Social Employment of Welfare Recipients in Belgium: an Evaluation1

In Belgium, welfare agencies receive a subsidy to employ welfare recipients for a period sufficiently long to entitle them to unemployment benefits. This work experience program is called Social Employment (SE). We investigate the effect of SE on the exit rate from welfare. We propose a grouping/IV estimator of the SE effect that eliminates selection bias. The estimator is consistent, even if the selection into SE depends on the average unobserved characteristics of welfare recipients in a region and in a welfare duration interval. The empirical analysis suggests that there is creaming in the selection process. Without correction for selectivity we find that SE reduces welfare dependence, but after correction this conclusion is reversed. These results are consistent with the adverse incentives faced by the welfare agencies.