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Anatomy of Welfare Reform Evaluation: Announcement and Implementation Effects

Listed author(s):
  • Blundell, Richard

    ()

    (University College London)

  • Francesconi, Marco

    ()

    (University of Essex)

  • van der Klaauw, Wilbert

    ()

    (Federal Reserve Bank of New York)

This paper formulates a simple model of female labor force decisions which embeds an in-work benefit reform and explicitly allows for announcement and implementation effects. We explore several mechanisms through which women can respond to the announcement of a reform that increases in-work benefits, including sources of intertemporal substitution, human capital accumulation, and labor market frictions. Using the model's insights and information of the precise timing of the announcement and implementation of a major UK in-work benefit reform, we estimate its effects on single mothers' behavior. We find important announcement effects on employment decisions. We show that this finding is consistent with the presence of short-run frictions in the labor market. Evaluations of this reform which ignore such effects produce impact effect estimates that are biased downwards by 15 to 35 percent.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6050.

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Length: 60 pages
Date of creation: Oct 2011
Handle: RePEc:iza:izadps:dp6050
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