The Effects of Promoting Labour Market Mobility, Intended and Unintended
Many countries offer financial support to unemployed job seekers with the goal of increasing their willingness to search for employment beyond their local labour market. There is clear evidence that geographical mobility among unemployed job seekers improves their employment prospects. Next to individual gains, promoting such policies is an attractive path for public policy to equalize regional economic disparities.
A new paper by Associate Professor Steffen Künn from Maastricht University School of Business and Economics (SBE) now provides novel evidence that providing unconditional financial support to encourage geographical mobility among unemployed job seekers can actually do more harm than good. “This is key information for policymakers who should rethink their strategies,” Künn says.
The paper is a joint work between Steffen Künn (SBE), Marco Caliendo (University of Potsdam) and Robert Mahlstedt (University of Copenhagen) and investigates the effects of offering mobility programs to unemployed job seekers in Germany. The paper has also been accepted for publication in the Review of Economics and Statistics. You can download the IZA Discussion Paper version here.
Mobility programs help job seekers by providing financial support for relocation or commuting. The goal is to widen the area where they search for jobs, reducing the mismatch between job opportunities and where they live.
This study examines how these mobility programs work by looking at the differences in their availability across different areas within employment agency districts in Germany. This enables the researchers to make a comparison between job seekers residing in districts abundant in mobility programs, where caseworkers are inclined to provide information about these programs, and individuals in neighbouring districts where mobility programs are less prevalent, potentially resulting in job seekers being less informed about their presence.
This study's findings are remarkable because they reveal, for the first time, that mobility programs have a negative impact on the labour market outcomes of unemployed job seekers. This is surprising given the policy's intended purpose and previous research. So, why does this happen?
The study observes that job seekers do respond to the promotion of mobility programs by broadening their job search to more distant locations, as intended. This shows that employment agencies can encourage greater geographical mobility in job-seeking through their guidance. Previous research has indicated that searching for distant jobs can be beneficial for those who eventually secure employment in distant areas and experience positive results from this geographical mobility (e.g. see Caliendo, Künn and Mahlstedt, 2017).
However, a crucial point to note is that the adjusted search behaviour ultimately leads to lower overall employment levels and earnings for unemployed job seekers. This occurs because the promotion of mobility programs also motivates those who are less effective in searching for distant jobs or are restricted in their ability to relocate. For them, focusing on distant job searches consumes resources that could be better invested in local job searches. This seems to apply to the majority of job seekers, and the negative effects caused by spatial search difficulties outweigh any potential benefits of reducing geographic mismatches.
While mobility programs aim to reduce geographic mismatches and enhance job prospects for seekers, this research underscores the challenging nature of achieving this goal. The researchers have observed that policies subsidizing geographic mobility are generally inefficient. Therefore, what can and should a policy do to enhance the well-being of job seekers?
To improve overall welfare, it is crucial to minimize obstacles in searching for jobs across different regions. This can be achieved by enhancing the quality of long-distance career counselling. Local caseworkers may have limitations in assisting job seekers in distant job searches, but fostering collaboration between interregional caseworkers from different employment offices or private job agents could boost job search efficiency.
Additionally, tailoring mobility programs to job seekers who can and are willing to accept employment in distant regions can improve efficiency. It is advisable not to offer mobility programs to job seekers who face significant spatial search constraints.
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Many governments offer financial support to unemployed job seekers with the aim of increasing their willingness to look for work outside their local labor market. Research by Maastricht University shows that this sometimes does more harm than good