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http://ssrn.com/abstract=1923825
 
 

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Estimating Labor Supply Responses and Welfare Participation: Using a Natural Experiment to Validate a Structural Labor Supply Model


Jorgen Hansen


Concordia University, Quebec - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Xingfei Liu


Concordia University, Quebec

July 7, 2011

CIRANO - Scientific Publication No. 2011s-53

Abstract:     
In this paper, we formulate and estimate an economic model of labor supply and welfare participation. The model is estimated on data on single men from Quebec drawn from the 1986 Canadian Census. Budget sets for each work-welfare combination - accounting for income taxes, tax credits and welfare benefit rules - are derived using a microsimulation model. We validate our model by comparing reactions to a welfare reform that implied a dramatic increase in welfare benefits predicted by our model to those obtained by using a regression discontinuity approach. The results show that our model is capable of recovering actual changes in labor supply and welfare participation. We also show the advantage of having estimated a structural model by illustrating how labor supply and welfare participation change when benefit levels change.

Number of Pages in PDF File: 33

Keywords: labor supply, welfare participation, unobserved heterogeneity, natural experiment, regression discontinuity, microsimulation

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Date posted: September 8, 2011  

Suggested Citation

Hansen, Jorgen and Liu, Xingfei, Estimating Labor Supply Responses and Welfare Participation: Using a Natural Experiment to Validate a Structural Labor Supply Model (July 7, 2011). CIRANO - Scientific Publication No. 2011s-53. Available at SSRN: http://ssrn.com/abstract=1923825 or http://dx.doi.org/10.2139/ssrn.1923825

Contact Information

Jorgen Hansen (Contact Author)
Concordia University, Quebec - Department of Economics ( email )
1455 de Maisonneuve Blvd. W.
Montreal, Quebec H3G 1MB
Canada
514-848-3924 (Phone)
514-848-4536 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Institute for the Study of Labor (IZA)
P.O. Box 7240
Bonn, D-53072
Germany
Xingfei Liu
Concordia University, Quebec ( email )
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