Abstract
AbstractThis paper introduces an innovative test of search and matching models using the exogenous variation available in experimental data. We take an off-the-shelf search model and calibrate it to data on thecontrolgroup from a randomized social experiment. We then simulate aprogramgroup from a randomized experiment within the model. As a measure of the performance of the model, we compare the outcomes of the program groups from the model and from the randomized experiment. We illustrate our methodology using the Canadian Self-Sufficiency Project (SSP), a social experiment providing a time-limited earnings supplement for Income Assistance recipients who obtain full-time employment within a 12-month period. We find two features of the model are consistent with the experimental results: endogenous search intensity andexogenousjob destruction. We find mixed evidence in support of the assumption of fixed hours of labor supply. Finally, we find aconstantjob destruction rate is not consistent with the experimental data in this context.JEL Classification:J2; I38; J6
Highlights
The policy experiments conducted within such models allow consideration of the potential effects of policy reforms that have yet to be implemented in reality as well as the general equilibrium effects of large-scale reforms or of small-scale reforms that may be implemented on a large-scale in the future
Note: p-values for single months are based on t-tests that the actual fraction still on Income Assistance (IA) minus the model prediction is equal to zero
For the all months test, we use a log-rank test that the actual exits from IA are equal to the predicted exits for the model and the data
Summary
Search and matching models in the spirit of McCall (1970) or Diamond (1982), Mortensen (1982) and Pissarides (1985) (DMP) are an important tool for the evaluation of new or existing labor market policies. The policy experiments conducted within such models allow consideration of the potential effects of policy reforms that have yet to be implemented in reality as well as the general equilibrium effects of large-scale reforms or of small-scale reforms that may be implemented on a large-scale in the future. The second contribution of our paper is to determine whether the model is an appropriate tool to use in estimating the behavioral response of the Canadian Self-Sufficiency Project, a small-scale experiment designed to provide incentives for individuals on Income Assistance (IA), the Canadian welfare program, to leave the system and seek employment.. We test the search intensity features of the model by comparing the exit rates from IA for the control and program groups in the model to those in the data. We are able to match the delayed-exit effects of a second randomized experiment in British Columbia that offered SSP to new Income Assistance recipients. Along these dimensions, our model test provides strong support for the framework.
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