Heterogeneous Treatment and Self-Selection in a Wage Subsidy Experiment

34 Pages Posted: 19 May 2010

See all articles by Dany Brouillette

Dany Brouillette

Centre Interuniversitaire sur le Risque, les Politiques Économiques et l'Emploi (CIRPÉE); Université Laval

Guy Lacroix

Laval University - Center for Interuniversity Research and Analysis on Organization (CIRANO)

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Date Written: May 1, 2010

Abstract

The Self-Sufficiency Project (SSP) is a research and demonstration project that offered a generous time-limited income supplement to randomly selected welfare applicants under two conditions. The first, the eligibility condition, required that they remain on welfare for at least twelve months. The second, the qualification condition, required that they find a full-time job within twelve months after establishing eligibility. In this paper, we focus on a neglected and important feature of the program, namely that the financial reward for becoming qualified is inversely related to the expected wage rate. Under very simple assumptions we show that those who have a low expected wage rate have a clear incentive to establish eligibility. Empirical non-parametric evidence strongly suggests that individuals self-select into eligibility. We jointly estimate a participation equation and a wage equation that are correlated through individual random effects. Our results show that the omission of selfselectivity into qualification translates into slightly underestimated treatment effects.

Keywords: SSP Applicant Study, heterogeneous treatment, self-selection

JEL Classification: I38, J31, J64

Suggested Citation

Brouillette, Dany and Lacroix, Guy, Heterogeneous Treatment and Self-Selection in a Wage Subsidy Experiment (May 1, 2010). CIRANO - Scientific Publications No. 2010s-24, Available at SSRN: https://ssrn.com/abstract=1611795 or http://dx.doi.org/10.2139/ssrn.1611795

Dany Brouillette

Centre Interuniversitaire sur le Risque, les Politiques Économiques et l'Emploi (CIRPÉE)

Pavillon De Sève
Ste-Foy, Quebec G1K 7P4
Canada

Université Laval

2214 Pavillon J-A. DeSeve
Quebec, Quebec G1K 7P4
Canada

Guy Lacroix (Contact Author)

Laval University - Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th floor
Montreal H3C 3J7, Quebec
Canada

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