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A new idea for welfare reform

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  • Michael P. Keane

Abstract

This article analyzes several proposals to build work incentives into the U.S. welfare system. It concludes that the most cost effective way to do that is to offer a work subsidy to all low-income single parents—in other words, to simply pay them for working in the labor market. This conclusion is based on a model of the labor force participation behavior of low-income single mothers that the author developed with Robert Moffitt. Among the proposals evaluated in the article, besides the work subsidy, are proposals to reduce the rate that welfare benefits are reduced when welfare recipients work, to provide wage subsidies to low-wage workers, to expand the earned income tax credit, and to subsidize the fixed costs of working.

Suggested Citation

  • Michael P. Keane, 1995. "A new idea for welfare reform," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr, pages 2-28.
  • Handle: RePEc:fip:fedmqr:y:1995:i:spr:p:2-28:n:v.19no.2
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    References listed on IDEAS

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    1. Willis, Robert J., 1987. "Wage determinants: A survey and reinterpretation of human capital earnings functions," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 10, pages 525-602 Elsevier.
    2. 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.
    3. Danziger, Sheldon & Haveman, Robert & Plotnick, Robert, 1981. "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 19(3), pages 975-1028, September.
    4. Keane, Michael & Moffitt, Robert, 1998. "A Structural Model of Multiple Welfare Program Participation and Labor Supply," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 553-589, August.
    5. R. H. Haveman & J. K. Scholz, "undated". "The Clinton welfare reform plan: Will it end poverty as we know it," Institute for Research on Poverty Discussion Papers 1037-94, University of Wisconsin Institute for Research on Poverty.
    6. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics,in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier.
    7. 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 615-626, November.
    8. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-1035, December.
    9. Moffitt, Robert, 1989. "Estimating the Value of an In-Kind Transfer: The Case of Food Stamps," Econometrica, Econometric Society, vol. 57(2), pages 385-409, March.
    10. Daniel Meyer, 1993. "Child support and welfare dynamics: Evidence from Wisconsin," Demography, Springer;Population Association of America (PAA), vol. 30(1), pages 45-62, February.
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    Cited by:

    1. repec:eme:ceapzz:s0573-855520140000293006 is not listed on IDEAS
    2. Chris Herbst, 2010. "The labor supply effects of child care costs and wages in the presence of subsidies and the earned income tax credit," Review of Economics of the Household, Springer, vol. 8(2), pages 199-230, June.
    3. Christopher A. Swann, 2005. "Welfare Reform When Recipients Are Forward-Looking," Journal of Human Resources, University of Wisconsin Press, vol. 40(1).
    4. Luis Ayala & César Pérez, 2005. "Macroeconomic conditions, institutional factors and demographic structure: What causes welfare caseloads?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 18(3), pages 563-581, September.
    5. Meyer, Bruce D. & Sullivan, James X., 2004. "The effects of welfare and tax reform: the material well-being of single mothers in the 1980s and 1990s," Journal of Public Economics, Elsevier, vol. 88(7-8), pages 1387-1420, July.
    6. Bruce D. Meyer & James Xavier Sullivan, 2000. "The Effects of Welfare Reform: The Living Conditions of Single Mothers in the 1980s and 1990s," JCPR Working Papers 206, Northwestern University/University of Chicago Joint Center for Poverty Research.
    7. Michael Keane & Richard Rogerson, 2015. "Reconciling Micro and Macro Labor Supply Elasticities: A Structural Perspective," Annual Review of Economics, Annual Reviews, vol. 7(1), pages 89-117, August.
    8. V. Joseph Hotz & Charles H. Mullin & John Karl Scholz, 2001. "The Earned Income Tax Credit and Labor Market Participation of Families on Welfare," JCPR Working Papers 214, Northwestern University/University of Chicago Joint Center for Poverty Research.
    9. Moffitt, Robert A., 2002. "Welfare programs and labor supply," Handbook of Public Economics,in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 4, chapter 34, pages 2393-2430 Elsevier.
    10. Rolf Aaberge & Ugo Colombino, 2014. "Labour Supply Models," Contributions to Economic Analysis,in: Handbook of Microsimulation Modelling, volume 127, pages 167-221 Emerald Publishing Ltd.

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    Welfare;

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