State Dependence in Canadian Welfare Participation

44 Pages Posted: 8 Sep 2006

See all articles by Jorgen Hansen

Jorgen Hansen

Concordia University, Quebec - Department of Economics; IZA Institute of Labor Economics; Center for Interuniversity Research and Analysis on Organization (CIRANO)

Magnus Lofstrom

Public Policy Institute of California; Institute for the Study of Labor (IZA)

Xuelin Zhang

Government of Canada - Business & Labour Market Analysis Division

Date Written: August 2006

Abstract

This paper analyzes transitions into and out-of Social Assistance in Canada. We estimate a dynamic Probit model, controlling for endogenous initial conditions and unobserved heterogeneity, using longitudinal data extracted from the Survey of Labour and Income Dynamics (SLID) for the years 1993-2000. The data indicates that there are substantial provincial differences in social assistance participation. The empirical results indicate that a "welfare trap" does exist in Canada, but the extent of it varies across provinces. The results also suggest that there is a link between provincial variations in structural and spurious state dependence and regional differences in welfare generosity. In particular, the existence of structural state dependence, or a "welfare trap," appears to be more likely in provinces with relatively high benefit levels. One implication of this result is that a change in the welfare benefit structure is not likely to lower participation as significantly among less generous provinces as more generous ones.

Keywords: welfare, state dependence, unobserved heterogeneity, initial conditions

JEL Classification: I30, I38, J18

Suggested Citation

Hansen, Jorgen and Lofstrom, Magnus and Zhang, Xuelin, State Dependence in Canadian Welfare Participation (August 2006). IZA Discussion Paper No. 2266. Available at SSRN: https://ssrn.com/abstract=928817

Jorgen Hansen

Concordia University, Quebec - Department of Economics ( email )

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Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

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Magnus Lofstrom (Contact Author)

Public Policy Institute of California ( email )

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Institute for the Study of Labor (IZA) ( email )

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Xuelin Zhang

Government of Canada - Business & Labour Market Analysis Division ( email )

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Ottawa, Ontario K1A 0T6
Canada
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