Experiments and Natural Experiments

O in the longer run it prevented some program

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Unformatted text preview: t of the program, the tax receipts from the income tax on earnings mitigated the program’s costs (Michalpoulos et al, 2005) Overall, some features of the program in particular the 12-month window to obtain full-time employment dominated the analysis, which limited the external validity of the experiments. Card and Hyslop (2005) built a simple optimizing model that incorporates the eligibility rules which created an "establishment" incentive to find a job and leave welfare within a year of random assignment, and an "entitlement" incentive to choose work over welfare once eligibility was established. Source: Zabel et al. (2004) Figure 1: Median Wages for British Columbia and New Brunswick Program and Control Groups From Month 2 to Month 51 12 10 Median Wage 8 6 BC Control Group 4 BC Program Group NB Control Group 2 NB Program Group 0 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 Month Since Random Assignment As Table 1 clearly indicates, program group members could qualify for the earnings supplement if they found a full-time job within one calendar year of the point of random assignment.8 From Figure 1, we see that the median wages of the program group actually fell during that first year as program group members found full-time jobs to qualify for the supplement. After this, there is a slow catch-up of the wages of the program group relative to the control group. Thus, between the beginning and the end of the 51-month follow-up period, Figure 1 provides no evidence of relative full-time wage progression for the program group in either British Columbia or New Brunswick. We now take a closer look at the period starting in Month 14, since this is when the eligibility period has ended and all take-up group members now receive the SSP supplement for full-time work.9 This is the time period when we first expect to see evidence of relative wage progression as the supplement induces eligible individuals to work more. The additional work experience will lead to relatively higher wages as long as there is a positive return to experience. Further, using Month 14 as the baseline for comparison will help to mitigate the composition bias that is generated by comparing median wages across two time periods. Because of the structure of SSP, we expect the program group members who worked in Month 51 to be more similar to those who worked in Month 14 than to those who worked in Month 2. This should imply that the difference in median wages between months 14 and 51 is a better measure of wage progression as it is less influenced by the composition bias relative to the same comparison of median wages in months 2 and 51. This is suggested by the fact that in British Columbia only 83 program group members worked in Month 2 whereas 305 worked in Month 14 and 271 worked in Month 51. Further, a comparison of 8 We actually define the incentive period to be the first 13 months. Each program group member had exactly 12 months to qualify for the earnings supplement by finding a full-time job....
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This document was uploaded on 02/26/2014 for the course ECON 560 at UBC.

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