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Reducing Income Transfers to Refugee Immigrants: Does Starthelp Help You Start?

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Author Info

  • Rosholm, Michael

    ()
    (Aarhus University)

  • Vejlin, Rune Majlund

    ()
    (Aarhus University)

Abstract

In this paper we estimate the causal effect of lowering the public income transfers administered to newly arrived refugee immigrants in Denmark – the so-called starthelp – using a competing risk mixed proportional hazard framework. The two competing risks are exit to job and exit out of the labour force. A standard search model predicts that lower benefits decrease the reservation wage and/or increase the search effort. However, newly arrived refugee immigrants may initially have a weak position in the labour market due to the fact that they do not know the language and typically have no education, or alternatively, their education is not recognized in Denmark. Hence, there may be no demand for their skills. The empirical question addressed here is whether lower benefits affect their job finding rate; if no employer wants to hire them at the going minimum wage, the fact that the reservation wage is lowered may have little effect. For identification we use a ‘quasi-natural’ experiment, in which the rules for welfare benefits in Denmark changed rather dramatically. Refugee immigrants obtaining residence permit before July 1st 2002 received and continue to receive larger income transfers than those obtaining their residence permit after July 1st. We find that lowering public income transfers has a small positive effect on the job finding rate, once calendar time effects are introduced into the model. However, introducing time-variation in the effect, we find that most of the positive effect stems from a large positive effect after two years in Denmark. We also find that the exit rate from the labour force is positively affected by lower transfers, but here the effect is large during the first year in the host country, and then it declines. Furthermore, we investigate heterogeneous treatment effects, and we find, generally, that those which we consider the weakest in the labour market are close to being immune to this treatment.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2720.

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Length: 47 pages
Date of creation: Apr 2007
Date of revision:
Publication status: published in: Labour Economics, 2010, 17 (1), 258-275
Handle: RePEc:iza:izadps:dp2720

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Keywords: quasi-natural experiment; economic incentives; refugee immigrants; duration model;

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References

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  1. Arellano, Manuel & Bentolila, Samuel & Bover, Olympia, 1998. "Unemployment Duration, Benefit Duration and the Business Cycle," CEPR Discussion Papers 1840, C.E.P.R. Discussion Papers.
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  3. Rosholm, Michael & Toomet, Ott, 2005. "A Search Model of Discouragement," IZA Discussion Papers 1633, Institute for the Study of Labor (IZA).
  4. Edin, Per-Anders & Fredriksson, Peter & Åslund, Olof, 2000. "Ethnic Enclaves and the Economic Success of Immigrants - Evidence from a Natural Experiment," Working Paper Series 2000:21, Uppsala University, Department of Economics.
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  6. van Ours, Jan C. & Vodopivec, Milan, 2006. "Shortening the Potential Duration of Unemployment Benefits Does Not Affect the Quality of Post-Unemployment Jobs: Evidence from a Natural Experiment," IZA Discussion Papers 2171, Institute for the Study of Labor (IZA).
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  9. Ours, Jan van & Vodopivec, Milan, 2005. "How changes in benefits entitlement affect job-finding: lessons from the slovenian experiment," Social Protection Discussion Papers 32548, The World Bank.
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  12. Bennmarker, Helge & Carling, Kenneth & Holmlund, Bertil, 2005. "Do Benefit Hikes Damage Job Finding? Evidence from Swedish Unemployment Insurance Reforms," Working Paper Series 2005:15, Uppsala University, Department of Economics.
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  15. Jaap H. Abbring & Gerard J. van den Berg, 2003. "The identifiability of the mixed proportional hazards competing risks model," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 65(3), pages 701-710.
  16. Pedersen, Peder J. & Smith, Nina, 2002. "Unemployment Traps: Do Financial Dis-incentives matter?," CLS Working Papers 01-1, University of Aarhus, Aarhus School of Business, Centre for Labour Market and Social Research.
  17. Rosholm, Michael & Vejlin, Rune, 2010. "Reducing income transfers to refugee immigrants: Does start-help help you start?," Labour Economics, Elsevier, vol. 17(1), pages 258-275, January.
  18. 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.
  19. Jaap H. Abbring & Gerard J. van den Berg, 2003. "The Nonparametric Identification of Treatment Effects in Duration Models," Econometrica, Econometric Society, vol. 71(5), pages 1491-1517, 09.
  20. Clausen, Jens & Heinesen, Eskil & Hummelgaard, Hans & Husted, Leif & Rosholm, Michael, 2009. "The effect of integration policies on the time until regular employment of newly arrived immigrants: Evidence from Denmark," Labour Economics, Elsevier, vol. 16(4), pages 409-417, August.
  21. Ai, Chunrong & Norton, Edward C., 2003. "Interaction terms in logit and probit models," Economics Letters, Elsevier, vol. 80(1), pages 123-129, July.
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Cited by:
  1. Matti Sarvimäki & Kari Hämäläinen, 2011. "Assimilating Immigrants: The Impact of an Integration Program," Norface Discussion Paper Series 2011015, Norface Research Programme on Migration, Department of Economics, University College London.
  2. Pedersen, Peder J., 2011. "Immigration and Welfare State Cash Benefits: The Danish Case," IZA Discussion Papers 6220, Institute for the Study of Labor (IZA).
  3. Aldashev, Alisher & Thomsen, Stephan L. & Walter, Thomas, 2010. "Short-term training programs for immigrants: do effects differ from natives and why?," ZEW Discussion Papers 10-021, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Rosholm, Michael & Vejlin, Rune Majlund, 2007. "Reducing Income Transfers to Refugee Immigrants: Does Starthelp Help You Start?," IZA Discussion Papers 2720, Institute for the Study of Labor (IZA).

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