Welfare-to-Work in Canada

__"When Financial Incentives Encourage Work: The Canadian Self-Sufficiency Project" by Charles Michalopoulos, Philip K. Robins, David E. Card, and Gordon Berlin, in Focus (Fall 1999), 1180 Observatory Dr., 3412 Social Science Bldg., Univ. of Wisconsin at Madison, Madison, Wis. 53706.__

Eight years ago, amid criticism that its generous welfare and unemployment insurance programs were encouraging people to avoid work, Canada launched an experiment called the Self-Sufficiency Project in two provinces to see if temporary earnings supplements would entice welfare recipients into finding jobs.

The early evidence from studies by the Social Research and Demonstration Corporation (SRDC) is very encouraging, according to Michalopoulos and Berlin, of the SRDC’s

U.S. partner, Manpower Demonstration Research Corporation, and economists Robins, of the University of Miami, and Card, of the University of California, Berkeley.

Between 1992 and 1995, almost 2,900 single parents (mothers, for the most part, with little education) who had been Income Assistance (IA) recipients for at least a year were offered supplements if they left welfare and worked full-time. The supplement equaled half the difference between the person’s wages and $31,080 (U.S.) in British Columbia or $25,200 in New Brunswick-levels set to make full-time work pay better than welfare. The supplements would stop after three years.

Nearly two-thirds of the single mothers refused the offer. "I don’t have education or skills where I’m able to get a nice job," one said. Nevertheless, the authors report, fulltime employment increased significantly--to an average of 29 percent in the fifth quarter after the trial began, compared with only 14 percent in a control group of comparable welfare recipients.

To test whether earnings supplements would have the unintended consequence of extending recipients’ stay on the welfare rolls, more than 1,600 British Columbia single parents new to welfare during 1994–95 were told they would be eligible for the supplements after one year on IA. These mothers were likely to be less disadvantaged than the long-term recipients, and it turned out that very few of them prolonged their stay to get the supplements. After a year, 60 percent were still on welfare--only four points higher than the percentage for a control group of comparable welfare recipients with no prospect of eligibility. Two and a half years later, moreover, it appeared that the supplements were working as intended: More than 40 percent of the eligible group were employed full-time, compared with less than 29 percent of the control group. "Most remarkably," say the authors, "at the end of the period, the cost of supplement payments was more than offset by reduced IA payments and increased tax revenues."

It’s too early to pass final judgment on the Self-Sufficiency Project; that will depend on what happens after the supplements run out. reductions in poverty . . . are among the largest But the authors are hopeful. So far, the gains in ever seen in a social experiment designed to "fulltime employment and earnings and [the] encourage welfare recipients to work."