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Welfare Transfers in Two-Parent Families: Labor Supply and Welfare Participation Under AFDC-UP

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  • Hilary Hoynes

Abstract

This paper examines the effect of cash transfers and food stamp benefits on family labor supply and welfare participation among two-parent families. The Aid to Families with Dependent Children-Unemployed Parent Program has been providing cash benefits to two-parent households since 1961 and recent congressional action has increased its importance. In this model, the husband's and wife's labor supply decisions are constrained by a family budget constraint which is non-convex due to features of the AFDC-UP program. The husband's and wife's labor supply decisions are restricted to no work, part-time work and full-time work. Features of the tax and transfer programs are modeled formally using kinked budget restraints. Maximum likelihood techniques are used to estimate parameters of the underlying hours of work and welfare participation equations. The estimates from the model are used to determine the magnitude of the work disincentive effects of the AFDC-UP program, and to simulate the effects of changes in AFDC-UP benefit and eligibility rules on family labor supply and welfare participation. The results suggest that labor supply and welfare participation among two-parent families are highly responsive to changes in the benefit structure under the AFDC-UP program.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 4407.

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Date of creation: Jul 1993
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Publication status: published as Econometrica, 64 (2), pp. 295-332, (March 1996)
Handle: RePEc:nbr:nberwo:4407

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  1. Fraker, Thomas & Moffitt, Robert, 1988. "The effect of food stamps on labor supply : A bivariate selection model," Journal of Public Economics, Elsevier, vol. 35(1), pages 25-56, February.
  2. Moffitt, Robert & Wolfe, Barbara L, 1992. "The Effect of the Medicaid Program on Welfare Participation and Labor Supply," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 615-26, November.
  3. Marjorie B. McElroy, 1990. "The Empirical Content of Nash-Bargained Household Behavior," Journal of Human Resources, University of Wisconsin Press, vol. 25(4), pages 559-583.
  4. Johnson, Terry R & Pencavel, John H, 1984. "Dynamic Hours of Work Functions for Husbands, Wives, and Single Females," Econometrica, Econometric Society, vol. 52(2), pages 363-89, March.
  5. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-35, December.
  6. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
  7. Harvey S. Rosen, 1978. "The Measurement of Excess Burden with Explicit Utility Functions," NBER Chapters, in: Research in Taxation, pages 121-135 National Bureau of Economic Research, Inc.
  8. Pencavel, John, 1987. "Labor supply of men: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 1, pages 3-102 Elsevier.
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