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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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  • Bernard Fortin
  • Guy Lacroix

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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  • Bernard Fortin & Guy Lacroix, 1997. "Welfare Benefits, Minimum Wage Rate and the Duration of Welfare Spells: Evidence from a Natural Experiment in Canada," CIRANO Working Papers 97s-25, CIRANO.
    • Handle: RePEc:cir:cirwor:97s-25
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    File URL: https://cirano.qc.ca/files/publications/97s-25.pdf
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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 études analytiques : documents de recherche 2003192f, Statistics Canada, Direction des études analytiques.
    2. Stephen Whelan, 2010. "The Interaction between Income Support Programs," LABOUR, CEIS, vol. 24(4), pages 407-440, December.
    3. 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.
    4. 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.
    5. 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," CIRANO Project Reports 2003rp-14, CIRANO.
    6. van den Berg, G. & van der Klaauw, B. & van Ours, J.C., 1998. "Punitive sanctions and the transition from welfare to work," Discussion Paper 1998-56, Tilburg University, Center for Economic Research.
    7. Bernard Fortin, 1998. "Dépendance à l'égard de l'aide sociale et réforme de la sécurité du revenu," CIRANO Working Papers 98s-03, CIRANO.
    8. Barrett, Garry F., 2000. "The effect of educational attainment on welfare dependence: Evidence from Canada," Journal of Public Economics, Elsevier, vol. 77(2), pages 209-232, August.
    9. 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.
    10. Hilary W. Hoynes & Kenneth Y. Chay & Dean Hyslop, 2004. "True State Dependence In Monthly Welfare Participation:A Nonexperimental Analysis," Working Papers 2, University of California, Davis, Department of Economics.
    11. Fortin, Bernard, 1997. "Dépendance à l’égard de l’aide sociale et réforme de la sécurité du revenu," L'Actualité Economique, Société Canadienne de Science Economique, vol. 73(4), pages 557-573, décembre.
    12. 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.
    13. Dalit Contini & Matteo Richiardi, 2009. "Welfare stigma with decreasing employability," LABORatorio R. Revelli Working Papers Series 90, LABORatorio R. Revelli, Centre for Employment Studies.
    14. Green, David A. & Warburton, William P., 2004. "Tightening a welfare system: the effects of benefit denial on future welfare receipt," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1471-1493, July.

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    More about this item

    Keywords

    Welfare benefits; minimum wage; semi-parametric duration model; Prestations de sécurité sociale; salaire minimum; modèle de durée semi-paramétrique;
    All these keywords.

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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