IDEAS home Printed from https://ideas.repec.org/a/wly/canjec/v48y2015i5p1831-1854.html
   My bibliography  Save this article

Estimating labour supply responses and welfare participation: Using a natural experiment to validate a structural labour supply model

Author

Listed:
  • Jorgen Hansen
  • Xingfei Liu

Abstract

We estimate an economic model of labour supply and welfare participation using data on single men from Quebec drawn from the 1986 Canadian Census. Detailed budget sets for each work‐welfare combination—accounting for income taxes, tax credits and welfare benefit rules—are derived using a micro‐simulation model. We show that predicted reactions to a welfare reform that took place in 1989 replicate actual changes in labour supply and welfare participation. We also illustrate the advantage of having estimated a structural model by showing how labour supply and welfare participation change when income taxes and benefit levels change. Estimation des réponses de lx'offre de travail et de la participation à l'aide sociale: utilisation d'une expérience vécue pour valider un modèle structurel d'offre de travail. On calibre un modèle économique d'offre de travail et de participation à l'aide sociale en utilisant des données pour les hommes célibataires du Québec tirées du recensement de 1986. On dérive d'un modèle de micro‐simulation des budgets détaillés pour chaque combinaison de travail et d'aide sociale – tenant compte des impôts sur le revenu, des crédits d'impôt, et des prestations d'aide sociale. On montre que les réactions prévues à la réforme de l'aide sociale qui a eu lieu en 1989 répliquent les changements qui se sont produits dans l'offre de travail et dans la participation à l'aide sociale. On illustre l'avantage d'avoir calibré un modèle structurel en montrant comment l'offre de travail et la participation à l'aide sociale se sont modifiées quand les impôts sur le revenu et les prestations d'aide sociale ont changé.

Suggested Citation

  • Jorgen Hansen & Xingfei Liu, 2015. "Estimating labour supply responses and welfare participation: Using a natural experiment to validate a structural labour supply model," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(5), pages 1831-1854, December.
  • Handle: RePEc:wly:canjec:v:48:y:2015:i:5:p:1831-1854
    DOI: 10.1111/caje.12181
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/caje.12181
    Download Restriction: no

