Spatial Variation in Incentives to Work and Hysteresis in Welfare

This paper suggests a novel explanation of the steady rise in Germany's welfare recipient numbers. In the paper's model, there are disadvantaged households employed in a city with few amenities (a bad-amenity city) who would prefer to receive welfare in a city with many amenities (a good-amenity city). They can be kept out by the good-amenity city's local government – but only until a recession sets in. Then they do move from employment in the bad-amenity city into welfare in the good-amenity city. Hysteresis in welfare results.