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Do Earnings Subsidies Affect Job Choice?

Author

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  • Connolly, Helen

    () (Luxembourg Income Study)

  • Gottschalk, Peter T.

    () (Boston College)

Abstract

It is widely acknowledged that tax and transfer policies can affect employment. This paper explores a different potential impact of transfer policy by asking whether subsidies also affect job duration and wage growth. We provide an analytical framework that identifies causal links between earnings subsidies, job turnover, and wage growth. This framework highlights the importance of the form of the subsidy on the decision about the type of job to accept and, hence, its potential effect on within-job wage growth. The subsidy is predicted to increase job turnover and to affect between-job wage growth by affecting reservation wages. We use this framework to analyze the effects of the Canadian Self-Sufficiency Project (SSP). Consistent with the predictions of the analytical framework, we find that experimentals have shorter job duration and experience faster wage growth than the controls, who continue to be eligible only for Income Assistance.

Suggested Citation

  • Connolly, Helen & Gottschalk, Peter T., 2004. "Do Earnings Subsidies Affect Job Choice?," IZA Discussion Papers 1322, Institute for the Study of Labor (IZA).
    • Handle: RePEc:iza:izadps:dp1322
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    References listed on IDEAS

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    1. James Heckman & Lance Lochner & Ricardo Cossa, 2002. "Learning-By-Doing Vs. On-the-Job Training: Using Variation Induced by the EITC to Distinguish Between Models of Skill Formation," NBER Working Papers 9083, National Bureau of Economic Research, Inc.
    2. Helen Connolly & Peter Gottschalk, 2000. "Differences in Wage Growth by Education Level: Do Less Educated Workers Gain Less from Work Experience?," Boston College Working Papers in Economics 473, Boston College Department of Economics, revised 26 Aug 2006.
    3. Joseph G. Altonji & Nicolas Williams, 2005. "Do Wages Rise with Job Seniority? A Reassessment," ILR Review, Cornell University, ILR School, vol. 58(3), pages 370-397, April.
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    Cited by:

    1. Jeremy Lise & Shannon Seitz & Jeffrey Smith, 2003. "Equilibrium Policy Experiments and the Evaluation of Social Programs," Working Papers 1012, Queen's University, Department of Economics.
    2. Bitler, Marianne P. & Gelbach, Jonah B. & Hoynes, Hilary W., 2008. "Distributional impacts of the Self-Sufficiency Project," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 748-765, April.
    3. Jeremy Lise & Shannon Seitz & Jeffrey Smith, 2015. "Evaluating search and matching models using experimental data," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-35, December.
    4. Reamonn Lydon & Ian Walker, 2005. "Welfare to work, wages and wage growth," Fiscal Studies, Institute for Fiscal Studies, vol. 26(3), pages 335-370, September.

    More about this item

    Keywords

    wage subsidy; job choice;

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy

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