities included welfare offices, rehabilitation centers for addicts and alcoholics, and prison authorities. Further it was required that the potential participants be randomly assigned to experimental and control groups. More than everything else, it was necessary to find places of employment where the participants could work in groups and leaders who had the necessary qualifications.

Finally, the evaluation demanded a large data collection. The bulk of information about income and employment development after the participants had left the program was obtained through interviews, which were supplemented with some register data, primarily to get a better measurement of occurrences such as continued criminality and addiction.

(The interview method led in addition to some problems of non-response, but a closer analysis indicated that they were most likely of less consequence.) Furthermore, the activity in the various places had to be coordinated so that a certain degree of uniformity could be achieved. Even funding made demands on coordination. Different federal departments and the Ford Foundation contributed, but a large part of the local program activities were financed locally. Thus, it was a very large project, requiring an extensive amount of work in the form of coordination. The MDRC (Manpower Demonstration Research Corporation) was created as a coordinating organ. The gradual accumulation of competence and experience during the course of the project was preserved by making the MDRC a permanent organization. It has headed many evaluation projects since then.

The experimental planning on a more statistical basis meant that 1620 women with AFDC, 1154 addicts, 1458 ex-eonvicts and 1252 youths were selected. With the exception of one town, half of them were placed in the

experimental group and half in the control group. It is important to state precisely at what point this random selection occurred. In this case it took place after a careful selection of both the authorities who directed applicants and those who were responsible for the program activities: the leaders were able to interview all the participants and reject those who were adjudged unsuitable. In other words, selection to the experimental and the control groups was made from a group who had themselves agreed to participate and who had been screened by the program administrators.

The random selection meant however that only about half of those who were considered suitable by the field staff were able to participate. The rest had to go into the control group. This created - see Hollister, Kemper and Maynard (1984:35) —a certain dissatisfaction, but the authors did not feel that it was serious enough to affect the results to any great extent.

Results

The studies of the effects of the program have focused on whether the participants were employed more and received higher incomes than they otherwise would have been/done, and whether criminal behavior and

addiction decreased.

Stated briefly, the major results are that women with AFDC who participated in the program had a better employment and income development than the control group, that is, a positive effect is evidenced.

Addicts had a lower arrest frequency. On the other hand, no effects on employment or incomes could by found for this group. Nor was the use of drugs affected for this group, despite the decrease of arrests. No effects on employment or incomes were found for ex-convicts either, but various information problems made the analysis of this group more difficult than for the others. Finally, no effects for the vouth group were found: the participants in the control group showed in general the same development as the experimental group.

Attempts were also made to carry out social cost/benefit calculations for the program. On the plus side, the value of what was produced during the project

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-and the value of the higher employment -and lower crime rate after the project were included. On the minus side were included among other things the costs for the leaders, the premises, etc. The calculations, which contained several reservations, indicate social profitability for the measures directed towards the women with AFDC and addict groups, while the measures directed towards the youth group gave negative results. Regarding the measures aimed at the ex-convict group the result was very unclear.

Methodological limitations

The National Supported work Demonstration in all important aspects seems to be a well-conducted experiment. The choice of the experimental and control groups was made from a population which had gone through the selections made by prospective participants (enrolling into the program) and

by the authorities (choosing the ones who are most suitable to participate).

Therefore the experimental group is certainly representative for those who would have participated if the program had been operating normally.

A certain risk for the Hawthorne effect could have existed. The program which was introduced and tested was namely new, and the field staff can therefore have been unused to handling these policy instruments. One can also imagine that the program could have been improved if the evaluation results could have been applied in practice.

Indirect effects on different labor markets, the control group included, might have occurred and might also have slanted the results. It is however impossible to say anything more definite on this matter.

III.3 Wage vouchers for welfare redpients in Dayton, Ohio, USA^

The background of this project is that the US Congress in connection with a re-organization of the CETA program in 1978 directed the Department of Labor to carry out a study of direct wage vouchers. A wage voucher is a 7This presentation is based on Burtless (1985).

certificate given to individual job seekers, entitling any employer who hires the seeker to a certain wage subsidy. Congress directed the Department of Labor to test the instrument on groups of job seekers who were entitled to other type of service within the CETA program.

