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Leaving poverty behind: The effects of generous income support paired with activation
Simen Markussen and Knut RøedRagnar Frisch Centre for Economic Research, Oslo
Forthcoming in American Economic Journal: Economic PolicyIZA DP: 8245
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How to Fight Poverty?• Poverty represents a powerful incentive to find work!
– Income support may undermine this incentive• But is poverty also a barrier toward employment?
– Myopic behaviors (poverty traps)– Stigma– Bad networks– A poorly organized life
• Can poverty be prevented without undermining work incentives?– Maybe: By combining generous income support with
fulltime activation
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Descriptives: actual participants
Table 1: Descriptive statistics for participants in the QP
Number of participants 19 211
Entry year
2008 2,919 (15.2%)
2009 5,857 (30.5%)
2010 6,060 (31.5%)
2011 4,375 (22.8%)
Still participating
First year after entry year 82.9%
Second year after entry year 49.8%
Third year after entry year 23.1%
Mean age 33.7 years
Female 44.0%
Non-native 50.7%
High school as highest education 16.1%
College/University as highest education 7.0%
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Actual participants before and after
20
40
60
80
NO
K 1
,00
0
-8 -7 -6 -5 -4 -3 -2 -1 0 +1+2+3+4Years since entry
(a) Labor earnings
.1.1
5.2
.25
.3F
ract
ion e
mp
loye
d
-8 -7 -6 -5 -4 -3 -2 -1 0 +1+2+3+4Years since entry
(b) Employment
20
40
60
80
10
012
0N
OK
1,0
00
-8 -7 -6 -5 -4 -3 -2 -1 0 +1+2+3+4Years since entry
(c) Taxable benefits
40
50
60
70
80
90
NO
K 1
,00
0
-8 -7 -6 -5 -4 -3 -2 -1 0 +1+2+3+4Years since entry
(d) Non taxable benefits
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Evaluation and measurement• Staggered implementation across municipalities: 2008-2010• Dynamic effect
– Lock-in while participating– After program
• Comparison group– Dataset containing all «potential QP participants» - if QP existed– «Profiling model» predicting QP participation– Comparing outcomes for those with high and low probability for QP-
participation in municipalities and at times with and without QP
• Highly flexible model– Isolating the identifying assumption: That changes in outcomes for those
with high and low participation propensity in QP-municpalities, occurring when QP is introduced, is caused by the QP – after controlling for X
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The datasetTable 3: Descriptive statistics analysis population
Participants Non-participants
Number of base-year observations 21,082 1,386,310
Number of individuals 8,896 307,003
Mean age 32.5 36.7
Women % 61.0 46.8
Non-native % 36.2 15.3
High school as highest education % 17.8 35.8
College/University as highest education % 6.1 10.8
Mean labor earnings base-year (NOK 1,000, 2013) 19.5 28.8
Mean social assistance base-year (NOK 1,000, 2013) 103.4 54.4
Mean taxable benefits base-year (NOK 1,000, 2013) 50.8 135.4
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Descriptive evidence-3
0-2
0-1
00
10
20
Me
an
ea
rnin
gs,
NO
K 1
000
Base year QP launch +1 +2 +3 +4
75-100 perc. 90-100 perc. 95-100 perc. 99-100 perc.
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Main results
-.2
-.1
0.1
.2.3
0 1 2 3 4Year since QP entry
NOK 85,000 threshold
(a) Employment (pp.)
-.2
-.1
0.1
.2.3
0 1 2 3 4Year since QP entry
NOK 170,000 threshold
(b) Employment (pp.)
-100
-50
050
10
015
0
0 1 2 3 4Year since QP entry
(c) Labor earnings (NOK 1,000)
-.5
0.5
11.5
2
0 1 2 3 4Year since QP entry
(d) Log labor earnings
-100
-50
050
10
015
0
0 1 2 3 4Year since QP entry
(e) Taxable benefits (NOK 1,000)
-100
-50
050
10
015
0
0 1 2 3 4Year since QP entry
(f) Non-taxable benefits (NOK 1,000)
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Effects for natives and immigrantsTable 6: Estimation results for sample with high earnings threshold; Instrumental Variables estimates (Eq. 4) (clustered standard errors in parentheses)
Whole population Natives only Immigrants only
I II III IV V VI VII VIII IX
Employment(NOK 85,000
threshold)
Employment(NOK 170,000
threshold)
Log labor earnings
Employment(NOK 85,000
threshold)
Employment(NOK
170,000 threshold)
Log labor earnings
Employment(NOK 85,000
threshold)
Employment(NOK
170,000 threshold)
Log labor earnings
Effects of QP
Same year-0.043(0.069)
0.017(0.062)
0.055(0.372)
-0.054(0.079)
-0.023(0.069)
0.210(0.471)
0.017
(0.118)0.080
(0.110)0.193
(0.624)
First year after entry0.052
(0.060)-0.008(0.056)
-0.115(0.309)
0.028
(0.070)-0.007(0.064)
-0.307(0.407)
0.018
(0.104)-0.073(0.100)
-0.107(0.520)
Second year after entry 0.156**(0.074)
0.138**(0.067)
0.668*(0.402)
0.139*(0.083)
0.125*(0.074)
0.808(0.499)
0.238
(0.146)0.211
(0.138)1.124
(0.757)
Third year after entry0.198**(0.077)
0.131*(0.071)
0.629(0.408)
0.201**(0.085)
0.105(0.077)
0.718(0.512)
0.001
(0.181)-0.094(0.175)
-0.424(0.893)
Fourth year after entry0.273***(0.084)
0.212***(0.076)
1.848***(0.449)
0.219**(0.091)
0.132*(0.080)
2.046***(0.576)
0.404
(0.356)0.473*(0.254)
2.747*(1.267)
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Benefits vs. Costs-2
00
020
040
0N
OK
1,0
00
0 1 2 3 4 5 6Year since QP entry
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Summary
• Pairing of activation requirements and income support seem to increase employment – in a group with poor employment prospects
• Seem more efficient for immigrants – but large statistical uncertainty
• Costly program; within data window approx. zero social cost/benefit– Seems reasonable to believe in positive long-term
gains