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

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  • 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 combinationaccounting for income taxes, tax credits and welfare benefit rulesare 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.

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, Canadian Economics Association, vol. 48(5), pages 1831-1854, December.
  • Handle: RePEc:cje:issued:v:48:y:2015:i:5:p:1831-1854
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    Cited by:

    1. Kabatek, J., 2013. "Iteration Capping For Discrete Choice Models Using the EM Algorithm," Discussion Paper 2013-019, Tilburg University, Center for Economic Research.
    2. BARGAIN Olivier & DOORLEY Karina, 2016. "The Effect of Social Benefits on Youth Employment: Combining RD and a Behavioral Model," LISER Working Paper Series 2016-12, LISER.
    3. Henk-Wim de Boer & Egbert Jongen & Jan Kabatek, 2014. "The effectiveness of fiscal stimuli for working parents," CPB Discussion Paper 286, CPB Netherlands Bureau for Economic Policy Analysis.
    4. Peter Ericson & Lennart Flood & Nizamul Islam, 2015. "Taxes, wages and working hours," Empirical Economics, Springer, vol. 49(2), pages 503-535, September.
    5. Chiara Daniela Pronzato, 2015. "Fighting Lone Mothers’ Poverty Through In-Work Benefits: Methodological Issues and Policy Suggestions," CESifo Economic Studies, CESifo, vol. 61(1), pages 95-122.
    6. Liu, Xingfei, 2014. "Educational Attainment of Second-Generation Immigrants: A U.S.-Canada Comparison," IZA Discussion Papers 8685, Institute for the Study of Labor (IZA).
    7. Thor O. Thoresen & Trine E. Vattø, 2013. "Validation of structural labor supply model by the elasticity of taxable income," Discussion Papers 738, Statistics Norway, Research Department.
    8. D. Vandelannoote & P. Vanleenhove & A. Decoster & J. Ghysels & G. Verbist, 2015. "Maternal employment: the impact of triple rationing in childcare," Review of Economics of the Household, Springer, vol. 13(3), pages 685-707, September.
    9. 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.
    10. 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.
    11. 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 for the Study of Labor (IZA).

    More about this item

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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