No. 2022-24 - (In)visible sanctions: micro-level evidence on compulsory activation for young welfare recipients

Abstract:

Since the early years of activation and workfare in the 1990s, the use of welfare conditionality and benefit sanctions has been proposed among the necessary solutions to ensure the efficiency of welfare policy by reinforcing individual economic incentives. Using rich administrative registers from Norway, we produce micro-level quantitative evidence on compulsory activation for young recipients of social assistance. The empirical challenge is that activation through the threat of benefit sanctions is not a feature that unambiguously emerges from observational data, except for when sanctions indeed take place and benefits are reduced. To overcome this barrier, we introduce a novel methodology to identify individual- level effects of activation on young welfare recipients, exploiting municipal variation in the introduction of compulsory activation. More precisely, we study whether individuals who are residents in municipalities that have introduced compulsory activation display a stronger relationship between their labor market status (activation) and their benefit size (because of the threat of sanctions being in place) compared to individuals residing in municipalities where activation has not been made compulsory. Our results show that there is no different relationship between social assistance benefits and passive labor market status for individuals living in municipalities that practice activation compared with individuals residing in municipalities in which activation is not yet mandatory. In other words, there is no visible effect of (the threat of) sanctions for passive recipients.