Incentive-based active labor market programs: Insights from policy experimentation in Italy

Two programs providing financial incentives for reemployment of workers at risk of long-term unemployment are evaluated vis-à-vis intensive job-search assistance through policy experimentation involving about 10,000 job seekers in Italy: (i) a reemployment voucher that incentivizes specialized providers; (ii) a reemployment bonus that incentivizes job seekers directly. Results indicate that: the voucher is effective for men while the bonus works for women; each policy is no less effective than job-search assistance, but only the voucher is clearly cost effective; there are no side effects on post-treatment earnings or job duration. A one-sided job search model with endogenous search effort rationalizes these empirical findings. • Financial incentives for reemployment evaluated via a large-scale experiment in Italy. • Reemployment voucher is effective for men; Reemployment bonus works better for women. • Both policies are as effective as job-search assistance, but only the voucher is cost-effective. • No adverse effects observed on post-treatment earnings or job duration. • A one-sided job search model rationalizes the experimental findings.