Author: Guyonne R. Kalb
We estimate a simultaneous discrete choice model for welfare participation and labour supply of two-adult households in Australia using the Income and Housing Costs Survey of 1994/1995. Welfare participation is assumed to have a positive indirect effect (through income) and a negative direct effect on utility. This approach allows for non-participation of eligible people. The results are compared with those from an earlier study using the 1986/1987 Income Distribution Survey. The differences are discussed in the context of policy changes affecting welfare payments and of behavioural changes as they emerge from the models.
The results indicate that there is evidence of a significant disutility associated with welfare participation in both years. We also find that a change in the benefit withdrawal rate or the maximum benefit level does not seem to have a large effect on the labour supply of either adult.
JEL classification: J22, I38
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