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

35 Pages Posted: 9 Dec 2004

See all articles by Hilmar Schneider

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). Available at SSRN: https://ssrn.com/abstract=632344 or http://dx.doi.org/10.2139/ssrn.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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