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Welfare Reform, Returns to Experience, and Wages: Using Reservation Wages to Account for Sample Selection Bias

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  • Jeffrey Grogger

    (Harris School, University of Chicago)

Abstract

One rationale for work-focused welfare reform was human capital theory: work today should raise experience tomorrow, which should raise future wage offers and reduce welfare dependency. Yet few studies have estimated the effect of welfare reform on wages. I approach the problem using a novel sample selection estimator based on reservation wage data. Reservation wages solve the selection problem using bivariate censored regression methods without the need for exclusion restrictions. Whereas OLS and conventional sample selection estimates suggest that reform had little effect on wages, the reservation-wage-adjusted estimates suggest that Florida's welfare reform experiment raised wages by about 4%. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Suggested Citation

  • Jeffrey Grogger, 2009. "Welfare Reform, Returns to Experience, and Wages: Using Reservation Wages to Account for Sample Selection Bias," The Review of Economics and Statistics, MIT Press, vol. 91(3), pages 490-502, August.
    • Handle: RePEc:tpr:restat:v:91:y:2009:i:3:p:490-502
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    1. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492, National Bureau of Economic Research, Inc.
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    3. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    4. David Card & Dean R. Hyslop, 2005. "Estimating the Effects of a Time-Limited Earnings Subsidy for Welfare-Leavers," Econometrica, Econometric Society, vol. 73(6), pages 1723-1770, November.
    5. David Card & Charles Michalopoulos & Philip K. Robins, 2001. "The Limits to Wage Growth: Measuring the Growth Rate of Wages For Recent Welfare Leavers," NBER Working Papers 8444, National Bureau of Economic Research, Inc.
    6. Hurd, Michael D, 1999. "Anchoring and Acquiescence Bias in Measuring Assets in Household Surveys," Journal of Risk and Uncertainty, Springer, vol. 19(1-3), pages 111-136, December.
    7. Light, Audrey & Ureta, Manuelita, 1995. "Early-Career Work Experience and Gender Wage Differentials," Journal of Labor Economics, University of Chicago Press, vol. 13(1), pages 121-154, January.
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    1. Jeffrey Grogger & Lynn A. Karoly, 2005. "Welfare Reform, Work and Wages: A Summary of the US Experience," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 3(02), pages 08-12, July.
    2. Cockx, Bart & Robin, Stéphane R. & Goebel, Christian, 2006. "Income Support Policies for Part-Time Workers: A Stepping-Stone to Regular Jobs? An Application to Young Long-Term Unemployed Women in Belgium," IZA Discussion Papers 2432, Institute of Labor Economics (IZA).
    3. B. Cockx & C. Goebel & S. Robin, 2009. "Is income support for part-time workers a steppingstone to regular jobs? An application to young long-term unemployed women," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 09/561, Ghent University, Faculty of Economics and Business Administration.
    4. Hansen Jorgen, 2007. "Human Capital and Welfare Dynamics in Canada," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 7(1), pages 1-29, June.
    5. Rothstein, Jesse & von Wachter, Till, 2016. "Social Experiments in the Labor Market," Institute for Research on Labor and Employment, Working Paper Series qt6605k20b, Institute of Industrial Relations, UC Berkeley.
    6. Neumark, David & Shirley, Peter, 2020. "The Long-Run Effects of the Earned Income Tax Credit on Women's Labor Market Outcomes," Labour Economics, Elsevier, vol. 66(C).
    7. Michael Carlos Best & Henrik Jacobsen Jacobsen, 2013. "Optimal Income Taxation with Career Effects of Work Effort," Working Papers 2013-9, Princeton University. Economics Department..
    8. Jeffrey Zabel & Saul Schwartz & Stephen Donald, 2013. "An analysis of the impact of the self-sufficiency project on wages," Empirical Economics, Springer, vol. 44(1), pages 231-259, February.
    9. Glaser, Darrell & Rahman, Ahmed, 2015. "Human Capital on the High Seas - Job Mobility and Returns to Technical Skill During Industrialization," MPRA Paper 68351, University Library of Munich, Germany.
    10. Greenberg, David H. & Robins, Philip K., 2008. "Incorporating nonmarket time into benefit-cost analyses of social programs: An application to the self-sufficiency project," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 766-794, April.
    11. Elira Kuka & Na'ama Shenhav, 2024. "Long-Run Effects of Incentivizing Work after Childbirth," American Economic Review, American Economic Association, vol. 114(6), pages 1692-1722, June.
    12. Gunderson, Jill Marie & Hotchkiss, Julie L., 2007. "Job Separation Behavior of WOTC Workers: Results from a Unique Case Study," MPRA Paper 44801, University Library of Munich, Germany.
    13. Darrell J. Glaser & Ahmed S. Rahman, 2017. "Development and Retention of Human Capital in Large Bureaucracies," Departmental Working Papers 60, United States Naval Academy Department of Economics.
    14. Bart Cockx & Christian Goebel & Stéphane Robin, 2013. "Can income support for part-time workers serve as a stepping-stone to regular jobs? An application to young long-term unemployed women," Empirical Economics, Springer, vol. 44(1), pages 189-229, February.
    15. Jill Fitzpatrick & Julie L. Hotchkiss, 2009. "Job Separation Outcomes Of Welfare Hires: Insight From Linked Personnel And State Administrative Data," Contemporary Economic Policy, Western Economic Association International, vol. 27(2), pages 137-146, April.
    16. repec:ces:ifodic:v:3:y:2005:i:2:p:14567644 is not listed on IDEAS
    17. David Neumark & Brian Asquith & Brittany Bass, 2020. "Longer‐Run Effects Of Anti‐Poverty Policies On Disadvantaged Neighborhoods," Contemporary Economic Policy, Western Economic Association International, vol. 38(3), pages 409-434, July.
    18. Jill Marie Gunderson & Julie L. Hotchkiss, 2006. "Welfare recipiency, job separation outcomes, and postseparation earnings: insight from linked personnel and state administrative data," FRB Atlanta Working Paper 2006-07, Federal Reserve Bank of Atlanta.
    19. Netta Achdut & Miri Endeweld, 2021. "Employment And Earnings Mobility Among Income Support Recipients, 2005–2015," Israel Economic Review, Bank of Israel, vol. 19(1), pages 31-57.

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    More about this item

    JEL classification:

    • I3 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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