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Equilibrium Policy Experiments and the Evaluation of Social Programs

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  • Jeremy Lise
  • Shannon Seitz
  • Jeffrey Smith

Abstract

This paper makes three primary contributions. First, we demonstrate the usefulness of general equilibrium models as tools with which to draw policy implications for policies implemented in practice only as small-scale social experiments. Second, we illustrate the usefulness of social experiments as a tool to evaluate equilibrium models. In particular, we calibrate our model using only data on an experimental control group and from general data sets, and then use it to predict (in partial equilibrium) the outcomes experienced by an experimental treatment group. We find that it predicts these outcomes remarkably well. Third, we apply our methodology to the evaluation of the Canadian Self-Sufficiency Project (SSP), a policy providing generous financial incentives for Income Assistance (IA) recipients to obtain stable employment. This policy is similar to many other policies designed to 'make work pay' currently under debate or in place in the US, the UK and elsewhere. Our results reveal several important feedback effects associated with the SSP policy; taken together, these feedback effects reverse the cost-benefit conclusions implied by the partial equilibrium experimental evaluation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10283.

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Date of creation: Feb 2004
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Handle: RePEc:nbr:nberwo:10283

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  1. Lin, Zhengxi, 1998. "Employment Insurance in Canada: Recent Trends and Policy Changes," Analytical Studies Branch Research Paper Series 1998125e, Statistics Canada, Analytical Studies Branch.
  2. Lise, Jeremy & Seitz, Shannon & Smith, Jeffrey A., 2005. "Evaluating Search and Matching Models Using Experimental Data," IZA Discussion Papers 1717, Institute for the Study of Labor (IZA).
  3. Jeffrey Smith & Petra Todd, 2003. "Does Matching Overcome Lalonde's Critique of Nonexperimental Estimators?," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20035, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  4. Heckman, James J & Lochner, Lance & Taber, Christopher, 1998. "General-Equilibrium Treatment Effects: A Study of Tuition Policy," American Economic Review, American Economic Association, vol. 88(2), pages 381-86, May.
  5. Diamond, Peter A, 1982. "Wage Determination and Efficiency in Search Equilibrium," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 217-27, April.
  6. Albrecht, James & van den Berg, Gerard J & Vroman, Susan, 2004. "The knowledge lift: The Swedish adult education program that aimed to eliminate low worker skill levels," Working Paper Series 2004:17, IFAU - Institute for Evaluation of Labour Market and Education Policy.
  7. Card, D. & Michalopoulos, C. & Robins, P.K., 2001. "Measuring Wage Growth Among Former Welfare Recipients," Papers 2001-5, Gouvernement du Canada - Human Resources Development.
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  9. Garry F. Barrett & Michael I. Cragg, 1998. "An Untold Story: The Characteristics of Welfare Use in British Columbia," Canadian Journal of Economics, Canadian Economics Association, vol. 31(1), pages 165-188, February.
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  13. Christensen, Bent Jesper & Mortensen, Dale & Neumann, George R. & Werwatz, Axel, 2000. "On the job search and the wage distribution," SFB 373 Discussion Papers 2000,108, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
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  15. Bruno, VAN DER LINDEN, 2005. "Equilibrium Evaluation of Active Labor Market Programmes Enhancing Matching Effectiveness," Discussion Papers (ECON - Département des Sciences Economiques) 2005007, Université catholique de Louvain, Département des Sciences Economiques.
  16. Lawrence J. Christiano & Martin Eichenbaum, 1990. "Current real business cycle theories and aggregate labor market fluctuations," Discussion Paper / Institute for Empirical Macroeconomics 24, Federal Reserve Bank of Minneapolis.
  17. Pissarides, C A, 1984. "Efficient Job Rejection," Economic Journal, Royal Economic Society, vol. 94(376a), pages 97-108, Supplemen.
  18. Connolly, Helen & Gottschalk, Peter T., 2004. "Do Earnings Subsidies Affect Job Choice?," IZA Discussion Papers 1322, Institute for the Study of Labor (IZA).
  19. LaLonde, Robert J, 1986. "Evaluating the Econometric Evaluations of Training Programs with Experimental Data," American Economic Review, American Economic Association, vol. 76(4), pages 604-20, September.
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  21. James J. Heckman & Jeffrey A. Smith, 1998. "Evaluating the Welfare State," NBER Working Papers 6542, National Bureau of Economic Research, Inc.
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