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1 ,VWKH7KUHDWRI7UDLQLQJ0RUH(IIHFWLYH7KDQ7UDLQLQJ,WVHOI" ([SHULPHQWDO(YLGHQFHIURPWKH8,6\VWHP by Dan A. Black Jeffrey A. Smith Mark C. Berger Brett J. Noel Center for Policy Research Department of Economics Department of Economics American Express TRS 426 Eggers Hall Social Science Centre Gatton College of Business 7740 North 16 th Street Syracuse University University of Western Ontario and Economics Phoenix, AZ Syracuse, NY London, Ontario N6A 5C2 University of Kentucky Canada Lexington, KY First Version: June 1998 Current Version: November 12, 1999 *We thank the U.S. Department of Labor for financial support through a contract with the Kentucky Department of Employment Services and the Center for Business and Economic Research at the University of Kentucky. Smith also thanks the Social Science and Humanities Research Council of Canada for financial support. We especially thank Bill Burris, Donna Long, and Ted Pilcher of the Kentucky Department of Employment Services for their assistance, and Steve Allen, Susan Black, Amitabh Chandra, and Roy Sigafus for research assistance. Seminar participants at Boston University, the University of British Columbia, Colorado, Cornell, the Econometric Society meetings, Indiana, the Institute for Fiscal Studies, Louisiana State, MIT, Missouri, Ohio State, the Society of Labor Economists meetings, the Stockholm School of Economics, Syracuse University, the Tinbergen Institute, the University of Toronto, the Upjohn Institute, the University of Western Ontario, and the Zentrum für Europäische Wirtschaftsforschung provided useful comments.

2 ,VWKH7KUHDWRI7UDLQLQJ0RUH(IIHFWLYH7KDQ7UDLQLQJ,WVHOI" ([SHULPHQWDO(YLGHQFHIURPWKH8,6\VWHP $EVWUDFW This paper examines the effect of the Worker Profiling and Reemployment Services (WPRS) system. This program profiles UI claimants to determine their probability of benefit exhaustion (or expected spell duration) and then provides mandatory employment and training services to claimants with high predicted probabilities (or long expected spells). Using a unique experimental design, we estimate that the WPRS program reduces mean weeks of UI benefit receipt by about 2.2 weeks, reduces mean UI benefits received by about $143, and increases subsequent earnings by over $1,050. Much (but not all) of the effect results from a sharp increase in early exits from UI in the experimental treatment group compared to the experimental control group. These exits coincide with claimants finding out about their mandatory program obligations rather than with actual receipt of employment and training services. While the program targets those with the highest expected durations of UI benefit receipt, we find no evidence that these claimants benefit disproportionately from the program. In addition, we find strong evidence against the common effect assumption, as the estimated treatment effect differs dramatically across quantiles of the untreated outcome distribution. Overall, the profiling program appears to successfully reduce the moral hazard associated with the UI program without increasing the take-up rate.

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35 7DEOH'HPRJUDSKLF&KDUDFWHULVWLFVRI7UHDWPHQWDQG&RQWURO*URXSV.HQWXFN\:356([SHULPHQW2FWREHUWR-XQH Control Group Treatment Group P-values for tests of differences in means Treated Population Age 37.0 (10.9) Years of schooling 12.3 (2.10) 37.1 (11.1) 12.6 (2.14) (11.2) (2.06) White male White female Nonwhite male Nonwhite female Earnings in year before claim $19,759 (13,678) $19,047 (13,636) $19,168 (14,588) N 745 1, ,002 Source: Authors calculations from thekentucky WPRS Experiment. Standard deviations are given in parentheses. Means are unweighted. Tests for differences in means are for the treatment and control groups and are based on a linear regression that also conditions on the 286 PTGs. The treated population consists of all claimants assigned to the profiling treatment, not just those in the PTGs. In the notation in the text, this group has C=1 and S=1.

36 7DEOH,PSDFWRI7UHDWPHQWRQ'XUDWLRQRI%HQHILWVDQG(DUQLQJV.HQWXFN\:356([SHULPHQW2FWREHUWR-XQH Outcome Measures Impact of Treatment Number of weeks receiving UI benefits (0.509) [0.000] UI benefits received -$ (100.3) [0.077] Earnings in the year after the start of the UI claim $1, (588.0) [0.037] N 1981 Source: Authors calculations from thekentucky WPRS Experiment. Each of the regressions controls for the Profiling Tie Group (PTG) of the recipients. There are 745 claimants in the control group, 1,236 claimants in the treatment group, and there are 286 PTGs. Standard errors are in parentheses and p-values from one-tailed tests are in brackets.

