The Effect of Social Benefits on Youth Employment: Combining RD and a Behavioral Model

Luxembourg Institute of Socio-Economic Research (LISER) Working Paper Series 2016-12

44 Pages Posted: 8 Sep 2016

See all articles by Olivier Bargain

Olivier Bargain

IZA Institute of Labor Economics; University College Dublin (UCD)

Karina Doorley

ESRI

Date Written: September 1, 2016

Abstract

Natural experiments provide robust identifying assumptions for the estimation of policy effects. Yet their use for policy design is often limited by the difficulty of extrapolating on the basis of reduced-form estimates. In this study, we exploit an age condition in the eligibility for social assistance in France, which lends itself to a regression discontinuity (RD) design. We suggest to make the underlying labor supply model explicit, i.e. to translate the reduced-form discontinuity in terms of discontinuous changes in disposable incomes. This exercise shows the potential of combining natural experiments and behavioral models. In particular, we can test the external validity of the combined approach. We find that it predicts the effect of a subsequent reform, which extends transfers to the working poor, remarkably well. The model is then used to simulate the extension of social assistance to young people and finds that a transfer program with an in-work component would not create further disincentives to work in this population.

Keywords: behavioral model, regression discontinuity, labor supply

JEL Classification: C52, H31, J22

Suggested Citation

Bargain, Olivier and Doorley, Karina, The Effect of Social Benefits on Youth Employment: Combining RD and a Behavioral Model (September 1, 2016). Luxembourg Institute of Socio-Economic Research (LISER) Working Paper Series 2016-12, Available at SSRN: https://ssrn.com/abstract=2835473 or http://dx.doi.org/10.2139/ssrn.2835473

Olivier Bargain (Contact Author)

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

University College Dublin (UCD) ( email )

Belfield, Dublin 4 4
Ireland
+353 1 716 8357 (Phone)
+353 1 283 0068 (Fax)

HOME PAGE: http://www.ucd.ie/economics/staff/obargain/obargain.htm

Karina Doorley

ESRI ( email )

Whitaker square Sir john Rogerson's Quay
Dublin 2
Dublin
Ireland

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