Centralization, Focalization and Unwanted Consequences: Evaluating Chilean Employment Programs

This paper conducts direct tests for evaluating the performance of two types of emergency employment programs put in place in Chile since 1999. Our results suggest that decentralized and "market-driven" programs (subsidies for hiring and training) are more efficient than centralized (direct employment) programs in terms of productivity, but are targeted to people that are less vulnerable to unemployment. Direct employment programs result in moderate increases of the income of the participants' households. However, these increases may be outweighted by the costs (in present value) associated with unintended consequences (higher school drop-out and participation rates). If analyzed at the municipality level, centralized programs do not target municipalities with higher unemployment and vulnerability to unemployment, or even with lower median income levels, but appear to have a strong political component. Our results also suggest that the population targeted in direct employment programs is not more vulnerable to unemployment than the currently unemployed.