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The Persistence of Welfare Participation

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  • Andrén, Thomas

    ()
    (National Institute of Economic Research - NIER)

Abstract

Welfare persistence is estimated in and compared between Swedish-born and foreign-born households. This is done within the framework of a time-stationary dynamic discrete choice model controlling for the initial condition and unobserved heterogeneity. Three different types of persistence are controlled for in terms of observed and unobserved heterogeneity, serial correlation, and structural state dependence, the focus being on the latter measure. In a second step we analyze the long-run effects of receiving social assistance on future household earnings and disposable income. The results show that state dependence in Swedish welfare participation is strong in both Swedish-born and foreign-born. However, the size of the effect is three times as large for the latter group. When the effect is distributed over time, it disappears after three years for both groups. The effect of structural state dependence is decomposed into a number of observed explanatory factors. Surprisingly small effects are found from typical foreign-born factors such as time in the country and country of origin, both important determinants for welfare participation in general. When investigating the effect of social assistance participation on future earnings, we find a strong and persistent effect over the whole observation window, while no such effect could be found for disposable income. This indicates that the economic incentives to leave the dependency are very weak. The picture is similar for both Swedish-born and foreign-born, even though the negative earnings effect is somewhat larger for the latter.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 3100.

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Length: 35 pages
Date of creation: Oct 2007
Date of revision:
Handle: RePEc:iza:izadps:dp3100

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Keywords: welfare participation; immigrants; dynamic probit model; persistence; state dependence; unobserved heterogeneity; initial condition; GHK simulator; earnings; disposable income;

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References

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  1. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
  2. Danziger, Sheldon & Haveman, Robert & Plotnick, Robert, 1981. "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 19(3), pages 975-1028, September.
  3. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, SUNY-Oswego, Department of Economics, number emetr2, Spring.
  4. Hansen, Jörgen & Lofstrom, Magnus, 2006. "Immigrant-Native Differences in Welfare Participation: The Role of Entry and Exit Rates," IZA Discussion Papers 2261, Institute for the Study of Labor (IZA).
  5. Vassilis A. Hajivassiliou & Axel Borsch-Supan, 1990. "Smooth Unbiased Multivariate Probability Simulators for Maximum Likelihood Estimation of Limited Dependent Variable Models," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 960, Cowles Foundation for Research in Economics, Yale University.
  6. Jörgen Hansen & Magnus Lofstrom, 2010. "Immigrant Assimilation and Welfare Participation: Do Immigrants Assimilate Into or Out-of Welfare," Working Papers id:2647, eSocialSciences.
  7. Gourieroux, Christian & Monfort, Alain, 1993. "Simulation-based inference : A survey with special reference to panel data models," Journal of Econometrics, Elsevier, Elsevier, vol. 59(1-2), pages 5-33, September.
  8. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 30(1), pages 1-61, March.
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Cited by:
  1. Kahanec, Martin & Zimmermann, Klaus F., 2008. "Migration in an Enlarged EU: A Challenging Solution?," IZA Discussion Papers 3913, Institute for the Study of Labor (IZA).
  2. Arulampalam, Wiji & Stewart, Mark B., 2008. "Simplified Implementation of the Heckman Estimator of the Dynamic Probit Model and a Comparison with Alternative Estimators," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 884, University of Warwick, Department of Economics.
  3. Clark, Ken & Kanellopoulos, Nikolaos C., 2013. "Low pay persistence in Europe," Labour Economics, Elsevier, Elsevier, vol. 23(C), pages 122-134.
  4. Pawel Kaczmarczyk, 2013. "Are immigrants a burden for the state budget? Review paper," EUI-RSCAS Working Papers, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS) p0356, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).

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