The Dynamic Effects of an Earnings Subsidy for Long-Term Welfare Recipients: Evidence from the SSP Applicant Experiment

Posted: 21 Dec 2009

See all articles by David Card

David Card

University of California, Berkeley - Department of Economics; Institute for the Study of Labor (IZA); National Bureau of Economic Research (NBER)

Dean Hyslop

Motu Economic and Public Policy Research

Multiple version iconThere are 2 versions of this paper

Date Written: 2009

Abstract

In the Self Sufficiency Program (SSP) welfare demonstration, members of a randomly assigned treatment group could receive a subsidy for full time work. The subsidy was available for three 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.

Keywords: Welfare, SSP, Subsidy, Optimizing model, Incentives, Econometric model

JEL Classification: C01, H24, D61, E24

Suggested Citation

Card, David E. and Hyslop, Dean R., The Dynamic Effects of an Earnings Subsidy for Long-Term Welfare Recipients: Evidence from the SSP Applicant Experiment (2009). Journal of Econometrics, Vol. 153, No. 1, 2009, Available at SSRN: https://ssrn.com/abstract=1524554

David E. Card

University of California, Berkeley - Department of Economics ( email )

Room 3880
Berkeley, CA 94720-3880
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Institute for the Study of Labor (IZA)

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Germany

National Bureau of Economic Research (NBER)

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United States

Dean R. Hyslop (Contact Author)

Motu Economic and Public Policy Research ( email )

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P.O. Box 24390
Wellington, 6142
New Zealand

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