Do Earnings Subsidies Affect Job Choice? The Impact of SSP Subsidies on Wage Growth

Abstract

This paper asks whether wage subsidies encourages participants to move into jobs with greater wage growth. We provide an analytical framework that identifies the key causal links between earnings subsidies and both within-and between-job wage growth. This framework highlights the importance of the form of the subsidy on the decision about the type of job to accept. We find that the subsidy will lead participants to place a higher value on jobs with wage growth if the relationship between pre-and post-subsidy earnings is convex, but the subsidy is predicted to have no effect on within-job wage growth if the transformation is linear. The subsidy is also predicted to affect between-job wage growth by increasing on-the- job search and altering the reservation wage. We use this framework to analyze the effects of the Canadian Self-Sufficiency Project experiment. We find that this subsidy did not affect within-job wage growth but did increase wage gains between jobs.