Crossroads of Work: Carrots and Sticks in Job Seeking

Carrot or Stick? How Workfare Programs Really Affect Job Seekers

Soraya Malik in Business & Economy August 2025 • 4 min read.

"Uncover the surprising ways workfare initiatives change job search behavior and reservation wages for welfare recipients – and what it means for getting people back to work."

Unemployment benefits are designed to provide a safety net, but they can inadvertently reduce the incentive to actively seek work. To counteract this, governments often implement job search requirements and active labor market programs (ALMPs) aimed at encouraging beneficiaries to return to the workforce. These initiatives, like Germany’s Hartz reforms, operate on a principle of rights and duties, pushing individuals to take up available jobs or participate in programs designed to boost their employability.

One prominent example of such a program is the 'One-Euro-Job,' a workfare scheme in Germany that offers additional jobs of public interest to welfare recipients. These jobs are intended to serve a dual purpose: to improve participants' long-term employment prospects and to assess their willingness to work. But how effective are these programs in actually changing behavior and outcomes?

This article delves into the impact of workfare announcements on job search behavior, reservation wages (the lowest acceptable wage), and labor market performance. By examining data from the Panel Study 'Labour Market and Social Security,' we’ll explore whether the promise—or threat—of One-Euro-Jobs truly motivates welfare recipients to seek regular employment.

Decoding One-Euro-Jobs: Carrot or Stick?

Crossroads of Work: Carrots and Sticks in Job Seeking

One-Euro-Jobs, designed as temporary positions of public value, embody a mix of enabling and demanding elements. They aim to reintegrate long-term unemployed individuals into a regular work routine and improve their social integration. However, they also function as a test of welfare recipients' commitment to work, with mandatory participation and potential benefit cuts for non-compliance.

Previous studies have indicated that participating in One-Euro-Jobs can have short-term drawbacks, such as 'lock-in effects' that limit immediate job search activities. However, some research suggests moderate positive effects on medium-term employment prospects for certain groups. What's less understood is the impact of simply announcing these job opportunities.

Threat Effect: The fear of being assigned to a One-Euro-Job, perceived as detrimental, might push individuals to intensify their job search and lower their wage expectations to avoid participation.
Attraction Effect: Conversely, if individuals view One-Euro-Jobs as beneficial for their employability or social integration, they may reduce their job search efforts and increase their reservation wage.
Mixed Signals: The program's design sends mixed signals, acting as a 'carrot' for some by providing opportunities and a 'stick' for others through mandatory participation.
Individual Perception: Ultimately, the impact depends on how welfare recipients perceive the program – as a stepping stone or a punitive measure.

To truly gauge the effectiveness of workfare programs, it’s crucial to look beyond participation rates and understand how these announcements affect behavior. This requires examining both the 'threat effect'—where people intensify their job search to avoid the program—and the 'attraction effect'—where the perceived benefits of the program might lead to reduced search efforts.

The Bottom Line: Do Workfare Announcements Work?

The study reveals that receiving a One-Euro-Job announcement leads to increased job search activities and a decreased reservation wage, particularly for women and those recently employed. However, these changes don't necessarily translate into immediate employment gains. This suggests that while workfare programs can motivate job seekers, their effectiveness in securing actual employment remains a complex issue. Understanding the nuances of these effects is essential for policymakers aiming to design effective strategies for reducing unemployment and promoting workforce participation. Further research is needed to address potential downsides, such as impacts on job quality and long-term career prospects.

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This article is based on research published under:

DOI-LINK: 10.1186/s12651-018-0245-9, Alternate LINK

Title: Of Carrots And Sticks: The Effect Of Workfare Announcements On The Job Search Behaviour And Reservation Wage Of Welfare Recipients

Subject: General Medicine

Journal: Journal for Labour Market Research

Publisher: Springer Science and Business Media LLC

Authors: Katrin Hohmeyer, Joachim Wolff

Published: 2018-10-22

Everything You Need To Know

How do 'One-Euro-Jobs' and similar workfare initiatives influence the job search behavior and wage expectations of welfare recipients, and what underlying principles drive these changes?

Workfare programs, such as Germany's 'One-Euro-Jobs', aim to encourage welfare recipients to return to the workforce by requiring participation in jobs or programs that boost employability. The effectiveness depends on whether individuals perceive the program as a 'carrot' (beneficial) or a 'stick' (punitive). Announcements of 'One-Euro-Jobs' can lead to both a 'threat effect,' where individuals intensify their job search to avoid participation, and an 'attraction effect,' where they reduce search efforts due to perceived benefits.

What is the 'threat effect' in the context of 'One-Euro-Jobs,' and how does it influence a job seeker's behavior and willingness to accept lower-paying jobs?

The 'threat effect' refers to the scenario where the possibility of being assigned to a 'One-Euro-Job,' viewed negatively, motivates individuals to increase their job search efforts and lower their reservation wage (the lowest acceptable wage) to avoid being placed in the program. This is based on the idea that people will actively seek alternatives to avoid what they perceive as an undesirable outcome.

Can you explain the 'attraction effect' related to 'One-Euro-Jobs,' and under what circumstances might welfare recipients reduce their job search efforts?

The 'attraction effect' occurs when individuals view 'One-Euro-Jobs' as potentially beneficial for their employability or social integration. In this case, they may reduce their job search efforts and even increase their reservation wage, believing that participation in the program will improve their long-term prospects, making them more selective about job offers.

According to the research, what are the observed changes in job search activity and reservation wages following the announcement of 'One-Euro-Jobs,' and do these changes directly translate into higher employment rates?

The study indicates that receiving an announcement about 'One-Euro-Jobs' generally leads to increased job search activities and a decreased reservation wage, especially among women and those recently employed. However, these behavioral changes do not always result in immediate employment. This suggests that while workfare programs can motivate job seekers to some extent, the connection between this motivation and actual job placement is not straightforward and may depend on other factors not fully captured.

Beyond the immediate impact on job search behavior, what are some potential long-term consequences of 'One-Euro-Jobs' on job quality and career prospects that warrant further investigation?

While the study focuses on the immediate impact of 'One-Euro-Job' announcements on job search behavior and reservation wages, it acknowledges that further research is necessary to understand the long-term effects on job quality and career prospects. It's important to consider whether these programs lead to sustainable employment and improved living standards, or if they primarily serve as a short-term measure with limited long-term benefits, potentially trapping individuals in low-wage or precarious employment situations. Additional data on skills development, career advancement, and overall well-being would provide a more comprehensive assessment.