37 7DEOH,PSDFWRI(DUO\([LWDQG7UHDWPHQWRQ(DUQLQJV.HQWXFN\ :356([SHULPHQW2FWREHUWR-XQH Dependent Variable: Earnings in the year after the start of the UI claim. (1) Treatment group $1, (636.62) [0.012] Claimant exited early (paid benefits less than 5 weeks) $7, (1,217.73) [0.000] Claimant exited early and in the treatment group -$4, ( ) [0.001] N 1981 Source: Authors calculations from thekentucky WPRS Experiment. Each of the regressions controls for the Profiling Tie Group (PTG) of the recipients. There are 745 claimants in the control group, 1,236 claimants in the treatment group, and there are 286 PTGs. T-statistics are given in parentheses and p- values from one-tailed tests appear in brackets. An early exit is a person for whom the weeks of benefits paid variable equals less than five.

38 7DEOH,PSDFWRI7UHDWPHQWE\$JH37*DQG3URILOLQJ6FRUH.HQWXFN\:356([SHULPHQW2FWREHUWR-XQH Weeks of UI benefits received UI benefits received Earnings in year after claim N Age Age under (0.720) [0.020] Age between 35 and (0.770) [0.000] Age 50 and over (1.265) [0.026] P-value for test of equality of impacts -$80.27 (140.9) [0.285] -$ (150.6) [0.094] -$ (247.5) [0.278] -$ (840.0) [0.569] $1, (898.2) [0.015] $2, (1475.0) [0.047] Profiling Tie Groups P-Value for test of equality of impacts (286 groups) Profiling Scores Profiling score between 6 and 13 Profiling score between 14 and (0.913) [0.007] (1.050) [0.036] Profiling score of (1.102) [0.003] Profiling score between 17 and 19 P-value for test of equality of impacts (1.039) [0.037] -$ (179.74) [0.067] -$14.42 (206.77) [0.472] -$ (216.94) [0.016] $ (204.60) [0.813] $ ( ) [0.186] -$1, (1,210.25) [0.851] $4, (1,269.76) [0.001] $ (1,197.55) [0.283] Source: Authors calculations from thekentucky WPRS Experiment. Each of the regressions controls for the Profiling Tie Group (PTG) of the recipients. Standard errors are given in parentheses and p-values from one-tailed tests are given in brackets.

39 7DEOH(VWLPDWHVRIWKH,PSDFWRI7UHDWPHQWRQWKH7UHDWHG %DVHG RQWKH$VVXPSWLRQWKDW = (X ).HQWXFN\:356([SHULPHQW 2FWREHUWR-XQH Weights Number of weeks receiving UI benefits UI benefits received Earnings in year after claim Unweighted (.509) [0.000] Profiling score weights (0.547) [0.000] Local office weights (0.560) [0.000] Time weights (0.506) [0.000] Age category weights (0.502) [0.000] Education category weights (0.500) [0.000] Sex weights (0.509) [0.000] Race category weights (0.508) [0.000] -$ (100.3) [0.077] -$86.67 (109.55) [0.215] -$ (110.44) [0.122] -$ (99.46) [0.065] -$ (100.12) [0.062] -$ (98.52) [0.063] -$ (100.66) [0.062] -$ (101.71) [0.083] $1, (588.0) [0.037] $1, (656.87) [0.019] $1, (644.75) [0.027] $1, (591.82) [0.027] $ (586.82) [0.079] $1, (563.82) [0.029] $1, (596.27) [0.041] $ (597.99) [0.049] N Source: Authors calculations from thekentucky WPRS Experiment. Each of the regressions controls for the Profiling Tie Group (PTG) of the recipients. Standard errors are given in parentheses and p-values from one-tailed tests are given in brackets.

40 Utility Weeks of Unemployment Not Profiled Profiled )LJXUH7KH,PSDFWRI3URILOLQJRQWKH8WLOLW\RI8QHPSOR\PHQW

41 0.150 Control Group Treatment Group Weeks )LJXUHD]DUG)XQFWLRQVRIWKH7UHDWPHQWDQG&RQWURO*URXSV.HQWXFN\:356([SHULPHQW2FWREHUWR-XQH Notes: Authors calculation from Kentucky WPRS Experiment. Triangles denote significant differences at the five-percent level. The parameter estimates used to construct the graph appear in Table B1.

