We use a combination of ex-ante and ex-post evaluation methods to evaluate
a major welfare policy implemented in France in 1989. The policy granted an
allowance (the Revenu Minimum d’Insertion, RMI, of up to 45% of the French
full time minimum wage) to every individual above age 25 and below a threshold
household income. The ex-post evaluation relies on the specificity of the Eastern
part of France. In Alsace-Moselle, since 1908 and during German occupancy, res-
idents benefited from a very similar transfer system (called “Aide Sociale”). Our
estimates, based on double and triple differences, show that the RMI policy was
associated with: a 3% fall in employment (among unskilled workers 25-55 years
old), leading to an estimated loss of 328 000 jobs; a decline in the job-access
rate; and a 5-month increase in the average duration of unemployment. We find
considerably larger disincentive effects for single parents. In a second step, we
build and calibrate a matching model with endogenous job search effort, using the
difference-in-differences estimates. It predicts that, if a 38% implicit tax rate had
been maintained as in the 2007 reform (RSA), instead of a 100% implicit tax rate
due to the RMI, the increase in unemployment would have been approximately
half of its actual value, and the increase in the duration of unemployment would
have been limited to only 2.5 months.