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State Dependence in Canadian Welfare Participation

  • Hansen, Jörgen

    ()

    (Concordia University)

  • Lofstrom, Magnus

    ()

    (Public Policy Institute of California)

  • Zhang, Xuelin

    ()

    (Statistics Canada)

This paper analyzes transitions into and out-of Social Assistance in Canada. We estimate a dynamic Probit model, controlling for endogenous initial conditions and unobserved heterogeneity, using longitudinal data extracted from the Survey of Labour and Income Dynamics (SLID) for the years 1993-2000. The data indicates that there are substantial provincial differences in social assistance participation. The empirical results indicate that a “welfare trap” does exist in Canada, but the extent of it varies across provinces. The results also suggest that there is a link between provincial variations in structural and spurious state dependence and regional differences in welfare generosity. In particular, the existence of structural state dependence, or a “welfare trap”, appears to be more likely in provinces with relatively high benefit levels. One implication of this result is that a change in the welfare benefit structure is not likely to lower participation as significantly among less generous provinces as more generous ones.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2266.

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Length: 44 pages
Date of creation: Aug 2006
Date of revision:
Publication status: published in: Research in Labor Economics, 2014, 39, 81-105
Handle: RePEc:iza:izadps:dp2266
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  1. Jorgen Hansen & Magnus Lofstrom, 2009. "The dynamics of immigrant welfare and labor market behavior," Journal of Population Economics, Springer, vol. 22(4), pages 941-970, October.
  2. Enberg, John & Gottschalk, Peter & Wolf, Douglas, 1990. "A random-effects logit model of work-welfare transitions," Journal of Econometrics, Elsevier, vol. 43(1-2), pages 63-75.
  3. Blank, Rebecca M., 1989. "Analyzing the length of welfare spells," Journal of Public Economics, Elsevier, vol. 39(3), pages 245-273, August.
  4. Bernard Fortin & Denis Fougère & Guy Lacroix, 2000. "The Effects of Welfare Benefits on the Duration of Welfare Spells : Evidence from a Natural Experiment in Canada," Working Papers 2000-14, Centre de Recherche en Economie et Statistique.
  5. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," NBER Working Papers 8983, National Bureau of Economic Research, Inc.
  6. Eberwein, Curtis & Ham, John C & LaLonde, Robert J, 1997. "The Impact of Being Offered and Receiving Classroom Training on the Employment Histories of Disadvantaged Women: Evidence from Experimental Data," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 655-82, October.
  7. Keane, Michael P, 1994. "A Computationally Practical Simulation Estimator for Panel Data," Econometrica, Econometric Society, vol. 62(1), pages 95-116, January.
  8. Kapsalis, Costa, 2001. "An Assessment of EI and SA Reporting in SLID," Analytical Studies Branch Research Paper Series 2001166e, Statistics Canada, Analytical Studies Branch.
  9. Stephen V. Cameron & James J. Heckman, 2001. "The Dynamics of Educational Attainment for Black, Hispanic, and White Males," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 455-499, June.
  10. Dean R. Hyslop, 1999. "State Dependence, Serial Correlation and Heterogeneity in Intertemporal Labor Force Participation of Married Women," Econometrica, Econometric Society, vol. 67(6), pages 1255-1294, November.
  11. Lee, L.F., 1994. "Simulated Maximum Likelihood Estimation of Dynamic Discrete Choice Statistical Models--Some Monte Carlo Results," Papers 94-06, Michigan - Center for Research on Economic & Social Theory.
  12. 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.
  13. Robert A. Moffitt, 1999. "The Effect of Pre-PRWORA Waivers on AFDC Caseloads and Female Earnings, Income, and Labor Force Behavior," JCPR Working Papers 89, Northwestern University/University of Chicago Joint Center for Poverty Research.
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