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The Persistence of Welfare Participation

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  • Andrén, Thomas

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

Abstract

Welfare persistence is estimated in and compared between Swedish-born and foreignborn households. This is done within the framework of a time-stationary dynamic discrete choice model controlling for the initial condition and unobserved heterogeneity. Three different types of persistence are controlled for in terms of observed and unobserved heterogeneity, serial correlation, and structural state dependence, the focus being on the latter measure. In a second step we analyze the long-run effects of receiving social assistance on future household earnings and disposable income. The results show that state dependence in Swedish welfare participation is strong in both Swedish-born and foreign-born. However, the size of the effect is three times as large for the latter group. When the effect is distributed over time, it disappears after three years for both groups. The effect of structural state dependence is decomposed into a number of observed explanatory factors. Surprisingly small effects are found from typical foreign-born factors such as time in the country and country of origin, both important determinants for welfare participation in general. When investigating the effect of social assistance participation on future earnings, we find a strong and persistent effect over the whole observation window, while no such effect could be found for disposable income. This indicates that the economic incentives to leave the dependency are very weak. The picture is similar for both Swedish-born and foreign-born, even though the negative earnings effect is somewhat larger for the latter.

Suggested Citation

  • Andrén, Thomas, 2007. "The Persistence of Welfare Participation," Working Papers in Economics 266, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0266
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    File URL: http://hdl.handle.net/2077/7366
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    References listed on IDEAS

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    1. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 1-61, March.
    2. Jeffrey M. Wooldridge, 2005. "Simple solutions to the initial conditions problem in dynamic, nonlinear panel data models with unobserved heterogeneity," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(1), pages 39-54.
    3. Jorgen Hansen & Magnus Lofstrom, 2011. "Immigrant–Native Differences in Welfare Participation: The Role of Entry and Exit Rates," Industrial Relations: A Journal of Economy and Society, Wiley Blackwell, vol. 50(3), pages 412-442, July.
    4. Borsch-Supan, Axel & Hajivassiliou, Vassilis A., 1993. "Smooth unbiased multivariate probability simulators for maximum likelihood estimation of limited dependent variable models," Journal of Econometrics, Elsevier, vol. 58(3), pages 347-368, August.
    5. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
    6. Jorgen Hansen & Magnus Lofstrom, 2003. "Immigrant Assimilation and Welfare Participation Do Immigrants Assimilate Into or Out of Welfare?," Journal of Human Resources, University of Wisconsin Press, vol. 38(1).
    7. Gourieroux, Christian & Monfort, Alain, 1993. "Simulation-based inference : A survey with special reference to panel data models," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 5-33, September.
    8. Danziger, Sheldon & Haveman, Robert & Plotnick, Robert, 1981. "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 975-1028, September.
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    Cited by:

    1. Wiji Arulampalam & Mark B. Stewart, 2009. "Simplified Implementation of the Heckman Estimator of the Dynamic Probit Model and a Comparison with Alternative Estimators," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(5), pages 659-681, October.
    2. Paweł Kaczmarczyk, 2013. "Are immigrants a burden for the state budget? Review paper," RSCAS Working Papers 2013/79, European University Institute.
    3. Kahanec, Martin & Zimmermann, Klaus F., 2008. "Migration in an Enlarged EU: A Challenging Solution?," IZA Discussion Papers 3913, Institute for the Study of Labor (IZA).
    4. Clark, Ken & Kanellopoulos, Nikolaos C., 2013. "Low pay persistence in Europe," Labour Economics, Elsevier, vol. 23(C), pages 122-134.

    More about this item

    Keywords

    welfare participation; immigrants; dynamic probit model; persistence; state dependence; unobserved heterogeneity; initial condition; GHK simulator; earnings; disposable income;

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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