IZA DP No. 1322: Do Earnings Subsidies Affect Job Choice?
published as 'Do earnings subsidies affect job choice? The impact of SSP subsidies on job turnover and wage growth' in: Canadian Journal of Economics / Revue canadienne d'économique, 2009, 42 (4), 1276 - 1304
It is widely acknowledged that tax and transfer policies can affect employment. This paper explores a different potential impact of transfer policy by asking whether subsidies also affect job duration and wage growth. We provide an analytical framework that identifies causal links between earnings subsidies, job turnover, and wage growth. This framework highlights the importance of the form of the subsidy on the decision about the type of job to accept and, hence, its potential effect on within-job wage growth. The subsidy is predicted to increase job turnover and to affect between-job wage growth by affecting reservation wages. We use this framework to analyze the effects of the Canadian Self-Sufficiency Project (SSP). Consistent with the predictions of the analytical framework, we find that experimentals have shorter job duration and experience faster wage growth than the controls, who continue to be eligible only for Income Assistance.