Seminar-Michael Rosholm.

Title: Reducing Income Transfers to Refugee Immigrants; Does Starthelp Help You Start?

Abstract: In this paper we estimate the causal effect of lowering the public income transfers administered to newly arrived refugee immigrants in Denmark - the socalled starthelp - using a competing risk mixed proportional hazard framework. The two competing risks are exit to job and exit out of the workforce. A standard search model predicts that lowering benefits decreases the reservation wage and/or increases the search effort, but since the group of newly arrived refugee immigrants has a weak position in the labour market the question is whether lowering benefits affects their job finding rate. If no employers want to hire them at the going minimum wage, the fact that the reservation wage is lowered may have little effect. For identification we use a "natural" experiment, in which the rules for welfare benefits in Denmark changed rather dramatically. Refugee immigrants arriving before July 1st 2002 received and continue to receive larger income transfers than those arriving after July 1st. We find that lowering public income transfers has little effect on the job finding rate, once calendar time effects are introduced into the model, but it does have a significant effect on the rate at which refugee immigrants quit the workforce.