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Welfare Benefits, Minimum Wage Rate and the Duration of Welfare Spells: Evidence from a Natural Experiment in Canada

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  • Fortin, Bernard

    ()

  • Lacroix, Guy

Abstract

In this paper we analyze the impact of benefits on the length of welfare spells. It introduces a ``natural experiment'' approach of comparing the length of welfare spells before and after a major reform of the welfare program that took place in the Province of Québec in August 1989. An important feature of this reform was the abolishment of discrimination based on age that applied to the benefits single individuals and childless couples below the age of 30 were entitled to. With the reform, their monthly benefits rose from $173 ($ 1986) to $425, an increase of over 145%. To analyze the impact of the reform, we utilize a semi-parametric duration model with time-varying covariates such as welfare benefits, minimum wage rate, unemployment rate, etc. We find that benefits have an important impact on spell duration of individuals below 30 years of age. We also find that the minimum wage rate has an adverse effect on the duration of individuals in the 18--24 age group but a positive effect on those in the 25--29 age group. Finally, our estimates suggest that the reform increased the expected duration on welfare from 2 to 4.5 months.

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Bibliographic Info

Paper provided by Université Laval - Département d'économique in its series Cahiers de recherche with number 9708.

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Date of creation: 1997
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Handle: RePEc:lvl:laeccr:9708

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Keywords: Welfare Benefits; Natural Experiment; Semi-Parametric; Duration Model;

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  1. Katz, Lawrence F. & Meyer, Bruce D., 1990. "The impact of the potential duration of unemployment benefits on the duration of unemployment," Journal of Public Economics, Elsevier, vol. 41(1), pages 45-72, February.
  2. Kiefer, Nicholas M, 1988. "Economic Duration Data and Hazard Functions," Journal of Economic Literature, American Economic Association, vol. 26(2), pages 646-79, June.
  3. Fortin, B. & Truchon, M., 1990. "On Reforming the Welfare System: Workfare Meets the Negative Income Tax," Cahiers de recherche 9016, Université Laval - Département d'économique.
  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. Allen, Douglas W, 1993. "Welfare and the Family: The Canadian Experience," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages S201-23, January.
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  7. O'Neill, June A & Bassi, Laurie J & Wolf, Douglas A, 1987. "The Duration of Welfare Spells," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 241-48, May.
  8. Michael Baker & Samuel A. Rea, 1998. "Employment Spells And Unemployment Insurance Eligibility Requirements," The Review of Economics and Statistics, MIT Press, vol. 80(1), pages 80-94, February.
  9. Lancaster, Tony, 1979. "Econometric Methods for the Duration of Unemployment," Econometrica, Econometric Society, vol. 47(4), pages 939-56, July.
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  14. Blank, Rebecca M., 1989. "Analyzing the length of welfare spells," Journal of Public Economics, Elsevier, vol. 39(3), pages 245-273, August.
  15. Hoynes, Hilary & MaCurdy, Thomas, 1994. "Has the Decline in Benefits Shortened Welfare Spells?," American Economic Review, American Economic Association, vol. 84(2), pages 43-48, May.
  16. Michael Charette & Ronald Meng, 1994. "The Determinants of Welfare Participation of Female Heads of Household in Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 27(2), pages 290-306, May.
  17. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-35, December.
  18. Arulampalam, Wiji & Stewart, Mark B, 1995. "The Determinants of Individual Unemployment Durations in an Era of High Unemployment," Economic Journal, Royal Economic Society, vol. 105(429), pages 321-32, March.
  19. John C. Ham & Samuel Rea, 1986. "Unemployment Insurance and Male Unemployment Duration in Canada," Working Papers 592, Princeton University, Department of Economics, Industrial Relations Section..
  20. Olsen, Randall J & Smith, D Alton & Farkas, George, 1986. "Structural and Reduced-Form Models of Choice among Alternatives in Continuous Time: Youth Employment under a Guaranteed Jobs Program," Econometrica, Econometric Society, vol. 54(2), pages 375-94, March.
  21. Anderson, Patricia M, 1992. "Time-Varying Effects of Recall Expectation, a Reemployment Bonus, and Job Counseling on Unemployment Durations," Journal of Labor Economics, University of Chicago Press, vol. 10(1), pages 99-115, January.
  22. Christian Belzil, 1993. "An Empirical Model of Job-to-Job Transition with Self-Selectivity," Canadian Journal of Economics, Canadian Economics Association, vol. 26(3), pages 536-51, August.
  23. Dolton, Peter J & van der Klaauw, Wilbert, 1995. "Leaving Teaching in the UK: A Duration Analysis," Economic Journal, Royal Economic Society, vol. 105(429), pages 431-44, March.
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Citations

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Cited by:
  1. Guy Lacroix & Gino Santarossa & Pierre Gagné, 2003. "Une analyse de la dynamique de la dépendance à l'assistance-emploi des populations natives et immigrantes québécoises," Cahiers de recherche 0342, CIRPEE.
  2. Fortin, Bernard, 1998. "Dépendance à l'égard de l'aide sociale et réforme de la sécurité du revenu," Cahiers de recherche 9803, Université Laval - Département d'économique.
  3. Gerard J. van den Berg & Bas van der Klaauw & Jan C. van Ours, 2004. "Punitive Sanctions and the Transition Rate from Welfare to Work," Journal of Labor Economics, University of Chicago Press, vol. 22(1), pages 211-241, January.
  4. Dalit Contini & Matteo Richiardi, 2009. "Welfare stigma with decreasing employability," LABORatorio R. Revelli Working Papers Series 90, LABORatorio R. Revelli, Centre for Employment Studies.
  5. Picot, Garnett & Frenette, Marc, 2003. "Life After Welfare: The Economic Well-being of Welfare Leavers in Canada During the 1990s," Analytical Studies Branch Research Paper Series 2003192e, Statistics Canada, Analytical Studies Branch.
  6. Hilary W. Hoynes & Kenneth Y. Chay & Dean Hyslop, 2004. "True State Dependence In Monthly Welfare Participation:A Nonexperimental Analysis," Working Papers 533, University of California, Davis, Department of Economics.
  7. Berg, G. van den & Klaauw, B. van der & Ours, J.C. van, 1998. "Punitive sanctions and the transition from welfare to work," Discussion Paper 1998-56, Tilburg University, Center for Economic Research.
  8. Picot, Garnett & Frenette, Marc, 2003. "La vie apres l'aide sociale : le bien-etre economique des personnes qui ont cesse de toucher de l'aide sociale au Canada dans les annees 90," Direction des etudes analytiques : documents de recherche 2003192f, Statistics Canada, Direction des etudes analytiques.

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