Does "Welfare-to-Work" Work? Evaluating Long-Run Effects across a Generation of Cohorts

151 Pages Posted: 18 May 2024

Date Written: May 17, 2024

Abstract

Work requirements in means-tested welfare programs remain a popular yet controversial policy around the world. This paper provides a unified evaluation of welfare-to-work by estimating the long-run effects of Denmark's social assistance reforms on a comprehensive set of outcomes for 19 different birth cohorts. Effects are highly heterogeneous across cohorts based on the time the reforms were introduced in the life cycle. Individuals facing the reforms as adults incur null or modest negative effects on income and some substitute toward crime and disability insurance. Meanwhile, children exposed to the reforms before they were eligible for social assistance experience significant gains in education, income, and measures of health. This heterogeneity is consistent with a model where younger cohorts invest in their human capital in anticipation of future work requirements while older cohorts adjust along alternative margins with high social costs. Evidence suggests that heterogeneity across cohorts can persist for decades over the life cycle and spill over to their own children. Cost-benefit analyses reveal that welfare-to-work is cost-effective in the long run, but this appears to be driven by anticipatory behavioral responses of younger cohorts aging into the new policy regime. These findings shed light on the interpretation of aggregate effects of welfare-to-work over time, help unify an expansive literature, and point to more efficient policy designs.

Keywords: social assistance, work requirements, human capital, cost-benefit analysis

JEL Classification: I38, J24, H53

Suggested Citation

Cholli, Neil A., Does "Welfare-to-Work" Work? Evaluating Long-Run Effects across a Generation of Cohorts (May 17, 2024). Available at SSRN: https://ssrn.com/abstract=4832300 or http://dx.doi.org/10.2139/ssrn.4832300

Neil A. Cholli (Contact Author)

Cornell University ( email )

109 Tower Rd.
Ithaca, NY 14853
United States

HOME PAGE: http://www.neilcholli.com

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