Does Benefit Receipt Affect Future Income? An Econometric Explanation

This paper provides an econometric analysis of the effects of receiving welfare benefits on individuals’ future income, using longitudinal administrative data on individual incomes. After controlling for heterogeneous differences in individual incomes, spurious effects of contemporaneous benefit receipt and possible endogeneity with incomes, there is no systematic evidence of a positive or negative effect of benefit receipt on incomes. The results are generally imprecisely estimated and sensitive to the choice of specification. Also, a simple first-order specification with unobserved heterogeneity provides a reasonable characterisation of individual income dynamics, although formal statistical tests tend to reject this specification as being too parsimonious.

A Preliminary Analysis of the Dynamics of Individual Market and Disposable Incomes

This paper reports early results from an ongoing analysis of the income dynamics of individuals, using the Inland Revenue Department’s income tax database over the four- year period 1994-7. The first two parts of the paper assess the reliability of the data. The third part reports a preliminary analysis of the dynamic properties of individual incomes. Two types of analysis are used – an analysis of transitions between quintiles of market income over time – and an analysis of the covariance of individuals market and disposable incomes through time. The author finds that there is a high degree of consistency in the data, although inconsistencies point to the need for care in the handling of outliers. The analysis of dynamics suggests that, for this sample, a large fraction of the observed differences in incomes is transitory. For example, less than 50% of the differences in incomes persist after 3 years. However, if outliers are excluded, the degree of observed persistence rises quite strongly: about two-thirds of market income differences and about 60% of disposable income differences persist after three years in this sample. The latter result is in line with results typically found in US and other overseas analyses using panel data from household surveys. Further analysis, incorporating another year of data and additional modelling techniques, is underway.

Youth Minimum Wage Reform and the Labour Market

This paper analyses the effects of a large reform in the minimum wages affecting youth workers in New Zealand since 2001. Prior to this reform, a youth minimum wage, applying to 16-19 year-olds, was set at 60% of the adult minimum. The reform had two components. First, it lowered the eligible age for the adult minimum wage from 20 to 18 years, and resulted in a 69 percent increase in the minimum wage for 18 and 19 year- olds. Second, the reform raised the youth minimum wage in two annual steps from 60% to 80% of the adult minimum, and resulted in a 41 percent increase in the minimum wage for 16 and 17 year-olds over a two-year period. We use data from the New Zealand Household Labour Force Survey (HLFS) to estimate the impact of these changes on a variety of labour market and related outcomes. We compare the average outcomes of these two groups of teenagers, before and after the policy reform, to those of 20-25 year- olds, who were unaffected by the reform. We find no robust evidence of adverse effects on youth employment or hours worked. In fact, we find stronger evidence of positive employment responses to the changes for both groups of teenagers, and that 16-17 year-olds increased their hours worked by 10-15 percent following the minimum wage changes. Given the absence of any adverse employment effects, we find significant increases in labour earnings and total income of teenagers relative to young adults. However, we do find some evidence of a decline in educational enrolment, and an increase in unemployment and inactivity, although these results depend on the specification adopted.Minimum wage, New Zealand, natural experiment, difference-in-differences

Income Growth and Earnings Variations in New Zealand, 1998—2004

This work provides an update of changes in the income distribution over the period from 1998-2004, using data from the Household Labour Force Survey's annual Income Supplement (HLFS-IS). We focus on changes in working-age individuals' earnings and total income distribution and, to allow for resource sharing within households, their equivalised household total income distribution over the period. Our analysis shows that there have been broad gains in income to both individuals and households, suggesting the spoils of growth have been shared widely across the income distribution. Mean and median earnings increased 15 percent and 23 percent respectively, while mean and median individual income both increased 12-13 percent and equivalised household income by 11 percent. Inequality, as measured by the Gini coefficient, was more stable: individual earnings inequality fell 4 percent; individual income inequality was unchanged, while equivalised household income inequality increased 2-3 percent. The main contributors to the observed changes appear to be employment and real wage growth. We estimate that roughly one-half of the growth in average individual incomes is due to employment growth, and one-quarter each to demographic changes and wage growth. We also find that the relative employment and wage contributions have varied across the distribution: income gains at the lower end of the income distributions have been largely driven by employment, while changes at the higher end have been driven by wage gains.Income; earnings; employment; wages; inequality

Understanding Changes in the Distribution of Household Incomes in New Zealand Between 1983-86 and 1995-98

