Are Behavioral Responses to Welfare Programs Bigger than We Think?

Pat Kline and Melissa Tartari have an innovative working paper that is a bit technical, but quite interesting. They formally identify the magnitude of intensive and extensive margin adjustments to the a welfare program called Jobs First. Here’s the Abstract:

We study the impact of the Connecticut Jobs First (JF) welfare reform experiment on the labor supply and program participation decisions of a sample of welfare applicants and recipients. A rich optimizing model is developed incorporating under- reporting decisions, labor supply constraints, fixed costs of work, and welfare stigma and hassle. Qualitatively, our model rationalizes the large empirical impacts of the JF experiment on the distribution of earnings despite the absence of bunching at a program induced notch in agentsíbudget sets. We show that the model places non- parametric restrictions on experimental impacts that can be used to develop bounds on the magnitude of a variety of intensive and extensive margin responses to reform. Our results indicate that, in addition to incentivizing work at the extensive margin, the JF experiment induced a substantial welfare ìopt-inîresponse among women with relatively high earnings potential.

About ozidar

I'm an Assistant Professor of Economics at the University of Chicago Booth School of Business and a Faculty Research Fellow at National Bureau of Economic Research. You can follow me on twitter @omzidar.
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