42 Control Group Treatment Group Quarterly Earnings Quarter )LJXUH(DUQLQJVRIWKH7UHDWPHQWDQG&RQWURO*URXSV.HQWXFN\:356([SHULPHQW2FWREHUWR-XQH Notes: Authors calculation from Kentucky WPRS Experiment. Triangles denote significant differences at the five-percent level. The parameter estimates used to construct the graph appear in Table B2.

43 1.000 Control Group Treatment Group Employment Rate Quarter )LJXUH(PSOR\PHQWRIWKH7UHDWPHQWDQG&RQWURO*URXSV.HQWXFN\:356([SHULPHQW2FWREHUWR-XQH Notes: Authors calculation from Kentucky WPRS Experiment. Triangles denote significant differences at the five-percent level. The parameter estimates used to construct the graph appear in Table B2.

44 Impact on Weeks Paid Impact on Earnings Percentile Percentile 300 Impact on Amount Paid Percentile )LJXUH,PSDFWRI7UHDWPHQWRQ:HHNV3DLG%HQHILWV3DLGDQG(DUQLQJVDW4XDQWLOHVRIWKH8QWUHDWHG2XWFRPH 'LVWULEXWLRQ.HQWXFN\:356([SHULPHQW2FWREHUWR-XQH Notes: Authors calculation from Kentucky WPRS Experiment. Triangles denote significant differences at the five-percent level. The parameter estimates used to construct the graph appear in Table B3.

45 CABINET FOR HUMAN RESOURCES COMMONWEALTH OF KENTUCKY FRANKFORT DEPARTMENT FOR EMPLOYMENT SERVICES DATE: SS #: LO #: Dear Claimant: You have been identified as a dislocated worker and selected under the UI Claimant Profiling Program to receive job search assistance services. You are obligated under the law to participate. Failure to report or participate in reemployment services without justifiable cause may result in denial of your unemployment insurance benefits This program is designed to provide job search assistance services to those UI claimants identified as being most likely to need assistance in finding new employment. We will assess your needs and work with you to decide which services may increase your chances of finding a good job. Services may include counseling, job search workshops, testing, job referral and placement, or if needed, referral to more intensive services, such as training. If you are presently enrolled in training, have recently received job search services, or are engaged in any job search services that you believe may exempt you from participation in this program, bring all documents or relevant information concerning your participation with you when you report to the local office. You are REQUIRED BY LAW, KRS (2)(b), to attend the Orientation Session at the place, date and time specified below: PLACE: DATE: TIME: You may be determined ineligible to receive unemployment insurance benefits for failure to report to your local office as instructed or failure to participate in required services. If you are UNABLE TO ATTEND, Your participation in orientation may be postponed if you have a compelling reason to prevent you from attending on the date and time stated above, BUT it must be for circumstances beyond your control. Any postponement will be reported to UI for review of your availability. BRING THIS LETTER WITH YOU WHEN YOU COME IN. UI-P-100 (Rev. 09/94) JOB SERVICE ([KLELW

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50 7DEOH$$&RPSDULVRQRI:HHNV3DLGDQG,PSXWHG:HHNV3DLG.HQWXFN\:356([SHULPHQW2FWREHUWR-XQH Weeks of benefits paid is greater than 4 weeks Control Group Treatment Group Weeks paid and imputed weeks paid agree 639 (99.84%) Weeks paid and imputed weeks paid disagree 1 (0.16%) N 640 (100.0%) 943 (99.79%) 2 (0.21%) 945 (100.0%) Weeks of benefits paid is less than 5 weeks Weeks paid and imputed weeks paid agree 103 (98.10%) 174 (60.21%) Weeks paid and imputed weeks paid disagree Interrupted spell of benefit recipiency 2 (1.90%) 64 (22.15%) Apparent interruption of benefit recipiency, imputed earnings in excess of $2,000 per week 0 16 (5.54%) No apparent interruption of benefit recipiency 0 35 (12.11%) N 105 (100.0%) 290 (100.0%) Source: Authors calculations from thekentucky WPRS Experiment.

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52 7DEOH%1RQSDUDPHWULF(VWLPDWHVRID]DUG5DWHVDQG6XUYLYRU )XQFWLRQVIRU%HQHILW'XUDWLRQ.HQWXFN\:356([SHULPHQW2FWREHUWR-XQH Hazard Rate Survivor Function Control Group Treatment Group P-value on difference Control Group Treatment Group Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Week Source: Authors calculations from thekentucky WPRS Experiment. There are 745 claimants in the control group, 1,236 claimants in the treatment group, and there are 286 PTGs. We estimate the hazard rates using linear probability models. The survivor functions are generated from the estimated hazard functions. P-values are from two-tailed tests using Huber-White standard errors, where we switch to twotailed tests here because we have no definite prediction of the effect of treatment on the time to exit.

