Bringing the unemployed back to work in Germany: training programs or wage subsidies?

Purpose – The purpose of this paper is to theoretically and empirically investigate the relative effects of wage subsidies and further vocational training on employment prospects. Design/methodology/approach – The paper adopts a theoretical approach that discusses the effects of two major active labor market programs; empirical test using a large administrative data set from Germany and statistical matching techniques. Findings – Previously subsidized individuals and trained individuals who found a job immediately afterwards have the same employment rates. Practical implications – Firms value training on a subsidized job as much as formal training programs. Originality/value – The paper presents a model that draws attention to the role of hiring decisions of firms and to the formation of human capital by training programs and by training on subsidized jobs; estimation of relative average treatment effects on the differentially treated, i.e. participants of two active labor market programs; and comparisons not only of all unemployed but also of unemployed persons taking‐up or keeping a job after program end.