Do Earnings Subsidies Affect Job Choice? The Impact of SSP Subsidies on Wage Growth

It is widely acknowledged that tax and transfer policies can a¤ect employment. This paper explores a di¤erent potential impact of transfer policy by asking whether subsidies also a¤ect job duration and wage growth. We provide an analytical framework that identi…es 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 e¤ect on within–job wage growth. The subsidy is predicted to increase job turnover and to a¤ect between–job wage growth by a¤ecting reservation wages. We use this framework to analyze the e¤ects of the Canadian Self–Su¢ ciency Project (SSP). Consistent with the predictions of the analytical framework, we …nd that experimentals have shorter job duration and experience faster wage growth than the controls, who continue to be eligible only for Income Assistance. Helen Connolly, Department of Economics, Northeastern University, Boston, MA 02115. Peter Gottschalk, Economics Department, Boston College, Chestnut Hill, MA 02467. This project was partially funded under grants from the Social Research and Demonstration Corporation and the Russell Sage Foundation. We thank Martin Dooley and participants at the Institute for Research on Poverty Summer Workshop; the Annual Meeting of the Canadian Economics Association; and the workshop at University College, London, for useful comments. Do Earnings Subsidies A¤ect Job Choice? The Impact of SSP Subsidies on Job Turnover and Wage Growth