Immigration, Partnership Dynamics and Welfare Persistence

When economic crises destabilize labor markets, they offer unique opportunities to explore welfare dynamics and the interplay between partnership formation and social assistance. Using data from Sweden's 1990s economic crisis, characterized by high unemployment, expanding budget deficit, and a large inflow of war refugees from the former Yugoslavia, we examine state dependence in social assistance, which refers to the increased likelihood that households will receive benefits in the future if they have previously received them. Because Swedish social assistance eligibility depends on household-level resources and that partnership formation may correlate with unobserved factors, we focus on individuals who were single in 1990, prior to the recession, tracking their social assistance receipt and household composition over the subsequent decade. This approach allows us to compare individuals who remain single throughout the decade with those who form partnerships, assessing how gender, country of birth, and partnership choices affect state dependence in social assistance. Using a dynamic discrete choice model that addresses both unobserved heterogeneity and initial conditions, we found differences in structural state dependence both between and within the samples of Swedish-born (SB) and foreign-born (FB) individuals. Among singles, SB women exhibit lower structural state dependence than SB men, whereas FB women display slightly higher structural state dependence than FB men but lower than SB men. For FB individuals, the structural state dependence decreases when they partner with a SB individual but increases when they partner with another FB individual, suggesting that partnering with an SB individual may reduce the structural impact of prior welfare dependency, while partnering with an FB individual may reinforce it.