Economic incentives and individuals choice between welfare programmes and work in Denmark

We estimate the effect of welfare benefits and wages on individuals' choice between working or collecting one of three welfare programmes. We compare the magnitude of transitions between various welfare programmes with transitions between, say, work and disability benefit. We use simulation methods to estimate random parameters. Estimation results show significant effects of economic incentives and significant variations of estimated parameters. Experiments with the estimated model show that transitions within welfare programmes are important relative to transitions between such programmes and work.