Peer Effects in Labor Market Training

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.