This version: July 2023
Welfare-to-work reforms remain a popular yet controversial policy around the world. This paper evaluates reforms that introduced public work requirements in Denmark's social assistance program by estimating their long-run effects on a comprehensive set of outcomes across a generation of birth cohorts. Effects are highly heterogeneous across cohorts based on the time the reforms were introduced in the life cycle. Individuals facing the reforms as adults incur null or modest negative effects on income and substitute toward crime and alternative welfare programs. Meanwhile, children exposed to the reforms before they were eligible for social assistance experience significant gains in schooling and income. This heterogeneity is consistent with a model where younger cohorts invest in their human capital in anticipation of future work requirements while older cohorts adjust along alternative margins with high social costs. Evidence suggests that heterogeneity across cohorts can persist for decades over the life cycle and spill over to their own children. Cost-benefit analyses reveal that welfare-to-work is cost-effective in the long-run, but appears to be driven by anticipatory behavioral responses of younger cohorts aging into the population. This sheds light on the interpretation of aggregate effects of welfare-to-work over time and alternative, more efficient policy designs.
NBER Working Paper #29760
Prepared for The Inequality Reader, Fifth Edition, D. Grusky, N. Dahir and C. Daviss, eds.
This version: February 2022
This essay reviews the theory and empirics of intergenerational mobility. Our review draws on models and empirical analyses of classic and more recent work from both economics and sociology. We summarize models and the surrounding empirical evidence of two key sets of mechanisms: family factors (income, education, credit constraints, household composition, and genes) and social factors (schools, neighborhood sorting, racial segregation, and peer and role model effects). We then discuss and evaluate current methods used to measure intergenerational mobility, including linear regressions and Markov chains. Theoretical models imply nonlinear relationships between parent and child status that are often ignored in practice and offer potentially different interpretations of the evidence of heterogeneity in mobility across locations, groups, and time. We conclude that the next generation of studies would benefit from a closer integration of theory with empirics.
Understanding Heterogeneity in Intergenerational Mobility across Neighborhoods: From Excavation to Refinement with Steven N. Durlauf, Rasmus Landersø, and Salvador Navarro
Draft coming soon
Recent research has uncovered large spatial heterogeneity in intergenerational mobility across neighborhoods in countries around the world. Yet there is nothing close to a consensus on the reasons why mobility is high in some neighborhoods and low in others. Our paper examines the roles that sampling error, families’ self-selection into neighborhoods, and locational characteristics play in generating this spatial heterogeneity. We use administrative data from Denmark to estimate a sequence of richer models that “excavate” these distinct factors across 276 municipalities and nearly 2,000 parishes. Families’ self-selection into neighborhoods and sampling error explain the majority of observed heterogeneity across neighborhoods, yet an irreducible neighborhood effect remains that cannot be explained by these factors. Using cluster analysis, we “refine” the structure of this irreducible component and uncover distinct types of neighborhoods. Types tend to be spatially segregated across rural and urban lines and suggest the presence of multiple equilibria predicted by theory.