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

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 mod...

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Bibliographic Details
Published in:Econometrica 2005-11, Vol.73 (6), p.1723-1770
Main Authors: Card, David, Hyslop, Dean R.
Format: Article
Language:English
Subjects:
Applications
Control groups
Earnings
Econometric models
Econometrics
Economic models
Employee qualifications
Employment
Employment policy
Entitlement programs
Estimation
Exact sciences and technology
Insurance, economics, finance
Labor markets
Labour market participation
Mathematics
Minimum wage
Modeling
Probability and statistics
Public assistance programs
Sciences and techniques of general use
Self Sufficiency Project
state dependence
Statistical analysis
Statistics
Studies
Subsidies
Sufficiency and information
Wages
Welfare
Welfare economics
Welfare reform
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Summary: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.
ISSN:0012-9682
1468-0262
DOI:10.1111/j.1468-0262.2005.00637.x