Welfare Benefits and Labor Supply: Evidence from a natural experiment in Japan

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Author Name YUGAMI Kazufumi (Kobe University) / MORIMOTO Atsushi (North Asia University) / TANAKA Yoshiyuki (Osaka Sangyo University) / MATSUMOTO Kodai (Fellow (Policy Economist), RIETI)
Creation Date/NO. August 2017 17-E-109
Research Project Transformation of the Japanese Labor Market: Toward a labor market for all
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Notes

First draft: August 2017
Second draft: June 2022
Revised: December 2024, the length of the second draft was reduced for submission to an academic journal

Abstract

This study employs an instrumental variable approach to identify the effect of the unintended increase in Public Assistance (PA) benefits on the labor supply during a large-scale municipal merger event in Japan. The findings reveal that an exogenous increase in PA benefit levels has a significant impact on the receipt rate among those under 65. Furthermore, this increase in the receipt rate negatively affects the employment rate of individuals aged 55 to 64 living alone, as well as single-parent households, who are prevalent among PA recipients under 65.