I study state dependence in social assistance receipt in Germany using annual survey data from the German Socio-Economic Panel for the years 1995–2011. There is considerable observed state dependence, with an average persistence rate in benefits of 68 per cent comparing to an average entry rate of just above 3 per cent. To identify a possible structural component, I estimate a series of dynamic random-effects probit models that control for observed and unobserved heterogeneity and endogeneity of initial conditions. I find evidence of substantial structural state dependence in benefit receipt. Estimates suggest that benefit receipt one year ago is associated with an increase in the likelihood of benefit receipt today by a factor of 3.4. This corresponds to an average partial effect of 13 percentage points. Average predicted entry and persistence rates and the absolute level of structural state dependence are higher in Eastern Germany than in Western Germany. I find only little evidence for time variation in state dependence around the years of the Hartz reforms.
This is a shortened and revised version of a study commissioned by the OECD (contract #68627, Königs, 2013). I would like to thank Tony Atkinson, Steve Bond, Stéphane Carcillo, Patricia Gallego-Granados, Herwig Immervoll, Stephen P. Jenkins, Monika Queisser, Regina Riphahn, Kostas Tatsiramos, Christoph Wunder and two anonymous referees for helpful comments. The article has moreover benefited from the feedback I received at the joint OECD/IZA/World Bank workshop on Social Safety Nets and Benefit Dependence in Paris in May 2013. Financial support provided through the INET grant INO1200010 by the Institute for New Economic Thinking at the Oxford Martin School is gratefully acknowledged. The usual disclaimer applies. In particular, the views expressed in this article do not represent the official positions of the OECD or the governments of OECD member countries.
Königs, S. (2014), "State Dependence in Social Assistance Benefit Receipt in Germany Before and After the Hartz Reforms", Safety Nets and Benefit Dependence (Research in Labor Economics, Vol. 39), Emerald Group Publishing Limited, Bingley, pp. 107-150. https://doi.org/10.1108/S0147-912120140000039003
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