53 7DEOH%'\QDPLF,PSDFWRI7UHDWPHQWRQ(DUQLQJV.HQWXFN\:356([SHULPHQW2FWREHUWR-XQH Quarter Earnings Employment First quarter after unemployment spell begins $ (192.82) [0.003] Second quarter after unemployment spell begins $ (161.38) [0.017] Third quarter after unemployment spell begins $ (181.55) [0.112] Fourth quarter after unemployment spell begins -$35.99 (176.10) [0.581] Fifth quarter after unemployment spell begins $ (187.42) [0.166] Sixth quarter after unemployment spell begins -$5.59 (199.54) [0.511] (0.027) [0.001] (0.027) [0.088] (0.027) [0.214] (0.027) [0.776] (0.027) [0.588] (0.027) [0.478] N Source: Authors calculations from the Kentucky WPRS Experiment. Each of the regressions controls for the Profiling Tie Group (PTG) of the recipients. There are 745 claimants in the control group, 1,236 claimants in the treatment group, and there are 286 PTGs. T-statistics are given in parentheses and p- values from one-tailed tests appear in brackets.

54 7DEOH%,PSDFWRI7UHDWPHQWDW'HFLOHV.HQWXFN\:356([SHULPHQW 2FWREHUWR-XQH Percentile Number of weeks receiving UI benefits UI benefits received Earnings in year after claim 5 th percentile (0.669) [0.034] 10 th percentile (0.665) [0.009] 15 th percentile (0.442) [0.000] 20 th percentile (0.756) [0.000] 25 th percentile (0.537) [0.000] 30 th percentile (0.531) [0.000] 35 th percentile (0.682) [0.000] 40 th percentile (0.686) [0.000] 45 th percentile (0.669) [0.000] 50 th percentile (0.667) [0.000] 55 th percentile (0.714) [0.000] 60 th percentile (0.495) [0.000] $61.79 (131.34) [0.638] -$49.41 (99.69) [0.620] -$ (105.12) [0.231] -$ (118.53) [0.133] -$ (106.93) [0.014] -$ (103.57] [0.030] -$ (110.07) [0.051] -$ (97.72) [0.171] -$ (110.07) [0.074] -$ (134.91) [0.097] -$ (115.18) [0.015] -$ (126.30) [0.002] $ (567.25) [0.198] $ (491.29) [0.166] $ (380.74) [0.163] $ (417.22) [0.029] $ (567.12) [0.184] $ (469.86) [0.546] $ (413.45) [0.348] $ (474.76) [0.183] $ (423.89) [0.119] $ (465.21) [0.371] $ (455.23) [0.136] $ (452.15) [0.031]

55 7DEOH%&RQWLQXHG Percentile Number of weeks receiving UI benefits UI benefits received Earnings in year after claim 65 th percentile (0.369) [0.000] 70 th percentile (0.546) [0.000] 75 th percentile (0.601) [0.001] 80 th percentile (0.682) [0.082] 85 th percentile (0.404) [0.020] 90 th percentile (0.416) [0.009] 95 th percentile (0.378) [0.678] -$ (122.85) [0.000] -$ (80.88) [0.000] -$ (171.12) [0.129] -$ (119.52) [0.134] -$ (189.65) [0.565] $ (132.73) [0.313] $ (120.51) [0.053] $ (525.62) [0.066] $ (583.01) [0.025] $ (734.73) [0.151] $ (965.07) [0.218] $ ( ) [0.312] $ ( ) [0.416] $ ( ) [0.413] N Source: Authors calculations from thekentucky WPRS Experiment. We removed the profiling tie group fixed effect from each dependent variable before calculating quantile regressions using the transformed data. Bootstrapped standard errors are reported in parentheses (500 replications), and two-tailed p-values are given in brackets.

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Is the Threat of Reemployment Services More Effective than the Services Themselves? Evidence from Random Assignment in the UI System *

Is the Threat of Reemployment Services More Effective than the Services Themselves? Evidence from Random Assignment in the UI System * by Dan A. Black Jeffrey A. Smith Mark C. Berger Brett J. Noel Center