Full-Time Activation Programs: Driving Productivity or Promoting Self-Sorting?

Abstract: This study investigates the impacts of full-time activation programs on unemployment and welfare dependency rates in Swedish municipalities. With a policy proposal by the current government to make full-time activation mandatory for welfare eligibility, this research examines the underlying perspectives of such programs and their effectiveness in integrating the unemployed into the labor market. The study addresses four main research questions, exploring the impacts of activation programs based on individuals’ foreign background and education levels, the rationale behind requiring full-time activation, and the dominant perspective between productivity and sorting in this context. Using a difference-in-differences method and a panel dataset covering 290 Swedish municipalities from 2008 to 2018, the study's findings reveal a significant negative effect on the unemployment rate of foreigners but no significant effect on low-educated individuals. Further, no significant effects of the policy are found on welfare dependency for both types of individuals. These findings suggest that the productivity perspective is more dominant than the sorting perspective for full-time activation programs. This research aims to create a better understanding of full-time activation programs and their role in shaping labor market dynamics and welfare policies in Sweden.