Anatomy of Welfare Reform Evaluation:Announcement and Implementation Effects

Abstract

This paper formulates a simple model of female labor force decisions which embeds an in-work benefit reform and explicitly allows for announcement and implementation effects. We explore several mechanisms through which women can respond to the announcement of a reform that increases in-work benefits, including sources of intertemporal substitution, human capital accumulation, and labor market frictions. Using the model�s insights and information of the precise timing of the announcement and implementation of a major UK in-work benefit reform, we estimate its effects on single mothers� behavior. We find large and positive announcement effects on employment decisions. We show that this finding is consistent with the presence of frictions in the labor market. The impact evaluations of this reform which ignore such effects produce implementation effect estimates that are biased downwards by 15 to 35 percent.