We analyze the extent to which labor supply responds to incentives created by social programs in the United States. We find evidence that the incentive and disincentive effects of the EITC and welfare programs on hours worked among single mothers are more extensive than previously found in the literature. We also show that the difference-in-differences design, frequently adopted in the existing literature, fails to identify a meaningful treatment parameter in the context of the welfare-to-workfare transition in the 1990s. Finally, we use our quasi-experimental estimates to identify a structural model of labor supply with multiple tax and transfer programs. Model counterfactuals show that the EITC’s effect on labor supply depends on the regime of taxes and welfare system in place.
First version, November, 2020
I38: Welfare and Poverty: Government Programs; Provision and Effects of Welfare Programs
J08: Labor Economics Policies
H30: Fiscal Policies and Behavior of Economic Agents: General
J38: Wages, Compensation, and Labor Costs: Public Policy