Research Economic Seminar: A Simple and Low-Cost Activation Policy – The Labor Market Effects of Subsidized Public Transport

Policymakers typically use active labor market policies, such as training and job-search assistance, to help the unemployed find work. Nonetheless, these are often costly and have shown modest effects. In this research, I assess the labor market effects of a simple and low-cost intervention: subsidized public transport for cash-constrained jobseekers. Using a regression discontinuity design in the Spanish region of Madrid, I examine the short-term effects of price cuts in public transport that reduced job search and commuting costs for youths under 26. In particular, I compare the future labor market outcomes of newly unemployed workers claiming assistance benefits at ages just below and above 26. Results suggest that subsidized transit may bring meaningful employment gains for young assistance recipients. More precisely, I estimate a (local) treatment effect of 23 percentage points on the job-finding probability and 30 days on the number of cumulative days in work six months after job loss. Finally, I find suggestive evidence that these gains do not come at the expense of lower earnings and are driven by increased geographical job mobility from the outer to inner areas of Madrid, where labor demand is higher.