The differential role of human capital and health in explaining welfare exit-route and labour outcomes

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The aim of this study was to determine the differential effects of human capital and health on welfare exit-route, earnings and working hours among female welfare recipients in Israel. The study also examined whether higher human capital mediates the effect of health problems on the different outcomes. The data were obtained from a national panel survey of 2,700 single mothers who were receiving welfare when the Israeli welfare reform was implemented. The effect of health was found to be more consistent than the effect of human capital. Formal education had no effect on welfare exit-route, while health did. The effect of health on working hours was more profound than the effect of human capital, while the reverse applied to earnings. Richer human capital did not mediate the effect of health problems. These findings suggest that the prediction power of human capital on labour and welfare decisions has weakened under welfare reform provision.

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