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Welfare Benefits, Minimum Wage Rate and the Duration of Welfare Spells: Evidence from a Natural Experiment in Canada

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  • Bernard Fortin
  • Guy Lacroix

Abstract

In this paper we analyze the impact of benefits on the length of welfare spells. It introduces a natural experiment approach of comparing the length of welfare spells before and after a major reform of the welfare program that took place in Québec in August 1989. An important feature of this reform was the abolishment of discrimination based on age that applied to single individuals and childless couples below the age of thirty. With the reform, their monthly benefits rose from $173 (in dollars of 1986) to $425, an increase of over 145%. To analyze the impact of the reform, we utilize a semi-parametric duration model with time-varying covariates such as welfare benefits, minimum wage rate, unemployment rate, etc. We find that benefits have an important impact on spell duration of individuals below thirty years of age. We also find that the minimum wage rate has an adverse effect on the duration of individuals in the 18-24 age group, but a positive effect on those in the 25-29 age group. Finally, our estimates suggest that the reform increased duration on welfare by 2 to 4.5 months. Dans cet article, nous étudions la relation entre le niveau des prestations et la durée de séjour à la sécurité sociale. L'analyse repose sur une approche dite d'expérience naturelle et consiste à comparer la durée de séjour avant et après l'introduction de la réforme majeure qui a eu lieu en 1989 au Québec. Un volet important de cette réforme consistait à éliminer l'écart de prestations entre les individus et les couples sans enfants de moins de trente ans et les bénéficiaires agés de plus de trente ans. Les prestations des moins de trente ans sont ainsi passées de 173$ par mois ($ de 1986) à plus de 425$ par mois, soit une augmentation de 145 %. L'impact de ce changement est analysé à l'aide d'un modèle de durée semi-paramétrique qui incorpore des variables exogènes qui dépendent du temps, tels les prestations, le salaire minimum, le taux de chômage, etc. Par ailleurs, une hausse du salaire minimum a pour effet d'augmenter la durée de séjour à la sécurité sociale des individus âgés entre 18 et 24 ans,0501s de diminuer la durée de séjour de ceux âgés entre 25 et 29 ans. Enfin, nos résultats montrent que la réforme a eu pour effet d'augmenter la durée de séjour d'environ 2 à 4,5 mois.

Suggested Citation

  • Bernard Fortin & Guy Lacroix, 1997. "Welfare Benefits, Minimum Wage Rate and the Duration of Welfare Spells: Evidence from a Natural Experiment in Canada," CIRANO Working Papers 97s-25, CIRANO.
    • Handle: RePEc:cir:cirwor:97s-25
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    References listed on IDEAS

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    Cited by:

    1. Guy Lacroix & Gino Santarossa & Pierre Gagné, 2003. "Une analyse de la dynamique de la dépendance à l'assistance-emploi des populations natives et immigrantes québécoises," CIRANO Project Reports 2003rp-14, CIRANO.
    2. Gerard J. van den Berg & Bas van der Klaauw & Jan C. van Ours, 2004. "Punitive Sanctions and the Transition Rate from Welfare to Work," Journal of Labor Economics, University of Chicago Press, vol. 22(1), pages 211-241, January.
    3. Fortin, Bernard, 1997. "Dépendance à l’égard de l’aide sociale et réforme de la sécurité du revenu," L'Actualité Economique, Société Canadienne de Science Economique, vol. 73(4), pages 557-573, décembre.
    4. Hilary W. Hoynes & Kenneth Y. Chay & Dean Hyslop, 2004. "True State Dependence In Monthly Welfare Participation:A Nonexperimental Analysis," Working Papers 2, University of California, Davis, Department of Economics.
    5. Dalit Contini & Matteo Richiardi, 2009. "Welfare stigma with decreasing employability," LABORatorio R. Revelli Working Papers Series 90, LABORatorio R. Revelli, Centre for Employment Studies.
    6. van den Berg, G. & van der Klaauw, B. & van Ours, J.C., 1998. "Punitive sanctions and the transition from welfare to work," Other publications TiSEM cfce4d32-1348-4f9a-ab86-e, Tilburg University, School of Economics and Management.
    7. Picot, Garnett & Frenette, Marc, 2003. "La vie apres l'aide sociale : le bien-etre economique des personnes qui ont cesse de toucher de l'aide sociale au Canada dans les annees 90," Direction des études analytiques : documents de recherche 2003192f, Statistics Canada, Direction des études analytiques.
    8. Stephen Whelan, 2010. "The Interaction between Income Support Programs," LABOUR, CEIS, vol. 24(4), pages 407-440, December.
    9. Barrett, Garry F., 2000. "The effect of educational attainment on welfare dependence: Evidence from Canada," Journal of Public Economics, Elsevier, vol. 77(2), pages 209-232, August.
    10. Hilary W. Hoynes & Kenneth Y. Chay & Dean Hyslop, 2004. "True State Dependence In Monthly Welfare Participation:A Nonexperimental Analysis," Working Papers 533, University of California, Davis, Department of Economics.
    11. Picot, Garnett & Frenette, Marc, 2003. "Life After Welfare: The Economic Well-being of Welfare Leavers in Canada During the 1990s," Analytical Studies Branch Research Paper Series 2003192e, Statistics Canada, Analytical Studies Branch.
    12. Green, David A. & Warburton, William P., 2004. "Tightening a welfare system: the effects of benefit denial on future welfare receipt," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1471-1493, July.

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    More about this item

    Keywords

    Welfare benefits; minimum wage; semi-parametric duration model; Prestations de sécurité sociale; salaire minimum; modèle de durée semi-paramétrique;
    All these keywords.

    JEL classification:

    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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