Seminar on 11 December: „Welfare’s Disincentive for the Youth: Evidence from Danish Administrative Panel Data”
11 December at 16-17.00 p.m. (Akadeemia tee 3, room SOC-417)
Presenter is Olivier Bargain (University of Bordeaux)
Age conditions are frequently encountered in policy rules, lending themselves to regression discontinuity designs (RDD). Yet, age is a specific forcing variable and several issues may arise. We address them using a panel administrative dataset covering the whole Danish population. We focus on the sharp increase in social assistance levels at age 25 during the period 2000-06. Cross-sectional RDD based on age variation points to a significant effect of welfare payments on the employment level of high-school dropouts at 25. Using the panel dimension, we validate this result while unveiling the dynamics underlying the RDD estimate. First, we show that the effect is not much affected by business cycles or cohort effects. Then, we track different cohorts as they pass through the discontinuity and confirm the interpretation in terms of an adverse employment effect. The timing of adjustment is well identified and does not invalidate the RDD approach. Only two-thirds of the effect is attributable to transitions from work to welfare, while another third is due to a reduced entry on the labor market, with potentially different policy implications. Finally, we provide heterogeneous estimates of the employment response along the earnings distribution, confirming that high responses are concentrated at very low earnings levels, which is a crucial input for optimal tax-benefit designs.