Can Financial Work Incentives Pay For Themselves Final

Can Financial Work Incentives Pay For Themselves? Final Report on the Self-Sufficiency Project for Welfare Applicants Reuben Ford, David Gyarmati, Kelly Foley, Doug Tattrie with Liza Jimenez www. srdc. org

Self-Sufficiency Project l l Experiment to test whether financial incentives encourage single parents to leave welfare for full-time work The project had twin goals: l l 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 l Voluntary l Single parents on welfare for at least one year l Once eligible, one year to get full-time work l Receive supplement for up to three years l Supplement is generous l Doubles earnings from a minimum wage job

A generous supplement to full-time earnings

Three SSP studies 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 longterm 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)

A 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 nonparticipants 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 l l 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 $20, 000 in supplement payments nearly

Receipt of Income Assistance 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 Income l l Supplement payments and increased earnings more than offset falls in income assistance amounts for much of the study period Individual monthly income up l $229 after 30 months l $162 after 48 months Proportion with low incomes (family income below LICO) fell l 14. 4 percentage points in month 30 l 6. 3 percentage points in month 48 SSP increased projected income taxes

Benefit cost analysis (over 6 years)

Comparison to Recipient Study l l l 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 messages l · Proven strategy to accelerate welfare to work transition l large increases in employment, earnings and income and l 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