The Transition from Welfare to Work and the Role of Potential Labor Income

35 Pages Posted: 9 Dec 2004  

Hilmar Schneider

IZA Institute of Labor Economics; DIW Berlin, German Institute for Economic Research

Arne Uhlendorff

IZA Institute of Labor Economics

Date Written: December 2004

Abstract

It is often argued that the high level of welfare claims in Germany causes little incentive for workers with low productivity to seek for a job. We examine the influence of the ratio between estimated potential labor income and the welfare payment level on the probability of leaving social welfare. Using the GSOEP, we estimate a discrete time hazard rate model with competing risks and unobserved heterogeneity. Our results show that the ratio has a positive effect on the probability of leaving social welfare. This effect is especially relevant for households with a potential labor income higher than their welfare payment level.

Keywords: social welfare, labor supply, duration analysis

JEL Classification: I38, J64, C41

Suggested Citation

Schneider, Hilmar and Uhlendorff, Arne, The Transition from Welfare to Work and the Role of Potential Labor Income (December 2004). IZA Discussion Paper No. 1420. Available at SSRN: https://ssrn.com/abstract=632344

Hilmar Schneider (Contact Author)

IZA Institute of Labor Economics ( email )

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

DIW Berlin, German Institute for Economic Research

Mohrenstra├če 58
Berlin, 10117
Germany

Arne Uhlendorff

IZA Institute of Labor Economics ( email )

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

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