Impact of Benefit Sanctions on Unemployment Outflow - Evidence from German Survey Data

In course of the ''Hartz IV'' reform implementation in January 2005, Germany has tightened unemployment benefit sanctions. In addition, the regulations with respect to job offer acceptance have been strengthened radically. As non-compliant behavior is supposed to entail benefit sanctions, we suspect that in particular sanctioned unemployed tend to make more concessions on the job conditions they are willing to accept, and hence enter employment more quickly. Moreover, we expect that sanctioned persons could otherwise tend to exit from labor market more quickly. In our analysis we examine the impact of sanctions on the probability of reemployment or leaving the labor force. Employing a mixed proportional hazard model enables us to draw causal inference of sanction enforcment on the unemployment exit hazard. Based on a survey sample covering the years 2005-2007, we find evidence for a positive impact of sanctions on reemployment, whereas the effect on leaving the labor market also turns out to be positive.