    File URL: https://libkey.io/10.1111/caje.12181?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jorgen Hansen & Xingfei Liu, 2015. "Estimating labour supply responses and welfare participation: Using a natural experiment to validate a structural labour supply model," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1831-1854, December.
    2. Fortin, Bernard & Lacroix, Guy & Drolet, Simon, 2004. "Welfare benefits and the duration of welfare spells: evidence from a natural experiment in Canada," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1495-1520, July.
    3. LaLonde, Robert J, 1986. "Evaluating the Econometric Evaluations of Training Programs with Experimental Data," American Economic Review, American Economic Association, vol. 76(4), pages 604-620, September.
    4. Heckman, James & Singer, Burton, 1984. "A Method for Minimizing the Impact of Distributional Assumptions in Econometric Models for Duration Data," Econometrica, Econometric Society, vol. 52(2), pages 271-320, March.
    5. Lennart Flood & Jörgen Hansen & Roger Wahlberg, 2004. "Household Labor Supply and Welfare Participation in Sweden," Journal of Human Resources, University of Wisconsin Press, vol. 39(4).
    6. Xiaodong Gong & Arthur van Soest, 2002. "Family Structure and Female Labor Supply in Mexico City," Journal of Human Resources, University of Wisconsin Press, vol. 37(1), pages 163-191.
    7. Jeffrey Smith & Jeremy Lise & Shannon N. Seitz, 2003. "Equilibrium Policy Experiments And The Evaluation Of Social Programs," Working Paper 1012, Economics Department, Queen's University.
    8. Paul J. Devereux, 2003. "Changes in Male Labor Supply and Wages," ILR Review, Cornell University, ILR School, vol. 56(3), pages 409-428, April.
    9. Lennart Flood & Nizamul Islam, 2005. "A Monte Carlo evaluation of discrete choice labour supply models," Applied Economics Letters, Taylor & Francis Journals, vol. 12(5), pages 263-266.
    10. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-589, August.
    11. Michael P. Keane & Kenneth I. Wolpin, 2007. "Exploring The Usefulness Of A Nonrandom Holdout Sample For Model Validation: Welfare Effects On Female Behavior," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(4), pages 1351-1378, November.
    12. Dickens, William T & Lundberg, Shelly J, 1993. "Hours Restrictions and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 169-192, February.
    13. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-1035, December.
    14. Kenneth I. Wolpin & Petra E. Todd, 2006. "Assessing the Impact of a School Subsidy Program in Mexico: Using a Social Experiment to Validate a Dynamic Behavioral Model of Child Schooling and Fertility," American Economic Review, American Economic Association, vol. 96(5), pages 1384-1417, December.
    15. Blank, Rebecca M, 1988. "Simultaneously Modeling the Supply of Weeks and Hours of Work among Female Household Heads," Journal of Labor Economics, University of Chicago Press, vol. 6(2), pages 177-204, April.
    16. Lemieux, Thomas & Milligan, Kevin, 2008. "Incentive effects of social assistance: A regression discontinuity approach," Journal of Econometrics, Elsevier, vol. 142(2), pages 807-828, February.
    17. Heckman, J.J. & Hotz, V.J., 1988. "Choosing Among Alternative Nonexperimental Methods For Estimating The Impact Of Social Programs: The Case Of Manpower Training," University of Chicago - Economics Research Center 88-12, Chicago - Economics Research Center.
    18. Brewer, Mike & Duncan, Alan & Shephard, Andrew & Suarez, Maria Jose, 2006. "Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain," Labour Economics, Elsevier, vol. 13(6), pages 699-720, December.
    19. Aaberge, Rolf & Colombino, Ugo & Strom, Steinar, 1999. "Labour Supply in Italy: An Empirical Analysis of Joint Household Decisions, with Taxes and Quantity Constraints," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(4), pages 403-422, July-Aug..
    20. Richard Blundell & Andrew Shephard, 2012. "Employment, Hours of Work and the Optimal Taxation of Low-Income Families," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 481-510.
    21. repec:hoo:wpaper:e-90-11 is not listed on IDEAS
    22. Friedlander, Daniel & Robins, Philip K, 1995. "Evaluating Program Evaluations: New Evidence on Commonly Used Nonexperimental Methods," American Economic Review, American Economic Association, vol. 85(4), pages 923-937, September.
    23. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    24. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "Evaluating In-Work Benefit Reform: The Working Families Tax Credit in the U.K," JCPR Working Papers 160, Northwestern University/University of Chicago Joint Center for Poverty Research.
    25. Lemieux, Thomas & Fortin, Bernard & Frechette, Pierre, 1994. "The Effect of Taxes on Labor Supply in the Underground Economy," American Economic Review, American Economic Association, vol. 84(1), pages 231-254, March.
