Abstract
Long-term social assistance dependency is a growing concern in Sweden and other European countries. In order for policy makers to design effective welfare reforms it is important to know how strong the state dependence associated with social assistance is in the population and to what extent it varies with different factors, and among different groups. We estimate the effect of the state dependence in social assistance for Sweden during the 1990s, for both Swedish-born and foreign-born. Using a dynamic discrete choice model that controls for unobserved heterogeneity and the initial conditions problem, we found that the effect is three times larger for foreign-born compared to Swedish-born. However, when the effect is distributed over time, it decreases and loses significance after three years for both groups. This suggests that resources should be allocated for programs that connect working-age recipients with the labor market as early as possible. JEL Codes: I30, I38, J18
Highlights
In Sweden, as in many other OECD countries, the share of the working-age population receiving social assistance increased dramatically during the 1990s (OECD 2003)
We extend the literature by describing the strength and determinants of the structural state dependence with respect to social assistance and to what extent it differ between Swedish-born and foreign-born
4 Results Since it is well-known that the welfare behavior differs greatly between natives and immigrants, and the factors affecting their participation behavior are different, we separate the analysis between those born in Sweden and those born elsewhere
Summary
In Sweden, as in many other OECD countries, the share of the working-age population receiving social assistance increased dramatically during the 1990s (OECD 2003). 3.1 Welfare persistence Specification (1) allows for three different sources of persistence after controlling for observed explanatory factors: 1) serial correlation in the error term uit; 2) unobserved individual heterogeneity αi; and 3) structural state dependence γ.
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