How do Unemployment Benefit Sanctions affect the Quality of Post-Unemployment Jobs?

This is the first empirical paper that aims for a comprehensive evaluation of sanction effects. Beyond effects on duration, we evaluate the individual’s post-unemployment position in the wage hierarchy, up to two years after exit, as well as the issue of employment stability. A rich set of register data allows constructing appropriate measures to tackle these questions and assessing their empirical relevance for Switzerland. Preliminary evidence, based on a multiple-stage mixed proportional hazard model, indicates that the unemployment exit hazard shifts upward immediately by 7.2% after warning an individual that a sanction investigation has started. Actually enforcing the sanction increases the hazard by additional 2.8%, though statistically not significant. Do sanctions favour the exit to a certain quality of job? Our results suggest that they foster more mobility to worse paid jobs. In a competing risks model, the total sanction effect on downward mobility amounts to 28% whereas the likelihood to exit to a better (or equally) paid job increases by 7.5% due to a sanction. Moreover, sanctions reduce earnings levels in the first month after unemployment exit by 4.1%. Remark: Further results from an extended model (described below) which assess long-term earnings effects (up to two years after exit) and effects on employment stability will follow in April. JEL Classification: J64, J65, J68