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Incentive Effects of Cash Benefits among Young People. A Natural Experiment from Norway

Published online by Cambridge University Press:  24 May 2018

IDA DRANGE
Affiliation:
Work Research Institute, OsloMet – Oslo Metropolitan University, Postbox 4, St. Olavs plass, N – 0130 Oslo. email: ida.drange@oslomet.no
NIKLAS JAKOBSSON
Affiliation:
Norwegian Social Research, OsloMet – Oslo Metropolitan University, Postbox 4, St. Olavs plass, N – 0130 Oslo. email: niklas.jakobsson@oslomet.no Faculty of Arts and Social Sciences, Karlstad Business School, Karlstad University, 651 88 Karlstad, Sweden. email: niklas.jakobsson@kau.se

Abstract

Prior research on active labour market programmes (ALMPs) for young people has revealed either no effect or negative effects on transition rates into employment. In addition to accessing the programme content, participation in ALMPs bestows the right to a supplementary benefit. Yet, the direct effect of this benefit on the use and outcome of ALMPs remains largely unknown. We study the effects of a Norwegian policy that pays much higher benefits to recipients when they reach 19 years of age. This policy provides a natural experimental setting that allows us to utilise the age discontinuity to observe whether young people are more likely to become benefit recipients after their nineteenth birthday, and to estimate the effect of benefits on the labour supply. As age determines the increase in benefits rather than need, it creates a random and exogenous variation in the criteria for allocating cash benefits. We use Norwegian administrative register data that cover all 18 to 19 year olds during the period 2003 to 2012. We find no effect on programme take-up or employment rates. Hence, benefits do not work against the aim of ALMPs and young people's responsiveness to financial incentives cannot explain such programmes’ lack of effects.

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Article
Copyright
Copyright © Cambridge University Press 2018 

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