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Public Assistance and the Labor Market: an Equilibrium Analysis

Divounguy Nding, Orphe (2015): Public Assistance and the Labor Market: an Equilibrium Analysis.

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In this paper,we construct an equilibrium search model of the labor market augmented to include lump sum taxes that finance government expenditures. Using the model, we can decompose the decline in labor force participation (LFP) into the policy effect (state provided income) and that of other factors such as declining economic output. The model is estimated using census data on labor market outcomes and welfare income in Ohio. We learn that if the economy resembled the pre-crisis period, the decrease in welfare income during the Kasich administration would have led to a small increase in LFP.

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