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Welfare to work and work to welfare: the effect of the reference point -- a theoretical and experimental study

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  • Sherman, Arie
  • Shavit, Tal

Abstract

This paper shows theoretically (based on loss aversion) and experimentally that the replacement rate between allowance and salary is above one when moving from work to welfare. When moving from welfare to work the replacement rate is lower than one.

Suggested Citation

  • Sherman, Arie & Shavit, Tal, 2009. "Welfare to work and work to welfare: the effect of the reference point -- a theoretical and experimental study," Economics Letters, Elsevier, vol. 105(3), pages 290-292, December.
    • Handle: RePEc:eee:ecolet:v:105:y:2009:i:3:p:290-292
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    References listed on IDEAS

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    1. Clark, Andrew E & Georgellis, Yannis & Sanfey, Peter, 2001. "Scarring: The Psychological Impact of Past Unemployment," Economica, London School of Economics and Political Science, vol. 68(270), pages 221-241, May.
    2. Jan Boone & Jan C. van Ours, 2006. "Modeling Financial Incentives to Get the Unemployed Back to Work," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 162(2), pages 227-252, June.
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    4. Amos Tversky & Daniel Kahneman, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1039-1061.
    5. Andrew E. Clark, 2006. "A Note on Unhappiness and Unemployment Duration," Applied Economics Quarterly (formerly: Konjunkturpolitik), Duncker & Humblot, Berlin, vol. 52(4), pages 291-308.
    6. Korpi, Tomas, 1997. "Is utility related to employment status? Employment, unemployment, labor market policies and subjective well-being among Swedish youth," Labour Economics, Elsevier, vol. 4(2), pages 125-147, June.
    7. Moffitt, Robert A., 2002. "Welfare programs and labor supply," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 34, pages 2393-2430, Elsevier.
    8. Andrew Clark & Yannis Georgellis & Peter Sanfey, 2001. "Scarring: The Psychological Impact of Past Unemployment," Economica, London School of Economics and Political Science, vol. 68(270), pages 221-241, May.
    9. Bernard M.S. van Praag & Ada Ferrer-i-Carbonell, 2002. "Life Satisfaction Differences between Workers and Non-Workers - The Value of Participation per se," Tinbergen Institute Discussion Papers 02-018/3, Tinbergen Institute.
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    Cited by:

    1. Arie Sherman & Tal Shavit, 2018. "The Thrill of Creative Effort at Work: An Empirical Study on Work, Creative Effort and Well-Being," Journal of Happiness Studies, Springer, vol. 19(7), pages 2049-2069, October.
    2. Altman, Morris, 2014. "Insights from behavioral economics on how labor markets work," Working Paper Series 3466, Victoria University of Wellington, School of Economics and Finance.
    3. Arie Sherman & Tal Shavit & Guy Barokas, 2020. "A Dynamic Model on Happiness and Exogenous Wealth Shock: The Case of Lottery Winners," Journal of Happiness Studies, Springer, vol. 21(1), pages 117-137, January.
    4. Sherman, Arie & Shavit, Tal, 2013. "The immaterial sustenance of work and leisure: A new look at the work–leisure model," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 46(C), pages 10-16.
    5. Axelrad, Hila & Luski, Israel & Malul, Miki, 2016. "Behavioral biases in the labor market, differences between older and younger individuals," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 60(C), pages 23-28.
    6. Eitan Hourie & Miki Malul & Raphael Bar-El, 2018. "The Value of Job Security: Does Having It Matter?," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 139(3), pages 1131-1145, October.
    7. Altman, Morris, 2014. "Insights from behavioral economics on how labor markets work," Working Paper Series 18843, Victoria University of Wellington, School of Economics and Finance.

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