Do Generous Earnings Exemptions Stimulate Welfare Claimants to Find a Job? Evidence From a Field Experiment in the Netherlands

Abstract

Using a field experiment in the Netherlands, we study the labor market and the budgetary effects of a more generous earnings exemption policy. The policy allowed claimants to keep more earnings for a longer time. In line with expectations, we find positive effects on employment, almost entirely driven by part-time work. We also find improvements in claimants' income situation. Full-time employment appears unaffected both during the treatment period and post-treatment. Lastly, we find no evidence for effects on welfare expenditures. Our findings suggest that slight changes to financial work incentives can be an effective policy if one wishes to stimulate part-time work among benefit recipients. Different incentives are needed to promote full-time exit and self-suffciency.

Keywords: welfare, social assistance, policy evaluation, earnings disregard, benefit reduction rate, RCT

JEL Classification: C93, H53, I38