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The dynamic effects of an earnings subsidy for long-term welfare recipients: Evidence from the self sufficiency project applicant experiment

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  • Card, David
  • Hyslop, Dean R.

Abstract

In the Self Sufficiency Project Applicant Experiment, new welfare entrants were informed that if they remained on public assistance for a year they would become eligible to receive a generous earnings subsidy offer. Those who satisfied the waiting period, and then left welfare and began working full time within the following year, were entitled to receive payments for up to 36 months whenever they were off welfare and working full time. A simple optimizing model suggests that the program rules created an unusual sequence of incentives: (1) to prolong the initial spell on welfare for at least 12 months to become eligible for the subsidy offer; (2) to lock in subsidy entitlement by finding full time work and leaving welfare in the 12-24 month period after initial entry; and (3) to choose work over welfare during the three years that subsidies were available. Consistent with these implications, comparisons between the experimental treatment group and a randomly assigned control group show that the program increased welfare participation in the first year after initial entry and lowered it over the following 5 years. We develop an econometric model of welfare participation and program eligibility status that allows us to separately identify the behavioral effects associated with the program rules. We find important responses to all three incentives, and that the program impact persisted after subsidy payments ended, although the effect decayed over time.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 153 (2009)
Issue (Month): 1 (November)
Pages: 1-20

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Handle: RePEc:eee:econom:v:153:y:2009:i:1:p:1-20

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Web page: http://www.elsevier.com/locate/jeconom

Related research

Keywords: Self Sufficiency Project Welfare reform Program evaluation;

References

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  1. Jeremy Lise & Shannon Seitz & Jeffrey Smith, 2006. "Evaluating Search and Matching Models Using Experimental Data," Working Papers 1074, Queen's University, Department of Economics.
  2. David Card & Daniel Sullivan, 1987. "Measuring the Effect of Subsidized Training Programs on Movements In andOut of Employment," NBER Working Papers 2173, National Bureau of Economic Research, Inc.
  3. David Card & Dean R. Hyslop, 2005. "Estimating the Effects of a Time-Limited Earnings Subsidy for Welfare-Leavers," Econometrica, Econometric Society, vol. 73(6), pages 1723-1770, November.
  4. Card, David & Robins, Philip K., 2005. "How important are "entry effects" in financial incentive programs for welfare recipients? Experimental evidence from the Self-Sufficiency Project," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 113-139.
  5. Robert A. Moffitt, 1996. "The effect of employment and training programs on entry and exit from the welfare caseload," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(1), pages 32-50.
  6. Ham, John C & LaLonde, Robert J, 1996. "The Effect of Sample Selection and Initial Conditions in Duration Models: Evidence from Experimental Data on Training," Econometrica, Econometric Society, vol. 64(1), pages 175-205, January.
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Cited by:
  1. Dany Brouillette & Guy Lacroix, 2010. "Heterogeneous Treatment and Self-Selection in a Wage Subsidy Experiment," CIRANO Working Papers 2010s-24, CIRANO.
  2. Dr Richard Dorsett, 2014. "Human well-being and in-work benefits: a randomized controlled trial," NIESR Discussion Papers 11791, National Institute of Economic and Social Research.
  3. Adnan Q. Khan & Steven F. Lehrer, 2013. "The Impact of Social Networks on Labour Market Outcomes: New Evidence from Cape Breton," NBER Working Papers 18786, National Bureau of Economic Research, Inc.
  4. repec:cge:warwcg:182 is not listed on IDEAS

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