Most OECD countries have a long history of trying to enhance the re-employment prospects of benefit recipients by adopting active labor market policies. The receipt of unemployment benefits is often conditional, for example, on undertaking job search activities that have been shown to be effective in reducing benefit duration and/or raising the probability of finding new.
Alternatively, benefit conditionality may take the form of mandatory participation in certain non-search activities, such as a training course or volunteering activity. Active labor market policies, such as these, aim to improve the economic and social participation of welfare recipients and maintain their skill levels. Recent evaluations of workfare policies generally find that they reduce benefit receipt in the short term; however, the impacts of these policies over the longer term are not well understood.
Active labor market policies are likely to have consequences not only for welfare recipients themselves, but also for their children. Quantifying these intergenerational policy impacts is a crucial step in understanding not only program returns, but also the ease with which disadvantaged children achieve upward social and economic mobility. Our research makes an important contribution by evaluating the intergenerational consequences of an Australian activation policy—the 1999 Mutual Obligations Initiative—that tightened benefit eligibility through an expansion of the activity test applied to young people (aged 34 or younger) who were long-term unemployed. Specifically, we adopt a regression discontinuity approach and 38 exploit administrative data from Australia’s national social security system to evaluate the impact that requiring unemployed fathers to engage in non-search activities (e.g., training, volunteering, or part-time employment) has on their children more than a decade later.
We find that unemployed fathers who were subject to the 1999 MOI spent less time on unemployment benefits. Fathers’ reduced duration translates into $1,100 lower total benefits over their children’s adolescence. Importantly, those children are substantially (18 percent) less likely to receive unemployment benefits when they become young adults (aged 21 to 28). Thus, we provide important causal evidence that activation measures have the potential to generate long-lasting benefits—even on future generations—raising the social and economic returns to such policies. Active labor market policies targeting parents may be a useful tool in the fight to reduce intergenerational welfare dependence and increase social and economic mobility. At the same time, our results clearly indicate that the mechanisms linking welfare receipt across generations are likely to be complex and multi-faceted. We find no evidence that the impact of the MOI on young people operates through a reduction in the intensity of their fathers’ unemployment experiences per se. Instead, our results point to the importance of the MOI’s expanded non-search activity requirements and gender-specific role modeling as likely mechanisms through which the benefits of active labor market policies are transferred from one generation to the next.
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