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

Author Name YUGAMI Kazufumi (Kobe University) / MORIMOTO Atsushi (Kobe University) / TANAKA Yoshiyuki (Kobe 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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First draft: August 2017
Revised: June 2022


We use municipal amalgamations in Japan to identify the impact of welfare benefits on labor supply. In municipal amalgamations, under Japan’s Public Assistance (PA) program, municipalities with the highest class-areas become the new municipality and the basis for calculating welfare benefit levels. We use a difference-in-differences approach to identify the effect of the increase in PA benefits in Japan after municipal amalgamations on the labor supply. We found that an increase in PA benefit levels has little impact on the employment rate of prime-age populations but decreases that of bereaved or divorced women by 1.2% to 1.8%.