Assignment Mechanisms, Selection Criteria, and the Effectiveness of Training Programs

Many studies investigate the effectiveness of active labour market programmes for the unemployed, but there is little evidence regarding effectiveness of the assignment mechanism of such programmes. We exploit a large-scale reform of the allocation of vocational training programmes for unemployed individuals in Germany. We analyse the effectiveness of vocational training under two different assignment mechanisms. The pre-reform direct assignment mechanism is characterised by strong influence of caseworkers who can directly assign the unemployed to training courses. Under the post-reform voucher assignment mechanism unemployed have more freedom to choose among different courses and training providers. Simultaneously with the assignment mechanism the selection criteria for potential training participants is changed. We employ a multiple treatment framework to identify the different effects of interest. Furthermore, we use a formal mediation analysis to isolate the direct effect of the voucher assignment mechanism. We find that an assignment through vouchers reduces the returns to vocational training over the short term. These negative effects fade out in the long run. The new selection rule appears to be poorly constructed and to reduce the effectiveness of training.