Employment Effects of Publicly Financed Training Programs – The East German Experience / Beschäftigungseffekte von Fortbildungs- und Umschulungsmaßnahmen in Ostdeutschland

We analyze the effectiveness of publicly financed training and retraining programs in east Germany as measured by their effects on individual re-employment probabilities after training. These are estimated by discrete hazard rate models on the basis of individual-level panel data. We account for unobserved individual heterogeneity in both the training participation and outcome equation. The latter differentiates between transitions into "stable" and "unstable" employment after the completion of a training program. Our findings are that in the first phase of the east German transition process, when the institutions delivering the training programs were being set up, there are no positive effects of training on the probability to find stable employment. For the period of September 1992 to November 1994, when the institutional structure for the programs was in place, we find positive effects of both on–the–job and off–the–job training for women, and positive effects of off–the–job training for men. Non–Technical Summary Previous research on the employment effects of publicly financed training and retraining programs (PFTP) in east Germany has shown mixed results. To some extent, this can be related to the use of different data sources and methodological approaches. Here, we follow the microeconometric approach to the evaluation of the employment effects of these programs. In contrast to previous related research, we take into account the exact timing of events and also distinguish between stable and unstable employment subsequently to participation in a PFTP. On the basis of the Labor Market Monitor for east Germany, we estimate the employment effects of PFTP separately for men and women and for two subperiods. To take into account heterogeneity in training courses to some extent, we also distinguish between on– the–job and off–the–job training. In accordance with most previous research, we find positive employment effects of PFTP in east Germany. However, these effects are rather small and differ both by gender and between the first and second time period. For the first period, we find that staying unemployed was preferable to participating in PFTP regarding the chances of subsequently finding stable employment. In the second period, when the institutional structure of the training programs was in place, both on–the–job and off–the–job training turns out to be preferable to unemployment for women. For men, only off–the–job training seems to have positive employment effects. The differences between the two periods can be explained by the changes in both the types of PFTP offered and the qualitity of courses. In the first phase of the transition process, when an infrastructure for effective PFTP had yet to be set up, a large share of courses were of rather poor quality and of very short duration offering only basic job counselling information. Our results indicate that the success of PFTP not only depends on individual behavior but also to a large extent on institutional arrangements.