This paper analyzes transitions into and out-of Social Assistance in Canada. We estimate a dynamic Probit model, controlling for endogenous initial conditions and unobserved heterogeneity, using longitudinal data extracted from the Survey of Labour and Income Dynamics (SLID) for the years 1993-2000. The data indicates that there are substantial provincial differences in social assistance participation. The empirical results indicate that a welfare trap does exist in Canada, but the extent of it varies across provinces. The results also suggest that there is a link between provincial variations in structural and spurious state dependence and regional differences in welfare generosity. In particular, the existence of structural state dependence, or a welfare trap, appears to be more likely in provinces with relatively high benefit levels. One implication of this result is that a change in the welfare benefit structure is not likely to lower participation as significantly among less generous provinces as more generous ones.
welfare state dependence unobserved heterogeneity initial conditions transition Canada