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Cross-State Variation in Medicaid Programs and Female Labor Supply

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  • Edward Montgomery
  • John Navin
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    Abstract

    Although the Medicaid program is partially controlled by the federal government, there is considerable latitude in the ability of states to set eligibility requirements and the types of services available to recipients. This research examines the impact of different state Medicaid programs on the decision to enter the labor force and the number of hours worked by female heads of households. A pooled cross-section data set constructed from the 1988 through 1993 Current Population Survey March Supplements is used to test if different benefit levels across states impact labor supply behavior. This study adds to the existing Medicaid literature by incorporating new benefit measures and explicitly controlling for state random and fixed effects. OLS results support the prediction that Medicaid expenditures reduce labor supply, but controlling for state fixed or random effects alters the effect of both the AFDC and Medicaid programs on both the decision to participate as well as the number of hours worked of female heads of households. We also consider the effects of policy endogeneity on these estimates using instruments for state welfare generosity and find evidence that estimates of the effect of welfare on labor supply are sensitive to the failure to control for time-varying policy endogeneity.

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    File URL: http://www.nber.org/papers/w5492.pdf
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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5492.

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    Date of creation: Mar 1996
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    Handle: RePEc:nbr:nberwo:5492

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    1. Yelowitz, Aaron S, 1995. "The Medicaid Notch, Labor Supply, and Welfare Participation: Evidence from Eligibility Expansions," The Quarterly Journal of Economics, MIT Press, vol. 110(4), pages 909-39, November.
    2. George J. Borjas & Glenn T. Sueyoshi, 1993. "A Two-Stage Estimator for Probit Models with Structural Group Effects," NBER Technical Working Papers 0146, National Bureau of Economic Research, Inc.
    3. Besley, Timothy & Case, Anne, 2000. "Unnatural Experiments? Estimating the Incidence of Endogenous Policies," Economic Journal, Royal Economic Society, vol. 110(467), pages F672-94, November.
    4. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-35, December.
    5. H. W. Hoynes, . "Does welfare play any role in female headship decisions?," Institute for Research on Poverty Discussion Papers 1078-95, University of Wisconsin Institute for Research on Poverty.
    6. Amemiya, Takeshi, 1978. "A Note on a Random Coefficients Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 19(3), pages 793-96, October.
    7. Moulton, Brent R., 1986. "Random group effects and the precision of regression estimates," Journal of Econometrics, Elsevier, vol. 32(3), pages 385-397, August.
    8. Anne E. Winkler, 1991. "The Incentive Effects of Medicaid on Women's Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 26(2), pages 308-337.
    9. Evans, William N & Oates, Wallace E & Schwab, Robert M, 1992. "Measuring Peer Group Effects: A Study of Teenage Behavior," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 966-91, October.
    10. Rebecca M. Blank, 1989. "The Effect of Medical Need and Medicaid on AFDC Participation," Journal of Human Resources, University of Wisconsin Press, vol. 24(1), pages 54-87.
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    Cited by:
    1. Jonathan Gruber, 2000. "Medicaid," NBER Working Papers 7829, National Bureau of Economic Research, Inc.
      • Jonathan Gruber, 2003. "Medicaid," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 15-78 National Bureau of Economic Research, Inc.
    2. Gonzalez, Libertad, 2004. "Single Mothers and Work," IZA Discussion Papers 1097, Institute for the Study of Labor (IZA).

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