Effects of face-to-face counselling on unemployment rate and duration: evidence from a Public Employment Service reform

Ville Vehkasalo

doi:10.1186/s12651-020-00276-8

Abstract

In a Public Employment Service reform implemented in 2013, sixty Finnish municipalities experienced an involuntary employment office closure. The Government’s objective was to replace traditional face-to-face employment counselling with modern online counselling and simultaneously generate savings in outlays. The reform created natural experiment circumstances that allowed us to estimate the aggregate causal effects of face-to-face counselling and advice. We estimated the effects of the reform on the unemployment rate and the average unemployment duration using municipality-level panel data and various panel data estimators. We found that while the reform had a barely discernible effect on municipal unemployment rates, it increased average unemployment durations by 2–3 weeks. Hence, face-to-face counselling and online counselling are not perfect substitutes in decreasing the length of unemployment spells. Consequently, the fiscal costs of the reform outweigh the fiscal benefits by a large margin.

Highlights

In a time span of little more than two decades, the Internet has profoundly changed the way we buy clothes, book flights, make hotel reservations, and pay our bills, at least in the developed countries
Using municipality-level unemployment data and various panel data estimators, we find that while the reform did not have a large effect on unemployment rates, it increased average unemployment durations by 2–3 weeks
Several dozen smaller municipalities experienced an involuntary employment office closure, and from the year 2013 onwards their unemployed inhabitants have been expected to manage on their own, using the public employment services on the Internet or by telephone— unless they are willing to travel to the nearest Public Employment Service (PES) office

Summary

Introduction

In a time span of little more than two decades, the Internet has profoundly changed the way we buy clothes, book flights, make hotel reservations, and pay our bills, at least in the developed countries. As pointed out by Kuhn and Mansour (2014), “studies of the Internet’s effects on labour market matching have been few in number and, on balance, find little or no evidence of a friction-reducing effect.”. This seems surprising: as communication costs have declined dramatically and online search has become a part of our everyday lives, we should in theory see an increase in successful matches between jobseekers and vacancies. More efficient online job search would decrease the need for traditional face-to-face counselling by the Public

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Conclusion