The Effect of Sanctions and Active Labour Market Programmes on the Exit Rate from Unemployment

This paper simultaneously investigates the effectiveness of benefit sanctions and active labour market programmes on the exit rate from un mployment using Danish data. In the data about one third of the individuals who are sanctioned also participate in some active labour market programmes (ALMPs). Hence, modeling only one of them as treatment might over or underestimate the true effect. Therefore, by using a multivariate mixed proportional hazard model (MMPH), we model the hazard rate out of unemployment along with the sanction rate and hazard rate into active labour market programmes. We optimally select the number of supports point for the distribution of unobserved heterogeneity. Results show that pre-specifying two support points underestimates the effect of sanctions and active labour market programmes. Failing to control for selectivity for sanctions not only underestimates the treatment effect of sanctions but also biases the treatment effect of ALMPs