State dependence in welfare receipt: transitions before and after a reform

We study state dependence in welfare receipt and investigate whether welfare transitions changed after a welfare reform. Using data from the German Socio-Economic Panel, we apply dynamic multinomial logit estimators and find that state dependence in welfare receipt is not a central feature of the German welfare system. We find that welfare transitions changed after the reform: transitions from welfare to employment became more likely and persistence in welfare and inactivity declined. We observe a large relative increase in transitions from employment to welfare. Immigrants’ responsiveness to the labor market situation increased after the reform. Regina T. Riphahn University of Erlangen-Nürnberg Lange Gasse 20 D-90403 Nürnberg Phone: +49 (0)911 5302 268 Fax: +49 (0)911 5302 178 Email: [email protected] Christoph Wunder University of Halle-Wittenberg Große Steinstraße 73 D-06099 Halle