Carrot and Stick: How Reemployment Bonuses and Benefit Sanctions Affect Exit Rates from Welfare

Bas van der Klaauw
Jan van Ours

Journal of Applied Econometrics 28, 275-296 (2013).

To increase the exit from welfare, benefit recipients in the municipality of Rotterdam were exposed to various financial incentives. Once their benefit spell exceeded one year, welfare recipients were entitled to a reemployment bonus if they found a job that lasted at least six months. However, they could also be punished for noncompliance with eligibility requirements and face a sanction, \emph{i.e.} a temporary reduction of their benefits. We find that the financial sticks in the form of benefit sanctions were effective in stimulating the exit from welfare while the financial carrots in the form of reemployment bonuses were not.

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Last updated: May 16, 2011.