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Time Aggregation and State Dependence in Welfare Receipt

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  • Bhuller, Manudeep

    (University of Oslo)

  • Brinch, Christian

    (Norwegian Business School (BI))

  • Königs, Sebastian

    (OECD)

Abstract

Dynamic discrete-choice models are an important tool in studies of state dependence in benefit receipt. A common assumption of such models is that benefit receipt sequences follow a conditional Markov process. This property has implications for how estimated period-to-period benefit transition probabilities should relate when receipt processes are aggregated over time. This paper assesses whether the conditional Markov property holds in welfare benefit receipt dynamics in Norway using high-quality monthly data from administrative records. We find that the standard conditional Markov model is seriously misspecified. Estimated state dependence is affected substantially by the chosen time unit of analysis, with the average treatment effect of past benefit receipt increasing with the level of aggregation. The model can be improved considerably by permitting richer types of benefit dynamics: We find strong evidence for both duration and occurrence dependence in benefit receipt. Allowing for heterogeneity in the entry and persistence processes, we find important disparities in the effects of observed and persistent unobserved characteristics. Based on our preferred model, the month-to-month persistence probability in benefit receipt for a first-time entrant is 37 percentage points higher than the entry rate of an individual without previous benefit receipt. Over a 12-month period, this corresponds to an average treatment effect of 5 percentage points.

Suggested Citation

  • Bhuller, Manudeep & Brinch, Christian & Königs, Sebastian, 2016. "Time Aggregation and State Dependence in Welfare Receipt," IZA Discussion Papers 9785, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp9785
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    8. Emmanouil K Symvoulakis & Manolis Linardakis & Apostolos Kamekis & Myfanwy Morgan & Spyridon Klinis, 2022. "The Personal Sociability and Connections Scale (PeSCS): Development and initial assessment at a primary care facility," International Journal of Social Psychiatry, , vol. 68(3), pages 639-648, May.
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    10. Herwig Immervoll & Stephen P. Jenkins & Sebastian Königs, 2015. "Are Recipients of Social Assistance 'Benefit Dependent'?: Concepts, Measurement and Results for Selected Countries," OECD Social, Employment and Migration Working Papers 162, OECD Publishing.
    11. Gørgens, Tue & Hyslop, Dean, 2018. "Equivalent representations of discrete-time two-state panel data models," Economics Letters, Elsevier, vol. 163(C), pages 65-67.
    12. Sara Ayllón & Javier Valbuena & Alexander Plum, 2022. "Youth Unemployment and Stigmatization Over the Business Cycle in Europe," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 84(1), pages 103-129, February.
    13. Manudeep Bhuller & Christian N. Brinch & Sebastian Königs, 2017. "Time Aggregation and State Dependence in Welfare Receipt," Economic Journal, Royal Economic Society, vol. 127(604), pages 1833-1873, September.
    14. Bruckmeier, Kerstin & Dummert, Sandra & Grunau, Philipp & Hohmeyer, Katrin & Lietzmann, Torsten, 2020. "New administrative data on welfare dynamics in Germany: the Sample of Integrated Welfare Benefit Biographies (SIG)," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 54(54), pages .14(1-14).
    15. Alexander Plum & Gail Pacheco & Kabir Dasgupta, 2021. "When There is No Way Up: Reconsidering Low‐paid Jobs as Stepping‐stones," The Economic Record, The Economic Society of Australia, vol. 97(318), pages 387-409, September.
    16. Bruckmeier, Kerstin & Dummert, Sandra & Grunau, Philipp & Hohmeyer, Katrin & Lietzmann, Torsten, 2020. "New administrative data on welfare dynamics in Germany: the Sample of Integrated Welfare Benefit Biographies (SIG)," Journal for Labour Market Research, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany], vol. 54, pages 1-14.
    17. Kristian Heggebø & Espen Dahl & Kjetil A van der Wel, 2020. "Disentangling the dynamics of social assistance: A linked survey—Register data cohort study of long-term social assistance recipients in Norway," PLOS ONE, Public Library of Science, vol. 15(3), pages 1-20, March.
    18. Sanghyeok Lee & Tue Gørgens, 2022. "Using maximum simulated likelihood methods to overcome left censoring: Dynamic event history models of heart attack risk in New Zealand," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 185(1), pages 348-376, January.
    19. Sebastian Königs, 2015. "Micro-level dynamics of social assistance receipt. Evidence from 4 European countries," Discussion Papers 797, Statistics Norway, Research Department.
    20. Andrea Barigazzi & Giovanni Gallo, 2023. "How Pandemic Shock Affects Claim for Minimum Income Measures," Center for the Analysis of Public Policies (CAPP) 0185, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    21. Peter Eibich & Ricky Kanabar & Alexander Plum & Julian Schmied, 2020. "In and out of unemployment - labour market dynamics and the role of testosterone," MPIDR Working Papers WP-2020-033, Max Planck Institute for Demographic Research, Rostock, Germany.
    22. Kerstin Bruckmeier & Sandra Dummert & Philipp Grunau & Katrin Hohmeyer & Torsten Lietzmann, 2020. "New administrative data on welfare dynamics in Germany: the Sample of Integrated Welfare Benefit Biographies (SIG)," Journal for Labour Market Research, Springer;Institute for Employment Research/ Institut für Arbeitsmarkt- und Berufsforschung (IAB), vol. 54(1), pages 1-12, December.
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    More about this item

    Keywords

    time aggregation; Markov property; state dependence; welfare dynamics;
    All these keywords.

    JEL classification:

    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J60 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C41 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Duration Analysis; Optimal Timing Strategies

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