Welfare and labor market participation : a comparison of Saskatchewan and Alberta

This paper attempts to explain welfare and labor market participation differentials between Saskatchewan and Alberta, with greater emphasis placed on welfare participation. Generous benefit levels encourage welfare participation but discourage labor market participation. We are interested in explaining if generous welfare policy has contributed to an increase in welfare participation and discouraged labor market participation. We employ a probit model to analyze the decision to participate in the welfare or the labor market among lone parents and singles (unattached individuals) in the two provinces. The results are then decomposed into the explained and unexplained parts, and these results are used to illustrate which variables contribute to welfare differentials. We find that benefit levels have a significant positive effect on welfare participation and a significant negative effect on labor market participation. We also find that welfare participation differentials exist between Saskatchewan and Alberta; other factors in addition to benefit levels play a role in explaining that gap. We conclude that welfare differentials between Saskatchewan may be a reflection of program administration differences