(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 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 sanctions for passive recipients.

Compulsory activation of young welfare recipients: revisiting the trade-off between workfare and welfare generosity

“…As mentioned briefly in section 1, E. S. Dahl and Hernaes (2023) find no effect on benefit receipt, education or employment for the 2017 compulsory activation reform, suggesting that changes in benefit adequacy do not come from changes in the composition of recipients. Smedsvik and Iacono (2023) also find no significant use of benefit sanctions related to these policy.…”

“…Compulsory activation is often seen as a workfare approach, since it entails the strengthening of economic incentives to make activation effective, as noncompliance is intended to result in a benefit reduction (Smedsvik & Iacono, 2023). The reform also reflects a concern that youth unemployment can be a main driver of long-term marginalization dynamics.…”

“…Notice however that municipalities affected by the reform have themselves chosen not to impose the reform at a previous stage. This issue was addressed by Smedsvik and Iacono (2023), who showed no systematic differences with respect to social assistance recipiency between the municipalities that introduced before the reform, and those affected by the reform. In this study,…”

“…The panel is unbalanced with waves including between 9000 and 12000 individuals. The sample thus constitutes between one-third and one-fourth of the total population of social assistance recipients age 18−29 in Norway, which means approximately 43000 individuals (Smedsvik & Iacono, 2023).…”