Econometrica: Nov 2005, Volume 73, Issue 6

Estimating the Effects of a Time‐Limited Earnings Subsidy for Welfare‐Leavers

DOI: 10.1111/j.1468-0262.2005.00637.x
p. 1723-1770

David Card, Dean R. Hyslop

In the Self Sufficiency Project (SSP) welfare demonstration, members of a randomly assigned treatment group could receive a subsidy for full‐time work. The subsidy was available for 3 years, but only to people who began working full time within 12 months of random assignment. A simple optimizing model suggests that the eligibility rules created an “establishment” incentive to find a job and leave welfare within a year of random assignment, and an “entitlement” incentive to choose work over welfare once eligibility was established. Building on this insight, we develop an econometric model of welfare participation that allows us to separate the two effects and estimate the impact of the earnings subsidy on welfare entry and exit rates among those who achieved eligibility. The combination of the two incentives explains the time profile of the experimental impacts, which peaked 15 months after random assignment and faded relatively quickly. Our findings suggest that about half of the peak impact of SSP was attributable to the establishment incentive. Despite the extra work effort generated by SSP, the program had no lasting impact on wages and little or no long‐run effect on welfare participation.

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Supplemental Material

Theoretical Appendix for "Estimating the Effects of a Time Limited Earnings Subsidy for Welfare-Leavers"

This is a an appendix specifying the theoretical model outlined in the text.

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Additional Figures for "Estimating the Effects of a Time Limited Earnings Subsidy for Welfare-Leavers"

1. Extra-figureA shows the SSP impacts (treatment minus control group means) for IA for all individuals and for 2 subgroups: those with less than a high school education, and those with a high school education or higher.  This is created by treat_byed.sas reading from wide54r data set 2. Extra-figureB shows the simulated SSP impacts from the normal heterogeneity model (column 4 of Table 6) for two "types": people with a random effect equal to the 20th percentile of the heterogeneity distribution (which is N(0, 1.18)); and  people with a random effect equal to the 80thpercentile of the heterogeneity distribution.   See sim8020.sas   3.  Extra-figureC shows the actual hazard rate into SSP eligibility, and the predicted rate from the the normal heterogeneity model (column 4 of Table 6). See extra-figc.xls

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Data Preparations, Programs and Output for "Estimating the Effects of a Time Limited Earnings Subsidy for Welfare-Leavers"

This archive contains subdirectories with various materials:   1) additional   2) dataprep Includes programs to read the original data, and create table 2 of the paper.   3) wages  Includes programs to construct table 3 and figures 4 and 5.   4) Files on data preparation. Programs and output for figures 4, 5, 7, 8 and 11, and tables 3-7.

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