Welfare Benefits, Minimum Wage Rate and the Duration of Welfare Spells: Evidence from a Natural Experiment in Canada
Author(s) -
Bernard Fortin,
Guy Lacroix
Publication year - 1997
Publication title -
ssrn electronic journal
Language(s) - French
Resource type - Journals
ISSN - 1556-5068
DOI - 10.2139/ssrn.36844
Subject(s) - duration (music) , welfare , economics , natural experiment , unemployment , welfare reform , demographic economics , wage , minimum wage , difference in differences , labour economics , medicine , econometrics , economic growth , market economy , art , literature , pathology
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 Quebec 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 $425, an increase of over 145%. To analyze the impact of the reform, we utilize a semi-parametric duration model with time-varying covariates such as welfare benefits, minimum wage rate, unemployment rate, etc. We find that benefits have an important impact on spell duration of individuals below thirty years of age. We also find that the minimum wage rate has an adverse effect on the duration of individuals in the 18-24 age group, but a positive effect on those in the 25-29 age group. Finally, our estimates suggest that the reform increased duration on welfare by 2 to 4.5 months. Dans cet article, nous etudions la relation entre le niveau des prestations et la duree de sejour a la securite sociale. L'analyse repose sur une approche dite d'experience naturelle et consiste a comparer la duree de sejour avant et apres l'introduction de la reforme majeure qui a eu lieu en 1989 au Quebec. Un volet important de cette reforme consistait a eliminer l'ecart de prestations entre les individus et les couples sans enfants de moins de trente ans et les beneficiaires ages de plus de trente ans. Les prestations des moins de trente ans sont ainsi passees de 173$ par mois ($ de 1986) a plus de 425$ par mois, soit une augmentation de 145 %. L'impact de ce changement est analyse a l'aide d'un modele de duree semi-parametrique qui incorpore des variables exogenes qui dependent du temps, tels les prestations, le salaire minimum, le taux de chomage, etc. Par ailleurs, une hausse du salaire minimum a pour effet d'augmenter la duree de sejour a la securite sociale des individus âges entre 18 et 24 ans,0501s de diminuer la duree de sejour de ceux âges entre 25 et 29 ans. Enfin, nos resultats montrent que la reforme a eu pour effet d'augmenter la duree de sejour d'environ 2 a 4,5 mois.
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