Do Financial Incentives Encourage Welfare Recipients to Work? Early Findings from the Canadian Self Sufficiency Project

Abstract

This paper presents results from an experimental evaluation of an earnings supplement program offered to long-term welfare recipients in two Canadian provinces. The program -- known as the Self-Sufficiency Project - provides a supplement equal to one-half of the difference between an earnings target ($2,500 or $3083 per month, Canadian dollars, depending on the province) and the individual's actual earnings. The supplement is similar to a negative income tax with two important differences: (1) eligibility is limited to long-term welfare recipients who find a full-time job (30 hours per week or more); and (2) the supplement payment is based on individual earnings rather than family income. The evaluation is based on a randomized design that will follow 6,000 individuals for five years. Early findings for a first cohort of 2,000 individuals observed over 18 months of program eligibility suggest that the financial incentives of the Self-Sufficiency Program significantly increase labor market attachment and significantly reduce welfare participation.