Can Variation in Subgroups' Average Treatment Effects Explain Treatment Effect Heterogeneity? Evidence from a Social Experiment

In this paper, we assess whether welfare reform affects earnings only through mean impacts that are constant within but vary across subgroups. This is important because researchers interested in treatment effect heterogeneity typically restrict their attention to estimating mean impacts that are only allowed to vary across subgroups. Using a novel approach to simulating treatment group earnings under the constant mean-impacts within subgroup model, we find that this model does a poor job of capturing the treatment effect heterogeneity for Connecticut's Jobs First welfare reform experiment using quantile treatment effects. Notably, ignoring within-group heterogeneity would lead one to miss evidence that the Jobs First experiment's effects are consistent with central predictions of basic labor supply theory.