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Heterogeneous Treatment and Self-Selection in a Wage Subsidy Experiment

Author

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  • Dany Brouillette
  • Guy Lacroix

Abstract

The Self-Sufficiency Project (SSP) is a research and demonstration project that offered a generous time-limited income supplement to randomly selected welfare applicants under two conditions. The first, the eligibility condition, required that they remain on welfare for at least twelve months. The second, the qualification condition, required that they find a full-time job within twelve months after establishing eligibility. In this paper, we focus on a neglected and important feature of the program, namely that the financial reward for becoming qualified is inversely related to the expected wage rate. Under very simple assumptions we show that those who have a low expected wage rate have a clear incentive to establish eligibility. Empirical non-parametric evidence strongly suggests that individuals self-select into eligibility. We jointly estimate a participation equation and a wage equation that are correlated through individual random effects. Our results show that the omission of selfselectivity into qualification translates into slightly underestimated treatment effects. Le Projet d'autosuffisance (PAS) est une initiative de recherche et de démonstration destinée à offrir un généreux supplément de revenu temporaire aux demandeurs de l'aide sociale recrutés au hasard, moyennant deux conditions. La première, soit l'admissibilité, exigeait que les personnes retenues touchent l'aide sociale pendant une période minimale de 12 mois. La seconde, c'est-à-dire la qualification, exigeait qu'elles trouvent un emploi à temps plein dans les 12 mois suivant l'établissement de leur admissibilité. Dans le présent document, nous mettons l'accent sur une caractéristique du programme, à la fois importante et négligée, à savoir que la récompense financière associée au fait de se qualifier est inversement liée au taux de rémunération espéré. Sur la base d'hypothèses très simples, nous montrons que les personnes dont le taux de rémunération espéré est faible sont clairement incitées à établir leur admissibilité. L'évidence empirique non paramétrique laisse fortement à penser que les personnes s'autosélectionnent dans la démarche d'admissibilité. Nous évaluons conjointement une équation de participation et une équation de rémunération, corrélées par des effets aléatoires individuels. Nos résultats indiquent que l'omission du facteur d'autosélection lié à la qualification se traduit par des effets légèrement sous-estimés sur le traitement.

Suggested Citation

  • Dany Brouillette & Guy Lacroix, 2010. "Heterogeneous Treatment and Self-Selection in a Wage Subsidy Experiment," CIRANO Working Papers 2010s-24, CIRANO.
  • Handle: RePEc:cir:cirwor:2010s-24
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    File URL: https://cirano.qc.ca/files/publications/2010s-24.pdf
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    Cited by:

    1. Nicholas-James Clavet & Jean-Yves Duclos & Guy Lacroix, 2013. "Fighting Poverty: Assessing the Effect of Guaranteed Minimum Income Proposals in Quebec," Canadian Public Policy, University of Toronto Press, vol. 39(4), pages 491-516, December.
    2. Guy Lacroix & Dany Brouillette, 2011. "Assessing the impact of a wage subsidy for single parents on social assistance," Canadian Journal of Economics, Canadian Economics Association, vol. 44(4), pages 1195-1221, November.
    3. Guy Lacroix & Marie-Ève Brouard, 2011. "Work Absenteeism Due to a Chronic Disease," CIRANO Working Papers 2011s-33, CIRANO.
    4. Stephan, Gesine & van den Berg, Gerard & Homrighausen, Pia, 2016. "Randomizing information on a targeted wage support program for older workers: A field experiment," VfS Annual Conference 2016 (Augsburg): Demographic Change 145487, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

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    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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