CARROT AND STICK: HOW RE-EMPLOYMENT BONUSES AND BENEFIT SANCTIONS AFFECT EXIT RATES FROM WELFARE

Abstract

To increase the exit from welfare, benefit recipients in the municipality of Rotterdam were exposed to various financial incentives. Once their benefit spell exceeded one year, welfare recipients were entitled to a re-employment bonus if they found a job that lasted at least 6months. However, they could also be punished for noncompliance with eligibility requirements and face a sanction, i.e. a temporary reduction of their benefits. We find that the financial sticks in the form of benefit sanctions were effective in stimulating the exit from welfare, while the financial carrots in the form of re-employment bonuses were not. © 2011 John Wiley & Sons, Ltd.