Neil Cholli, Klarman Fellow

Does "Welfare-to-Work" Work? Evaluating Long-Run Effects across a Generation of Cohorts

Abstract: Welfare-to-work reforms remain a popular yet controversial policy around the world. This paper evaluates reforms that introduced public work requirements in Denmark's social assistance program by estimating their long-run effects on a comprehensive set of outcomes across a generation of birth cohorts. Effects are highly heterogeneous across cohorts based on the time the reforms were introduced in the life cycle. Individuals facing the reforms as adults incur null or modest negative effects on income and substitute toward crime and alternative welfare programs. Meanwhile, children exposed to the reforms before they were eligible for social assistance experience significant gains in schooling and income. This heterogeneity is consistent with a model where younger cohorts invest in their human capital in anticipation of future work requirements while older cohorts adjust along alternative margins with high social costs. Evidence suggests that heterogeneity across cohorts can persist for decades over the life cycle and spill over to their own children. Cost-benefit analyses reveal that welfare-to-work is cost-effective in the long run, but this may be driven by anticipatory behavioral responses of younger cohorts aging into the population. This sheds light on the interpretation of aggregate effects of welfare-to-work over time and alternative, more efficient policy designs.