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Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research, Oslo Forthcoming in American Economic Journal: Economic Policy IZA DP: 8245

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Page 1: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

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

Page 2: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

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

Page 3: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

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%

Page 4: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

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

Page 5: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

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

Page 6: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

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

Page 7: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

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.

Page 8: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

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)

Page 9: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

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)

Page 10: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

Benefits vs. Costs-2

00

020

040

0N

OK

1,0

00

0 1 2 3 4 5 6Year since QP entry

Page 11: Leaving poverty behind: The effects of generous income support paired with activation Simen Markussen and Knut Røed Ragnar Frisch Centre for Economic Research,

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