The project was conducted jointly with Mathematica Policy Research, a research company. The design of the experiment was very simple. Between December, 1980 and May 1981, 916 participants, all welfare recipients, were selected: just under half received AFDC and the rest got general assistance payments. They were randomly divided into three groups. One group was given a "tax credit voucher", which meant that the employer who hired the job seeker was entitled to a tax reduction. A second group got a "direct cash rebate subsidy", which meant that the employer who hired the job seeker was entitled to a direct subsidy. The subsidy amount for both groups was 50% of the wage bill for the first year (with a maximum-limit of $3000 for subsidies) and 25% of the wage bill the second year (with a maximum limit of $1500 for subsidies). A third group received no voucher at all and thus constituted the control group.

All three groups participated in a two-week—long course directed towards teaching and training in how to seek employment, a sort of job-himting club.

Both experimental groups were also given information at some point in the course about how they could use their vouchers. The teachers at the courses circulated between the groups so that no systematic "teacher effects" could occur. In this way the authorities also lost the possibility of giving the experimental groups the best teachers so that the results would be as good as possible.

Results

The results from the experiment can be presented in a very simple way without any complicated statistical or econometric techniques. The fact is that Table III.l is the only documentation which was published about the results of the project. Burtless in another context (Burtless 1988) claimed that one of the advantages with experiments is that the results can be understood very easily even by those readers who lack knowledge of statistical

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-methods.

As is seen in the table, the results are worthy on notice, to say the least.

Those who received a benefit in the form of a wage voucher show undisputably worse results than those who belonged to the control group! The difference is clearly significant, which means that it is highly improbable that the difference between the groups can be explained as occurring by chance.

On the other hand, the results for both types of vouchers are more or less the same, which means that it makes no difference how the companies get the

support.

Table m.l Employment figures for the experiment and control groups in Dayton

Group Sample size Number placed Percentage

placed size in jobs

Tax credit

voucher 247 32 13,0 %

Direct rebate

subsidy 299 38 12,7 %

Control group 262 54 20,6 %

Total 808 124 15,3 %

Source: Burtless (1985)

Notes:

The employment numbers refer to whether work is obtained within an 8—week period after the course in job seeking.

The 808 of 916 original participants who are included in the results are those who completed the course in job seeking.

The question is how one can explain this paradox: that those who could offer the employers an economic compensation in the form of a voucher fared worse than the others. Some mechanism must not only have neutralized the economic advantages inherent in the wage vouchers but must also have outweighted them. Burtless' explanation is based on the idea that a wage voucher can also act as a signal for the employer. When the job applicant presents his voucher for a presumptive employer, he must also explain to him why just he is able to offer him one. The reason, of course, is that he is a welfare recipient. This means that the employer has received a type of information about the job seeker which he otherwise would not have received.

If this information is perceived negatively due to the fact that welfare recipients suffer more often from various social problems than others, a voucher can act as a warning signal. As Burtless wrote, the wage voucher can act as a signal that the seeker is "damaged goods".

Another result of the study is that only a smaller part —about one third —of the employers who in principle would have been entitled to the wage subsidies (70, according to the Table) in actuality demanded their money. One explanation can be that several of the job seekers with vouchers did not make

use of them. According to Burtless, there are informal reports from the staff

who conducted the experiment that certain job seekers deliberately did not use vouchers. This in turn can depend on the fact that they realized that the employers would interpret them as a negative signal.

An experiment of this type does not lead primarily to methodological speculations but rather to thoughts of labor market policy. An important

question is how general can the result be: can similar mechanisms yield

negative effects even from other types of labor market policies like training, even for other countries? This possibility cannot be excluded, at least. Since wage subsidies occur quite extensively in many countries, this study must constitute a warning for many decision-makers in labor market policy issues.

The best way to react to this warning naturally is to test the effectiveness of existing wage subsidies in other coimtries with the help of experiments.

Another opinion might be that wage subsidies ought to be used to compensate for visible and obvious handicaps rather than for invisible and less obvious

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-ones. If for example persons with visible physical handicaps offer wage vouchers, these will not necessarily be taken as a signal of invisible problems.

