Non-Technical Summary:
Most OECD countries have a long history of trying to enhance the re-employment prospects of benefit recipients by adopting active labor market policies. Active labor market policies are likely to have consequences not only for welfare recipients themselves, but also for their children. Quantifying these intergenerational policy impacts is a crucial step in understanding not only program returns, but also the ease with which disadvantaged children achieve upward social and economic mobility. Our research makes an important contribution by evaluating the intergenerational consequences of an Australian activation policy—the 1999 Mutual Obligations Initiative (MOI)—that tightened benefit eligibility through an expansion of the activity test applied to young people (aged 34 or younger) who were long-term unemployed. Specifically, we adopt a regression discontinuity approach and exploit administrative data from Australia’s national social security system to evaluate the impact that requiring unemployed fathers to engage in non-search activities (e.g., training, volunteering, or part-time employment) has on their children more than a decade later.
We find that unemployed fathers who were subject to the 1999 MOI spent less time on unemployment benefits, reducing their total benefits by $1,100 during their children’s adolescence. Importantly, those children are substantially (18 percent) less likely to receive unemployment benefits when they become young adults (aged 21 to 28), leading to a $800 reduction in benefits received per person, on average. Critically, we demonstrate that the impact of the MOI in reducing unemployment benefits is not the result of fathers, mothers, or their young-adult children increasing their receipt of other welfare benefits; rather the MOI resulted in an overall reduction in welfare dependence in both generations. Instead, completion of the mandated activities, role modeling, changes in attitudes, improved health, and greater support and stability are likely potential channels for these effects. Thus, active labor market policies targeting parents may be a useful tool in the fight to reduce intergenerational welfare dependence and increase social and economic mobility.