Interactions in Public Policies: Spousal Responses and Program Spillovers of Welfare Reforms

80 Pages Posted: 24 Sep 2020

See all articles by Alexander Willén

Alexander Willén

Norwegian School of Economics (NHH) - Department of Economics

Kjell Vaage

University of Bergen - Department of Economics

Julian Johnsen

University of Bergen

Date Written: September 23, 2020

Abstract

Anticipating the labor market effects of welfare reforms is difficult due to public policy interactions across programs and among household members. Specifically, changes to one program may affect individual take-up of other programs, and individual participation in specific programs may generate labor market responses from other household members. This paper exploits an early retirement reform in Norway to provide new insights into these interactions. We first show that the reform had a substantial impact on the labor supply of those individuals who were directly affected by the reform, reducing the probability of employment by more than 30 percent. We then demonstrate that the increased take-up of early retirement had an offsetting effect on the take-up of alternative social security programs. Next, we reveal that the reform had a negative indirect impact on the labor supply of spouses of individuals directly affected by the reform, with an effect size of 5.5 percent. Finally, we show that the indirect effect on spousal labor force participation is accompanied by a significant increase in spousal take-up of disability insurance. We conclude that neglecting how public policies interact across both programs and household members can result in a miscalculation of the total impact of welfare reforms.

Keywords: Public Policy, Welfare Reform, Early Retirement

JEL Classification: H55, J14, J18, J26

Suggested Citation

Willén, Alexander and Vaage, Kjell and Johnsen, Julian, Interactions in Public Policies: Spousal Responses and Program Spillovers of Welfare Reforms (September 23, 2020). NHH Dept. of Economics Discussion Paper No. 20/2020, Available at SSRN: https://ssrn.com/abstract=3698532 or http://dx.doi.org/10.2139/ssrn.3698532

Alexander Willén (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Kjell Vaage

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway
+47 5 558 9206 (Phone)
+47 5 558 9210 (Fax)

Julian Johnsen

University of Bergen ( email )

Muséplassen 1
N-5008 Bergen, +47 55 58
Norway

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