Peer Effects in Labor Market Training

TL;DR

This study demonstrates that group composition in labor market training significantly influences outcomes, with peer employability affecting long-term employment and earnings, and mechanisms like competition moderating these effects.

Contribution

It introduces a novel measure of employability and provides empirical evidence on how peer composition impacts training effectiveness in Germany.

Findings

Low-employability jobseekers gain larger long-term benefits.

Highly employable individuals see short-term wage increases.

Within-group competition reduces some positive peer effects.

Abstract

This paper shows that group composition shapes the effectiveness of labor market training programs for jobseekers. Using rich administrative data from Germany and a novel measure of employability, I find that participants benefit from greater average exposure to highly employable peers through increased long-term employment and earnings. The effects vary significantly by own employability: jobseekers with a low employability experience larger long-term gains, whereas highly employable individuals benefit primarily in the short term through higher entry wages. An analysis of mechanisms suggests that within-group competition in job search attenuates part of the positive effects that operate through knowledge spillovers.