It is possible that wage subsidies can function properly when they are held by persons with visible and obvious handicaps but that they are received negatively when possessed by persons with invisible and less obvious handicaps.

in.4 Bonuses to the unemployed in Illinois, USA^

Due to long—term criticism of the system for unemployment insurance and dissatisfaction with the results of non-experimental studies of how unemployment compensation affects the job-seeking behavior of the unemployed, the Department of Employment Security in Illinois decided to examine how well bonus payments to the unemployed could work as instruments for reducing the length of unemployment. They chose to use a classical experiment for this investigation. The project was carried out in cooperation with the W.E. Upjohn Institute for Employment Research.

Two types of premiums to the unemployed were tested. In the first case someone who had just become unemployed and who was entitled to unemployment compensation was offered an extra bonus of $500 for himself if he found work within 11 weeks. Two requirements were made, however: that the job should be held for a minimum of 4 months and should consist of at least 30 working hours per week. The other premium meant that the unemployed person received a wage voucher worth $500 which he could give to an employer who hired him within 11 weeks. The job requirements were the same as in the first case with the bonus. The size of both the bonus and

the voucher was equivalent to about 5 per cent of an annual wage or four weeks unemployment compensation. The amount decided upon was determined among other things by the $750,000 budget available for premium payments to companies and the unemployed.

To be entitled to either an offer of a bonus or a voucher, it was required that

SThis presentation is based on Woodbury and Spiegelman (1987).

the individual (i) had started a period with unemployment compensation between July 29 and November 17, 1984, (ii) was entitled to 26 weeks' compensation, (iii) was registered at one of 22 different Job Service Offices in northern or central Illinois and (iv) was between 20 and 55 years of age.

Those who filled these conditions were divided randomly into three groups: an experimental group who was offered a bonus, an experimental group who was provided with vouchers and a control group who did not receive any extra offer beyond the regular unemployment compensation which naturally also went to both the experimental groups.

The information about incomes and contributions both before and after the

period of unemployment was gathered from various registers. In this way the non-response problem of the interview technique was avoided.

Results

The study sheds much light on the effects of introducing the extra incentives for intensified job seeking. Some of the results are collected in Table III.2 The first row of the table shows that the sample size was about 4000 individuals in each group.

A first interesting result is that a considerably higher percentage accepted the offer of a bonus premium than the offer of a wage voucher to give to an employer: 84 per cent versus 65 per cent. Seen relatively, the difference between the two experimental groups became even greater when one could state that 14 per cent of those who were offered the possibility of a bonus also received one, while the corresponding figure for the group with wage vouchers was 3 per cent. Two factors contributed to making these figures so low. In the first place, many could not manage to find a job within 11 weeks and thus were not entitled to the premiums. Secondly, it turned out that surprisingly many of those who were entitled to receive premiums did not take them out:

Woodbury and Spiegelman report that only 54 per cent of the unemployed who qualified for a bonus payment took it, and only 12 per cent of the companies entitled to money for the voucher they were supposed to get from the new employee asked for the money. The latter is rather strange and might be explained by lack of familiarity with the administrative routines for

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-Table in.2 Some results from the experiment in Illinois

Sample size

Source: Woodbury and Spiegelman (1987).

Exp. group Not significantly different from 1

The hypothesis that the difference between the experiment and the control group is zero can be rejected at the 1 per cent significance level.

The corresponding hypothesis can be refuted at the 5 per cent significance

level

payments. One may fear that this was due to the fact that the experiment

was of short duration and that the outcome would have been different if it

had gone on for a longer time.

The next three lines show in three different ways how the periods of unemployment have been affected by the experiment. Note that the figures for the experimental groups are the averages for those who were offered the possibility of making use of a bonus or voucher. It appears that both the experimental groups received lower unemployment compensation, had on the

average shorter periods of unemployment and to a larger extent left

unemployment (ceased to be a compensation recipient) within 11 weeks than the control group. The effects were somewhat stronger for the group which

was offered a bonus.

Later, more in depth, analysis of the data (Meyer (1988)), has convincingly shown that the probability of leaving unemployment (the "hazard") was

higher for the experimental groups than for the control group during the first

11 weeks. On the other hand no differences could be found after the point in time when the bonus option had ceised.

Thus, the conclusion is that extra incentives to get a job affects job-seeking behavior. Based on traditional search theory, one can expect that these effects appeared for two reasons: either that the reservation wages were lowered for the purpose of quickly getting a job or that the intensity of job-seeking was heightened, or a combination of both these mechanisms. In order to study this

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