Temporary Extra Jobs for Immigrants: Merging Lane to Employment or Dead-End Road in Welfare?

Abstract

In the context of a substantial welfare reform in 2005, a new employment program has been introduced in Germany, the so-called Temporary Extra Jobs. These jobs provide temporary work opportunities in the public sector for welfare recipients in order to maintain or enhance the employability of the participants and to improve the job chances for regular employment. While engaged, participants receive welfare benefits, and, in addition, for their efforts in the program, they are paid an hourly wage of between 1 and 2 Euro. Occupations in Temporary Extra Jobs have to be additional in nature, of value for society, and must not compete with regular jobs in the market. Despite being intended to act as a last resort of activation for the most disadvantaged welfare recipients, this function is hardly met. With more than 750,000 participants each year, the program is the most frequently used welfare-to-work program in Germany. Within the population of welfare recipients in Germany, immigrants are clearly over-represented with a two thirds larger share than in the overall population. In 2006, more than 34 percent of all welfare recipients were immigrants while their corresponding share of the population was only about 19.5 percent. However, despite their over-representation in welfare, immigrants are not a specific priority group. For this reason, German welfare lacks integration plans for immigrants that are offered in other countries. Instead, immigrants are placed in the standard welfare-to-work programs that have been designed for all welfare recipients. Therefore, immigrants are also frequently placed in Temporary Extra Jobs, even though the use of the program in this group is somewhat less pronounced than in the group of native Germans. In this paper, we evaluate the effects of participating in a Temporary Extra Job on the chance of exiting welfare by taking up employment for immigrant welfare recipients. Since Germany's welfare-to-work programs are not particularly designed for immigrants but for all welfare recipients, we contrast the findings to the effects for native Germans. In addition, we analyze potential differences in the effects between the two ethnic groups trying to illuminate the causes of these differences. For the empirical analysis we use an inflow sample into welfare in 2006 of about 160,000 observations with individual information obtained from register data. These data enable quite a detailed characterization of the labor market past and current situation of immigrants and natives by covering comprehensive information. In addition, they enable identification of immigrants beyond the concept of citizenship. Our results show, that instead of increasing employment chances Temporary Extra Jobs rather reduce the probability of participants to take up a regular job providing a sufficient income above the subsistence level. Treatment effects are especially adverse if a Temporary Extra Job is started during the second quarter of a welfare spell. Even though program effects for immigrants are in many cases not as unfavorable as for natives, Temporary Extra Jobs are not an effective activation measure for this group either. The analysis of the differences in treatment effects shows that immigrants benefit more from Temporary Extra Jobs than natives with otherwise identical characteristics. However, using this result to derive the conclusion that Temporary Extra Jobs should be more frequently used for immigrants is misleading. The strong negative treatment effects Temporary Extra Jobs exhibit for both ethnic groups indicate that the program fails to achieve its objectives. The effects are more adverse for natives, but the program does not help immigrants either to leave the welfare system. Temporary Extra Jobs are a dead-end road in welfare rather than a merging lane to regular employment both for immigrants and for natives.

Keywords: Immigrants, employment programs, evaluation, decomposition of effects, Germany

JEL Classification: I38, C14, J61