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The Effect of Social Benefits on Youth Employment: Combining Regression Discontinuity and a Behavioral Model

The Effect of Social Benefits on Youth Employment: Combining Regression Discontinuity and a... ABSTRACT: Natural experiments provide robust identifying assumptions for the estimation of policy effects. Yet their use for policy design is often limited by the difficulty of extrapolating on the basis of reduced-form estimates. In this study, we exploit an age condition in the eligibility for social assistance in France, which lends itself to a regression discontinuity (RD) design. We suggest making the underlying labor supply model explicit—that is, translating the reduced-form discontinuity in terms of discontinuous changes in disposable incomes. This exercise shows the potential of combining natural experiments and behavioral models. In particular, we can test the external validity of the combined approach. We find that it predicts the effect of a subsequent reform, which extends transfers to the working poor, remarkably well. The model is then used to simulate the extension of social assistance to young people and finds that a transfer program with an in-work component would not create further disincentives to work in this population. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Human Resources University of Wisconsin Press

The Effect of Social Benefits on Youth Employment: Combining Regression Discontinuity and a Behavioral Model

Bargain, Olivier
Journal of Human Resources , Volume 52 (4) – Oct 27, 2017
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University of Wisconsin Press
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©by the Board of Regents of the University of Wisconsin System
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1548-8004
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Abstract

ABSTRACT: Natural experiments provide robust identifying assumptions for the estimation of policy effects. Yet their use for policy design is often limited by the difficulty of extrapolating on the basis of reduced-form estimates. In this study, we exploit an age condition in the eligibility for social assistance in France, which lends itself to a regression discontinuity (RD) design. We suggest making the underlying labor supply model explicit—that is, translating the reduced-form discontinuity in terms of discontinuous changes in disposable incomes. This exercise shows the potential of combining natural experiments and behavioral models. In particular, we can test the external validity of the combined approach. We find that it predicts the effect of a subsequent reform, which extends transfers to the working poor, remarkably well. The model is then used to simulate the extension of social assistance to young people and finds that a transfer program with an in-work component would not create further disincentives to work in this population.

Journal

Journal of Human Resources – University of Wisconsin Press

Published: Oct 27, 2017

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