Trends and Differences in Welfare Participation

82 The Journal of Human Resources

B. Variable Definition and Descriptive Statistics

To answer the questions regarding immigrant assimilation and welfare participation raised in the introduction, we estimate models where the dependent variable is a binary variable equal to one if the household received SA for at least one month during the year, and equal to zero otherwise. The Swedish municipalities provided data on social assistance benefit levels. We were able to assign a social assistance norm, which determines the benefit level, to each household in the sample in 1994 and in 1996. The municipality in which the household resides, as well as the family composition, such as marital status, ages, and number of children, determines the norms. Unfortunately, we have not been able to obtain similar information for the other years. For that reason, we assign the 1994 norms to all years prior to 1995 and the 1996 norms to the years 1995 and 1996. 8 By including the norms into the models, we can obtain estimates of the effects of higher benefit levels on public assistance utilization. To control for local variation in unemployment rates, we include county unemployment rates, obtained from Sta- tistics Sweden’s labor force surveys. These are assigned to each household in each year based on the household’s region of residence. In Table 1, we present average characteristics for the household by welfare recip- iency for the period 1990 to 1996. In general, we observe that households on welfare are younger, less educated and, to a larger degree, single, as compared to households not on public assistance. 9 For immigrants, we observe that SA recipients have on average been in the country for a shorter period than those households off SA. Inter- estingly, refugee households have on average higher post-secondary education com- pared to native Swedish and nonrefugee immigrant households. Moreover, the frac- tion of college-educated households receiving SA is substantially larger among refugees than among the other two groups.

V. Trends and Differences in Welfare Participation

As Figure 2 shows, real expenditures on welfare increased substan- tially in Sweden during the 1990s. During this period, there was a substantial increase in the number of households receiving SA. The National Board of Health and Wel- fare reports that 7.9 percent of all households in Sweden in 1990 received social assistance. By 1996, the participation rate had increased to 10.7 percent. This repre- sents an increase by 35 percent. Furthermore, the average monthly amount received did not change much and increased by slightly less than 5 percent. This suggests that the increase in expenditures is not due to an increase in the generosity of the welfare system. 8. To ensure that the findings reported below are not sensitive to the limited availability of municipal welfare benefits rules, we reestimated the models shown in Tables 3 and 4 using a sample restricted to the two years the norm is available for, 1994 and 1996. The results from the restricted sample, available upon request from the authors, are very similar to the ones obtained utilizing the full sample and the conclusions reported in this paper remain the same. 9. Since participation in SA is based on household characteristics, the entries in Table 1 refer to those of the household representative. Hansen and Lofstrom 83 Table 2 Welfare Participation by Immigrant Status and Arrival Cohort, 1990 and 1996 Sample Size Welfare Participation Rates Difference 1990 1996 1990 1996 1990–96 Natives 147,319 151,096 3.18 4.68 1.50 Immigrants Nonrefugee country All cohorts 30,419 53,648 8.29 10.15 1.86 Arrival cohort 1968–75 19,011 22,557 7.01 6.64 ⫺0.38 1976–80 6,200 10,595 8.90 10.01 1.10 1981–85 3,405 6,005 11.34 10.99 ⫺0.35 1986–90 1,803 8,422 13.92 13.58 ⫺0.34 1991–96 6,069 17.85 Refugee country All cohorts 13,055 53,095 16.49 31.99 15.50 Arrival cohort 1968–75 2,536 3,330 7.85 9.10 1.25 1976–80 4,121 6,458 11.65 11.66 0.01 1981–85 4,094 6,818 16.17 16.46 0.29 1986–90 2,304 16,009 35.24 30.06 ⫺5.18 1991–96 20,480 48.80 Source: Longitudinal Individual Data for Sweden LINDA, 1990 and 1996. Welfare-participation rates have been shown to be different for immigrants and natives in many countries see, for example, Borjas and Trejo 1991; Maani 1993; Riphahn 1998. Table 2 shows that this is true for Sweden as well. 10 Immigrants from both refugee and nonrefugee countries are more likely to receive social assis- tance than native-born Swedes. Furthermore, refugees participate to a greater extent in the social assistance program than nonrefugees. The table also shows that the increase in the welfare participation rate over the period 1990–96 was greater for immigrants than it was for natives. Table 2 also shows substantial differences in welfare participation rates across arrival cohorts. The table suggests that immigrants reduce their social assistance reliance with time spent in Sweden. However, the observed assimilation out of wel- fare could be due to a decline in the skill level of later cohorts, so-called negative cohort effects. In a series of articles, Borjas 1985 and 1994, for example has shown 10. The immigrant sample used in Table 2 corresponds to 20 percent of the immigrant population for each year. This combined with the dramatic increase in immigration into Sweden during the period ana- lyzed explains the large difference in number of immigrant observations in 1990 and 1996. 84 The Journal of Human Resources that such cohort effects can cause overestimated assimilation rates of immigrants. Notwithstanding, Table 2 shows that the welfare utilization rate decreases relative to natives, for any given arrival cohort, over the period studied here. The native welfare participation rate increased by 1.5 percentage points from 1990 to 1996. No immigrant arrival cohort displays a greater increase in social assistance utilization rate than 1.25 percentage points over the same period. This indicates that negative cohort effects are not the source of the observed assimilation pattern. Furthermore, this suggests that the increase in immigrant welfare participation does not stem from an increase in immigrants’ propensities to participate in the social assistance pro- gram, but is instead, at least partially, due to the substantial increase in immigration that Sweden experienced in the 1990s. We will explore the effect of the rise in immigration on the observed increase in welfare participation below. Immigrant assimilation out of welfare becomes quite clear when the difference in participation rates between immigrants and natives are shown by years since mi- gration, as in Figure 3. Refugees in particular seem to assimilate quickly. Their initial welfare-participation rates are between 40 and 50 percentage points higher than na- tives. After 10 or 11 years in Sweden, the difference drops to about 10 percentage points. Nonrefugee immigrants also appear to assimilate out of welfare. It should be noted that these comparisons are flawed in several ways. For example, the average age of natives is held roughly constant while the average age of the immigrant popu- lation increases with years since migration. Controls for cohort effects are also im- portant to incorporate. Differences between immigrants and natives, or changes in Figure 3 Observed Differences in Welfare Participation, Native-Born Swedes and Immi- grants, by Years Since Migration Source: Longitudinal Individual Data for Sweden LINDA, 1990 to 1996. Hansen and Lofstrom 85 differences over time, in socioeconomic and geographic characteristics may also partly explain the pattern. To accurately analyze assimilation rates, an empirical model needs to be estimated. We now turn our attention to such a model.

VI. Empirical Specification and Results