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Heterogeneous Treatment and Self-Selection in a Wage Subsidy Experiment

  • Dany Brouillette
  • Guy Lacroix

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.

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File URL: http://www.cirano.qc.ca/files/publications/2010s-24.pdf
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Paper provided by CIRANO in its series CIRANO Working Papers with number 2010s-24.

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Length: 34 pages
Date of creation: 01 May 2010
Date of revision:
Handle: RePEc:cir:cirwor:2010s-24
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  1. Dubin, Jeffrey A. & Rivers, Douglas, 1993. "Experimental estimates of the impact of wage subsidies," Journal of Econometrics, Elsevier, vol. 56(1-2), pages 219-242, March.
  2. Fabien Postel-Vinay & Jean-Marc Robin, 2002. "Equilibrium Wage Dispersion with Worker and Employer Heterogeneity," Sciences Po publications info:hdl:2441/c8dmi8nm4pd, Sciences Po.
  3. Bontemps, Christian & Robin, Jean-Marc & Van den Berg, Gerard J, 1999. "An Empirical Equilibrium Job Search Model with Search on the Job and Heterogeneous Workers and Firms," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(4), pages 1039-74, November.
  4. Bloemen, H.G., 1992. "Job search theory, labour supply and unemployment duration," Discussion Paper 1992-50, Tilburg University, Center for Economic Research.
  5. Dale T. Mortensen, 1977. "Unemployment insurance and job search decisions," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 30(4), pages 505-517, July.
  6. David Card & Dean R. Hyslop, 2005. "Estimating the Effects of a Time-Limited Earnings Subsidy for Welfare-Leavers," Econometrica, Econometric Society, vol. 73(6), pages 1723-1770, November.
  7. Ham, John C & LaLonde, Robert J, 1996. "The Effect of Sample Selection and Initial Conditions in Duration Models: Evidence from Experimental Data on Training," Econometrica, Econometric Society, vol. 64(1), pages 175-205, January.
  8. Card, David & Robins, Philip K., 2005. "How important are "entry effects" in financial incentive programs for welfare recipients? Experimental evidence from the Self-Sufficiency Project," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 113-139.
  9. Card, David & Hyslop, Dean R., 2009. "The dynamic effects of an earnings subsidy for long-term welfare recipients: Evidence from the self sufficiency project applicant experiment," Journal of Econometrics, Elsevier, vol. 153(1), pages 1-20, November.
  10. Zvi Eckstein & Kenneth I. Wolpin, 1989. "The Specification and Estimation of Dynamic Stochastic Discrete Choice Models: A Survey," Journal of Human Resources, University of Wisconsin Press, vol. 24(4), pages 562-598.
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