The short-run and long-run effects of decentralizing public employment services

A German policy experiment from 2012 allows me to identify the short-run and longrun causal effects of decentralization on the placement efficiency of public employment services (PES). I exploit variation over time and across districts with different types of PES in a difference-in-differences framework. Decentralization had significant negative effects on placements in the short run, but not in the long run. This points to a transition process, during which caseworkers acquire relevant placement skills. Decentralization also had a persistent negative effect on sanctions on the welfare recipients, which probably indicates a reluctance of local authorities to reduce the well-being of their potential voters.