This paper presents an analysis of changes in the distribution of gross household income and income inequality over the period 1983–1998. The analysis applies a semiparametric approach to study the effects of changes in the distribution of household types, and changes in National Superannuation (old age pension), household socio-demographic attributes and employment outcomes, and in the “economic returns” to such attributes and employment outcomes on the distribution of income, and uses kernel density methods to estimate these effects. This approach provides a visual appreciation of the shape of the income distribution, and is important in understanding how each of these factors affected different parts of the distribution over the period. We also estimate the effects of each of these factors on changes in various summary measures of inequality over the period. The results find that changes in household structure (particularly the declining proportion of two-parent families), attributes, and employment outcomes each contribute to the observed increase in inequality, while the changes in returns are estimated to reduce the level of inequality. Collectively these factors account for about 50 percent of the observed increase, depending on the measure of inequality used. The results confirm other research findings that the changes were concentrated during the late 1980s.Household income distribution; Inequality; Kernel density estimation

The Dynamic Effects of an Earnings Subsidy for Long-Term Welfare Recipients: Evidence from the SSP Applicant Experiment

In the SSP Applicant Experiment, a random sample of new welfare entrants was informed that if they remained on welfare for a year they would become eligible for a generous earnings subsidy. Those who satisfied the waiting period and then left welfare and began working full time within the following year were entitled to receive payments for up to 36 months whenever they were off welfare and working full time. A simple optimizing model suggests that the program rules created an unusual sequence of incentives to: (1) prolong the initial spell on welfare for at least 12 months to become eligible for the subsidy offer; (2) establish subsidy entitlement by finding full time work and leaving welfare in the 12 to 24 month period after initial entry; and (3) choose work over welfare during the three years that subsidies were available. Consistent with these implications, comparisons between the experimental treatment group and a randomly assigned control group show that the program increased welfare participation in the first year after initial entry and lowered it over the following 5 years. We develop an econometric model of welfare participation and program eligibility status that allows us to identify the behavioral effects associated with the program rules. We find important responses to all three incentives. We also find that the impact of the program persisted after subsidy payments ended, although the effect decayed over time.

Estimating the Effects of a Time Limited Earnings Subsidy for Welfare Leavers

In the Self Sufficiency Program (SSP) welfare demonstration, members of a randomly assigned treatment group could receive a subsidy for full time work. The subsidy was available for three years, but only to people who began working full time within 12 months of random assignment. A simple optimizing model suggests that the eligibility rules created an 'establishment' incentive to find a job and leave welfare within a year of random assignment, and an 'entitlement' incentive to choose work over welfare once eligibility was established. Building on this insight, we develop an econometric model of welfare participation that allows us to separate the two effects and estimate the impact of the earnings subsidy on welfare entry and exit rates among those who achieved eligibility. The combination of the two incentives explains the time profile of the experimental impacts, which peaked 15 months after random assignment and faded relatively quickly. Our findings suggest that about half of the peak impact of SSP was attributable to the establishment incentive. Despite the extra work effort generated by SSP the program had no lasting impact on wages, and little or no long run effect on welfare participation.

Toward a Model of Firm Productivity Dynamics

A common finding from international research on firm productivity dynamics is that withinfirm productivity dynamics tend to dominate the effects of firm entry and exit on aggregate productivity. The aim of this paper is to explore the suitability of Statistics New Zealand’s Business Demography (BD) and Goods and Services Tax (GST) data as a basis for modelling within-firm productivity dynamics. The paper first analyses and describes the cross-sectional and time-series properties of sales, purchases and a value-added measure of labour productivity. Cross-sectional results reveal a great deal of heterogeneity in average sales, purchases and labour productivity both across and within industries and cohorts. Univariate time-series properties of these variables are remarkably similar and sales and purchases are highly correlated contemporaneously. Transition probabilities are also calculated for movement of firms between quartiles of the labour productivity distribution over varying lengths of time. In order to understand the processes driving the data, a simple statistical model for sales, purchases and value-added per unit of employment is developed to calibrate to the stylised empirical facts. The model does a remarkably good job at mimicking the properties of the BD and GST data.Firm Productivity; Labour Productivity; Firm Dynamics; New Zealand GST Data; New Zealand Business Demography; Firm Value-added.

WHEAT PRODUCTION IN TUNISIA: TRENDS AND VARIABILITIES

Crop Production/Industries,