A research paper originally commissioned by SRDC has won a prestigious academic award. Dr. David Card (University of California, Berkeley) and Dean Hyslop (New Zealand Treasury) received theFrisch Medal Award for 2008. The Medal is awarded every two years for an applied article (empirical or theoretical) published in the economics journal Econometrica during the past five years. Card and Hyslop won the award for the article Estimating the Effects of a Time-Limited Earnings Subsidy for Welfare-Leavers that was published inEconometrica in November 2005. The journal article was based on an SRDC working paper of the same name published earlier in 2005 as part of a series of working papers using data from the Self-Sufficiency Project (SSP). Unsurprisingly, their original SRDC working paper is one of the most popular on SRDC’s Web site.
The Self-Sufficiency Project randomly assigned single-parent, long-term welfare recipients into a program group and a comparison group. Program group members could receive a subsidy in exchange for their leaving welfare in favour of 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. SRDC commissioned Card and Hyslop to use the data from this highly renowned project to develop a simple model that suggested that SSP eligibility rules created two incentive effects — an establishment incentive for members of the treatment group who satisfied the waiting period requirement to find a job and leave welfare within the next 12 months, and an entitlement incentive for those who established SSP eligibility to work full-time and remain off welfare in the three-year period during which subsidy payments were available.
Once these incentives were defined, the authors developed an econometric model of welfare participation that allows them 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 then faded away by 54 months. The findings suggested that about half of the peak impact of SSP was attributable to the establishment incentive.
Despite the extra work effort generated by SSP, the paper concluded that the project had no lasting impact on wages and little or no long-run effect on welfare participation.