Subsidized temporary jobs: lock-in and stepping stone effects

This article evaluates the effectiveness of subsidized temporary jobs as stepping stones to regular employment. We study a French program that allows job seekers to work part-time while remaining registered with the unemployment agency. In this program, insured individuals concurrently receive part of their unemployment benefits and wage income. Using administrative data, we find that subsidized temporary jobs have both a significant lock-in effect and a significant positive post-treatment impact on the hazard rate to employment. Since individuals facing a high implicit tax rate have incentives to self-select into better part-time jobs, we also find that a higher tax rate leads to a weaker lock-in effect and a stronger post-treatment effect. Simulations suggest that the lock-in effect first dominates, but that the overall effect eventually becomes positive. They also point to ways of improving the effectiveness of the policy.