Intensifying the use of benefit sanctions: an effective tool to increase employment?

In Germany, imposition of benefit cuts for non-compliant welfare recipients depends on the policy of the local welfare agencies resulting in considerable regional variation, expressed in milder and stricter sanction regimes. Findings from international studies show, that benefit sanctions can substantially increase individual employment uptake. This raises the question, whether a stricter use of sanctions will be effective in Germany. We analyze this question by exploiting the variation of regional sanction regimes as instrumental variables to estimate the LATE of sanctions on the individual employment probability. A tighter sanction policy can be quite effective for non-compliant welfare recipients. JEL codes: I38; J64; C31