Welfare participation and welfare dependence among the unemployed

We regard individual unemployment duration as an important determinant of individuals welfare dependence. Welfare receipt is modelled for a unique data set of 4,655 Finnish unemployed individuals. A two-stage binomial hurdle model is applied, and estimations are made by both ML and GMM. Disregarding the full interrelation between unemployment and welfare clearly underestimates the importance of the former. Unemployment has a clear impact on both the probability of welfare participation and on welfare dependence among recipients. Using a finite mixture model we find that there is a small minority of unemployed welfare recipients who are locked-in in welfare dependence.All correspondence to Maria Melkersson. We thank participants at the ESPE 2001 conference, João Santos Silva and two anonymous referees for valuable comments. Financial support from Rektor för Åbo Akademi is gratefully acknowledged (Saarela). Responsible editor: Junsen Zhang.