Peer Effects in Labor Market Training

Abstract: This paper shows that the group composition matters for the effectiveness of labor market training programs for jobseekers. Using rich administrative data from Germany, I document that greater average exposure to highly employable peers leads to increased employment stability after program participation. Peer effects on earnings are positive and long-lasting in classic vocational training and negative but of short duration in retraining, pointing to different mechanisms. Finally, I also find evidence for non-linearities in effects and show that more heterogeneity in the peer group is detrimental.