    26. Arthur van Soest, 1995. "Structural Models of Family Labor Supply: A Discrete Choice Approach," Journal of Human Resources, University of Wisconsin Press, vol. 30(1), pages 63-88.
    27. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Henk-Wim Boer & Egbert L. W. Jongen, 2023. "Analysing tax-benefit reforms in the Netherlands using structural models and natural experiments," Journal of Population Economics, Springer;European Society for Population Economics, vol. 36(1), pages 179-209, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Chiara Daniela Pronzato, 2015. "Fighting Lone Mothers’ Poverty Through In-Work Benefits: Methodological Issues and Policy Suggestions," CESifo Economic Studies, CESifo Group, vol. 61(1), pages 95-122.
    2. Olivier Bargain, 2004. "On modeling household labor supply with taxation," DELTA Working Papers 2004-14, DELTA (Ecole normale supérieure).
    3. Chiara Daniela Pronzato, 2014. "Fighting Lone Mothers’ Poverty through In-Work Benefits. Methodological Issues and Policy Suggestions," CHILD Working Papers Series 23, Centre for Household, Income, Labour and Demographic Economics (CHILD) - CCA.
    4. Pronzato, Chiara D., 2012. "Comparing Quasi-Experimental Designs and Structural Models for Policy Evaluation: The Case of a Reform of Lone Parental Welfare," IZA Discussion Papers 6803, Institute of Labor Economics (IZA).
    5. Löffler, Max & Peichl, Andreas & Siegloch, Sebastian, 2013. "Validating Structural Labor Supply Models," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79819, Verein für Socialpolitik / German Economic Association.
    6. Loeffler, Max & Peichl, Andreas & Pestel, Nico & Siegloch, Sebastian & Sommer, Eric, 2014. "Documentation IZA?MOD v3.0: The IZA Policy Simulation Model," IZA Discussion Papers 8553, Institute of Labor Economics (IZA).
    7. Thoresen, Thor O. & Vattø, Trine E., 2015. "Validation of the discrete choice labor supply model by methods of the new tax responsiveness literature," Labour Economics, Elsevier, vol. 37(C), pages 38-53.
    8. Kabátek, Jan, 2015. "Essays on public policy and household decision making," Other publications TiSEM 8cdb178e-ad98-42e5-a7e1-b, Tilburg University, School of Economics and Management.
    9. Mauro Mastrogiacomo & Nicole M. Bosch & Miriam D. A. C. Gielen & Egbert L. W. Jongen, 2017. "Heterogeneity in Labour Supply Responses: Evidence from a Major Tax Reform," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(5), pages 769-796, October.
    10. Anna Kurowska & Michal Myck & Katharina Wrohlich, 2012. "Family and Labor Market Choices: Requirements to Guide Effective Evidence-Based Policy," Discussion Papers of DIW Berlin 1234, DIW Berlin, German Institute for Economic Research.
    11. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis, in: Handbook of Microsimulation Modelling, volume 127, pages 167-221, Emerald Group Publishing Limited.
    12. Olivier Bargain & Andreas Peichl, 2013. "Steady-State Labor Supply Elasticities: An International Comparison," AMSE Working Papers 1322, Aix-Marseille School of Economics, France.
    13. de Boer, Henk-Wim & Jongen, Egbert L.W. & Kabatek, Jan, 2022. "The effectiveness of fiscal stimuli for working parents," Labour Economics, Elsevier, vol. 76(C).
    14. van Soest, Arthur & Das, Marcel & Gong, Xiaodong, 2002. "A structural labour supply model with flexible preferences," Journal of Econometrics, Elsevier, vol. 107(1-2), pages 345-374, March.
    15. Bargain, Olivier & Peichl, Andreas, 2013. "Steady-state labor supply elasticities: A survey," ZEW Discussion Papers 13-084, ZEW - Leibniz Centre for European Economic Research.
    16. Henk-Wim Boer & Egbert L. W. Jongen, 2023. "Analysing tax-benefit reforms in the Netherlands using structural models and natural experiments," Journal of Population Economics, Springer;European Society for Population Economics, vol. 36(1), pages 179-209, January.
    17. Buhlmann, Florian & Hebsaker, Michael & Kreuz, Tobias & Schmidhäuser, Jakob & Siegloch, Sebastian & Stichnoth, Holger, 2022. "ZEW-EviSTA: A microsimulation model of the German tax and transfer system," ZEW Discussion Papers 22-026, ZEW - Leibniz Centre for European Economic Research.
    18. Tim Callan & Arthur Van Soest & John R. Walsh, 2009. "Tax Structure and Female Labour Supply: Evidence from Ireland," LABOUR, CEIS, vol. 23(1), pages 1-35, March.
    19. Henk-Wim de Boer & Egbert Jongen & Jan Kabatek, 2014. "The effectiveness of fiscal stimuli for working parents," CPB Discussion Paper 286.rdf, CPB Netherlands Bureau for Economic Policy Analysis.
    20. de Boer, Henk-Wim & Jongen, Egbert L. W., 2020. "Analysing Tax-Benefit Reforms in the Netherlands: Using Structural Models and Natural Experiments," IZA Discussion Papers 12892, Institute of Labor Economics (IZA).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wly:canjec:v:48:y:2015:i:5:p:1831-1854. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://doi.org/10.1111/(ISSN)1540-5982 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.