Do mandatory integration contracts improve job search outcomes of the unemployed? Evidence from a randomized controlled experiment in Germany

In the German unemployment insurance system integration agreements (IA) play a central role. An IA is a mandatory contract between the job seeker and the labor market agency. It fixes the job seekers' rights and obligations in the job search process and is signed by the caseworker and the unemployed. Based on a randomized controlled experiment we compare job search outcomes of unemployed job seekers who signed an IA directly after entering unemployment with individuals who sign their IA around 3 and 6 months after entering unemployment, respectively. An additional group received a notification at the start of unemployment about having to sign an IA in month 3, which allows the analysis of anticipation effects. Our analysis is based on rich administrative and survey data. We focus on men without major labor market impediments. We find that early IAs have on average a small positive effect on the exit rate to work. Subgroup analyses reveal that this effect arises only for unemployed that were profiled as needy in terms of activation or support, while no effect is found for easy-to-place unemployed. Shedding light on the individual job search strategy our findings suggest that early IAs do note have an immediate impact on the reservation wage. They affect, however, the way how individuals search for a job.