We simulate the hiring process in a labour market and study the effect of the intensity of job search of both employed and unemployed workers on the unemployment rate and the average unemployment duration. Firms are assumed to differ in terms of the renumeration they are willing to offer to their workers. Hence, employed workers continue searching for jobs in order to move to better paying firms. The main result is that whenever employed workers apply for new jobs intensively, i.e. by sending out many applications per period, it becomes very difficult for young and inexperienced workers to enter the labour market because they are never preferred over a more experienced worker. This leads to a relatively higher unemployment rate and a long wait until finding a first job. Introducing adaptive behaviour under which workers can adjust their search strategy according to whether they are successful in _nding a job or not and whether they are already in a firm which offers high salaries or not, remedies to some extent the "congestion" effect created by the job search of employed workers.
In Germany, recipients of the means-tested unemployment benefit II are obliged to take action to find work so that they can reduce or end their household’s dependence on this benefit. The job centres assist them in their efforts to find work and support them by active labour market programmes. Our study is concerned with the work opportunity programme that should target unemployment benefit II recipients who can hardly find regular jobs. Participation should raise their employability, e.g., by providing them with a daily routine, contacts with colleagues and esteem for their work. The programme subsidises temporary jobs in the non-profit sector; participation usually lasts for less than seven months. The tasks that participants perform should differ from those of regular employees, to avoid any loss of regular jobs due to the implementation of the programme. Unemployment benefit II recipients who participate in this programme continue to receive their benefit and additionally 1 to 2€ per hour worked to cover costs of working. For this reason, the programme is often called One-Euro-Jobs.
Our study is concerned with the question whether working in a One-Euro-Job raises the participants’ prospects of working in regular unsubsidized jobs in the future. The participation may take place in different sectors: 1. environment protection and rural conservation, 2. infrastructure improvement, 3. health care, 4. child care and youth welfare, 5. counselling services, 6. art, culture and sports, 7. education and research. We analyse the question whether the sector, in which the participation takes place, is important for raising the participants’ employment prospects after participation. Our study uses administrative data of people who were unemployed and received unemployment benefit II at the end of March 2007. We study whether those people who then entered a One-Euro-Job during the period of April to May 2007 in the next six to seven years are characterised by a better performance in the labour market than comparable unemployment benefit II recipients who did not enter the scheme in April to May 2007. We compare the participants with non-participants who are quite similar with respect to personal characteristics. We first study this for men and women in East and in West Germany separately. The results show that the employment rate and earnings of the participants in the long run are higher than the employment rate and earnings of comparable non-participants except for the group of East German men. Next, we analyse whether the differences between the participants’ and the non-participants’ employment prospects vary by sector of participation. Our results imply that the employment rate and earnings of female One-Euro-Job participants in sectors like health care and child care and youth welfare are considerably higher than those of comparable non-participants. These are sectors, in which employment rose much faster than in the overall economy in the six to seven years after the participations started. In contrast, for East German men, who worked in a One-Euro-Job in the sectors environment protection and rural conservation and infrastructure improvement, we find that participation harms their performance in labour market. In East Germany large parts of the public infrastructure have been modernized after German reunification until the start of the new millennium and during this period public works programmes were used on a large scale partly in the fields environmental protection and infrastructure improvement. In turn during the years after 2007 regular job vacancies in these fields.