Can Financial Work Incentives Pay For Themselves?

Final Report on the Self-Sufficiency Project for Welfare Applicants

Reuben Ford, David Gyarmati, Kelly Foley, Doug Tattriewith Liza Jimenez

www.srdc.org

Can Financial Work Incentives Pay For Themselves?

Final Report on the Self-Sufficiency Project for Welfare Applicants

Reuben Ford, David Gyarmati, Kelly Foley, Doug Tattriewith Liza Jimenez

www.srdc.org

Self-Sufficiency ProjectSelf-Sufficiency Project Experiment to test whether financial incentives

encourage single parents to leave welfare for full-time work

The project had twin goals:

to create credible evidence about the effects of changing policy

to demonstrate that a particular policy - focused on earnings supplements - could be effective

HRDC, Statistics Canada, MDRC, SRDC, US and Canadian academics, Provinces of NB, BC, local delivery partners and others

Results from surveys, administrative data, Program Management Information System

Experiment to test whether financial incentives encourage single parents to leave welfare for full-time work

The project had twin goals:

to create credible evidence about the effects of changing policy

to demonstrate that a particular policy - focused on earnings supplements - could be effective

HRDC, Statistics Canada, MDRC, SRDC, US and Canadian academics, Provinces of NB, BC, local delivery partners and others

Results from surveys, administrative data, Program Management Information System

SSP program features SSP program features Voluntary

Single parents on welfare for at least one year

Once eligible, one year to get full-time work

Receive supplement for up to three years

Supplement is generous Doubles earnings from a minimum wage job

Voluntary

Single parents on welfare for at least one year

Once eligible, one year to get full-time work

Receive supplement for up to three years

Supplement is generous Doubles earnings from a minimum wage job

A generous supplement to full-time earnings

A generous supplement to full-time earnings

0

200

400

600

800

1000

1200

1400

1600

1800

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

Hours worked each week

After-

tax in

com

e (

$)

With SSP supplement No SSP supplement

The long-term Recipient study:• How do a cross-section of long-term welfare recipients respond

to the offer? (5,700 participants in BC and NB)

The “SSP Plus” Study:• What happens when employment services are offered to long-

term recipients in addition to the incentive? (300 additional participants in NB)

The Applicant and “Entry Effects” Studies:• Does the financial incentive encourage single-parent, new

income assistance recipients to stay on income assistance longer than they would normally in order to qualify for the supplement?

• What is the effect of the supplement offer for new welfare applicants? (3,315 participants in BC)

The long-term Recipient study:• How do a cross-section of long-term welfare recipients respond

to the offer? (5,700 participants in BC and NB)

The “SSP Plus” Study:• What happens when employment services are offered to long-

term recipients in addition to the incentive? (300 additional participants in NB)

The Applicant and “Entry Effects” Studies:• Does the financial incentive encourage single-parent, new

income assistance recipients to stay on income assistance longer than they would normally in order to qualify for the supplement?

• What is the effect of the supplement offer for new welfare applicants? (3,315 participants in BC)

Three SSP studies

A social experimentA social experiment• Half the study participants were told that if they stayed on

welfare for a year, they would be eligible for the supplement (the program group)

• Half (the control group), selected at random, were not• Following both groups’ behaviour over time allows us to:

• Attribute causality to SSP offer• Eliminate systematic selection bias due to non-

participants differing from participants• Obtain internally valid estimate of average treatment

effect – difference between mean outcomes for program and control groups

• Supplement these results with additional process research

• Half the study participants were told that if they stayed on welfare for a year, they would be eligible for the supplement (the program group)

• Half (the control group), selected at random, were not• Following both groups’ behaviour over time allows us to:

• Attribute causality to SSP offer• Eliminate systematic selection bias due to non-

participants differing from participants• Obtain internally valid estimate of average treatment

effect – difference between mean outcomes for program and control groups

• Supplement these results with additional process research

Applicant Study Results:

Taking up the supplement

Applicant Study Results:

Taking up the supplement

Nearly three fifths of the program group became eligible by staying on welfare for 12 months

27 per cent of the program group — nearly half of those who became eligible — took up the supplement

Different groups of program group members were about equally likely to find full-time work in time to receive supplement payments

On average, supplement “takers” received nearly $20,000 in supplement payments

Nearly three fifths of the program group became eligible by staying on welfare for 12 months

27 per cent of the program group — nearly half of those who became eligible — took up the supplement

Different groups of program group members were about equally likely to find full-time work in time to receive supplement payments

On average, supplement “takers” received nearly $20,000 in supplement payments

Receipt of Income AssistanceReceipt of Income Assistance

-20

0

20

40

60

80

100

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77

Months from random assignment

% R

ec

eiv

ing

Inc

om

e A

ss

ista

nc

e Program Group

Control Group

Impact

Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7

Earnings

•SSP increased earnings by:

•$1400 in Year 2

•$2400 in Year 3

•$1300 in Year 6

•$7,859 over 6 years

Effects on IncomeEffects on Income Supplement payments and increased earnings more

than offset falls in income assistance amounts for much of the study period

Individual monthly income up

$229 after 30 months

$162 after 48 months

Proportion with low incomes (family income below LICO) fell

14.4 percentage points in month 30

6.3 percentage points in month 48

SSP increased projected income taxes

Supplement payments and increased earnings more than offset falls in income assistance amounts for much of the study period

Individual monthly income up

$229 after 30 months

$162 after 48 months

Proportion with low incomes (family income below LICO) fell

14.4 percentage points in month 30

6.3 percentage points in month 48

SSP increased projected income taxes

Benefit cost analysis (over 6 years)Benefit cost analysis (over 6 years)Accounting Perspective

Component of AnalysisFinancial effects ($)

Transfer payments 2,130 -2,130 0Transfer payment administration 0 -98 -98Operating cost of SSP 0 -1,060 -1,060Program Management Information Systems 0 -48 -48Supports for work 0 -484 -484Earnings and fringe benefits 8,534 0 8,534Taxes and premiums -2,775 2,775 0Tax credits -384 384 0

Net gain or loss (net present value) ($) 7,504 -660 6,844

SocietyProgram

GroupGovernment

Budget

Comparison to Recipient StudyComparison to Recipient Study Net earnings gain of $7,859 over the study period

($7,370 over equivalent period) was twice the earnings gain for long-term recipients in BC

Net cost to governments was about 10 cents per $1 gained by participants. It was 67 cents per $1 for Recipients in BC

Taken together, results imply that if SSP were implemented as a policy, it would be effective in reducing current IA expenditure and would become even more cost-effective in the long run

Net earnings gain of $7,859 over the study period ($7,370 over equivalent period) was twice the earnings gain for long-term recipients in BC

Net cost to governments was about 10 cents per $1 gained by participants. It was 67 cents per $1 for Recipients in BC

Taken together, results imply that if SSP were implemented as a policy, it would be effective in reducing current IA expenditure and would become even more cost-effective in the long run

Key messagesKey messages

Proven strategy to accelerate welfare to work transition

large increases in employment, earnings and income and

reduced welfare receipt and poverty

Cost-effective policy

comes very close to paying for itself when increased taxes and reduced IA receipt are taken into account

Results can be used to predict effects

The Recipient study and Applicant Study results together demonstrate that cost-effectiveness will increase over time

Proven strategy to accelerate welfare to work transition

large increases in employment, earnings and income and

reduced welfare receipt and poverty

Cost-effective policy

comes very close to paying for itself when increased taxes and reduced IA receipt are taken into account

Results can be used to predict effects

The Recipient study and Applicant Study results together demonstrate that cost-effectiveness will increase over time