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Heterogeneous treatment and self-selection in a wage subsidy experiment

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  • Brouillette, Dany
  • Lacroix, Guy

Abstract

The Self-Sufficiency Project (SSP) is a research and demonstration project that offered a generous time-limited income supplement to randomly selected welfare applicants under two conditions. The first, the eligibility condition, required that they remain on welfare for at least 12Â months. The second, the qualification condition, required that they find a full-time job within 12Â months after establishing eligibility. In this paper we focus on a neglected and important feature of the program, namely that the financial reward for becoming qualified is inversely related to the expected wage rate. Under very simple assumptions we show that those who have a low expected wage rate have a clear incentive to establish eligibility. Empirical non-parametric evidence strongly suggests that individuals self-select into eligibility. We jointly estimate a participation equation and a wage equation that are correlated through individual random effects. Our results show that the omission of self-selectivity into qualification translates into slightly underestimated treatment effects.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Public Economics.

Volume (Year): 94 (2010)
Issue (Month): 7-8 (August)
Pages: 479-492

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Handle: RePEc:eee:pubeco:v:94:y:2010:i:7-8:p:479-492

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Web page: http://www.elsevier.com/locate/inca/505578

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Keywords: SSP Applicant Study Heterogeneous treatment Self-selection;

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References

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  1. Zvi Eckstein & Kenneth I. Wolpin, 1989. "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 24(4), pages 562-598.
  2. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  3. Bloemen, H.G., 1992. "Job Search Theory, Labour Supply and Unemployment Duration," Papers 9250, Tilburg - Center for Economic Research.
  4. Postel-Vinay, Fabien & Robin, Jean-Marc, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," CEPR Discussion Papers 3548, C.E.P.R. Discussion Papers.
  5. Dubin, Jeffrey A. & Rivers, Douglas, 1993. "Experimental estimates of the impact of wage subsidies," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 219-242, March.
  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.
  7. Card, David & Hyslop, Dean R., 2009. "The dynamic effects of an earnings subsidy for long-term welfare recipients: Evidence from the self sufficiency project applicant experiment," Journal of Econometrics, Elsevier, vol. 153(1), pages 1-20, November.
  8. 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.
  9. 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.
  10. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-74, November.
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Cited by:
  1. Guy Lacroix & Marie-Ève Brouard, 2011. "Work Absenteeism Due to a Chronic Disease," Cahiers de recherche 1108, CIRPEE.

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