Carrot and Stick: Experiments With Social Welfare Policies

Abstract

In many countries around the world, citizens can rely on state-organized income support in situations of financial need. Examples are minimum income schemes, which pay a subsistence income to alleviate poverty and enable participation in social life, and social insurance schemes, which offer compensatory support in case of unforeseen income shocks. The question of how to organize such schemes so that they remain supportive while activating benefit claimants is subject to an ongoing debate in society and policymaking. The four empirical studies included in this dissertation address various questions raised in this debate. What happens when a welfare office eliminates job search targets and stops monitoring benefit claimants? Are financial incentives, such as benefit sanctions or higher exemptions for earnings next to benefits, effective ways to change claimants’ behavior? How do people respond to a minimum income with few strings attached? Using large administrative datasets and two randomized field experiments in the Netherlands and Spain, the four studies yield important lessons for designing income support policies. Among these insights are: eliminating effort requirements and monitoring of job seekers does not reduce job finding—however, job seekers are more likely to find jobs with a permanent contract. Allowing claimants to keep a larger share of earnings on top of benefits can stimulate part-time work in addition to benefits, but does not affect chances of full-time employment. Issuing a warning instead of cutting benefits when violating job search targets may be more effective in promoting future search behavior. And lastly, generous and unconditional income support may lead to a reduction in work on average, but those that drop out of the labor force are primarily workers with care responsibilities at home.