IDEAS home Printed from https://ideas.repec.org/p/ese/iserwp/2004-13.html
   My bibliography  Save this paper

The consequences of 'in-work' benefit reform in Britain: new evidence from panel data

Author

Listed:
  • Francesconi, Marco
  • van der Klaauw, Wilbert

Abstract

In October 1999, the British government enacted the Working Families' Tax Credit, a generous tax credit aimed at encouraging work among low -income families with children. This paper uses longitudinal data collected between 1991 and 2001 to evaluate the effect of this reform on single mothers. We identify this impact by comparing changes in behavior of lone mothers to changes for single women without children. Our results show that the financial incentives of the reform had powerful effects on a wide range of lone mothers' decisions. The reform led to a substantial increase in employment rates of about 7 percentage points, which was driven by both higher rates at which lone mothers remained in the labor force and higher rates at which they entered it. Women's responses were highly heterogeneous, with larger effects for mothers with one pre-school aged child, and virtually no effect for mothers with multiple older children. The reform also led to significant reductions in single mothers' subsequent fertility and in the rate at which they married. Our findings suggest that the generous childcare tax credit component of the reform played a key role in explaining the estimated employment responses. Finally, we find relatively large behavioral effects in anticipation of the actual reform, which emphasizes the importance of allowing for such effects in future evaluation research.

Suggested Citation

  • Francesconi, Marco & van der Klaauw, Wilbert, 2004. "The consequences of 'in-work' benefit reform in Britain: new evidence from panel data," ISER Working Paper Series 2004-13, Institute for Social and Economic Research.
  • Handle: RePEc:ese:iserwp:2004-13
    as

    Download full text from publisher

    File URL: https://www.iser.essex.ac.uk/research/publications/working-papers/iser/2004-13.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. John Micklewright, 2003. "Child Poverty in English-Speaking Countries," Papers inwopa03/25, Innocenti Working Papers, revised 2003.
    2. Williamson Hoyne, Hilary, 1997. "Does welfare play any role in female headship decisions?," Journal of Public Economics, Elsevier, vol. 65(2), pages 89-117, August.
    3. T. Paul Schultz, 1994. "Marital Status and Fertility in the United States: Welfare and Labor Market Effects," Journal of Human Resources, University of Wisconsin Press, vol. 29(2), pages 637-669.
    4. Bruce D. Meyer & Dan T. Rosenbaum, 2001. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 1063-1114.
    5. Richard Blundell & Alan Duncan & Julian McCrae & Costas Meghir, 2000. "The labour market impact of the working families’ tax credit," Fiscal Studies, Institute for Fiscal Studies, vol. 21(1), pages 75-103, March.
    6. Robert Haveman & Barbara Wolfe, 1995. "The Determinants of Children's Attainments: A Review of Methods and Findings," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1829-1878, December.
    7. Schoeni, R.F. & Blank, R.M., 2000. "What Has Welfare Reform Accomplished? Impacts on Welfare Participation, Employment, Income, Poverty, and Family Structure," Papers 00-02, RAND - Labor and Population Program.
    8. Robert Moffitt, 1994. "Welfare Effects on Female Headship with Area Effects," Journal of Human Resources, University of Wisconsin Press, vol. 29(2), pages 621-636.
    9. V. Joseph Hotz, 2003. "The Earned Income Tax Credit," NBER Chapters,in: Means-Tested Transfer Programs in the United States, pages 141-198 National Bureau of Economic Research, Inc.
    10. Richard Blundell & Hilary W. Hoynes, 2004. "Has 'In-Work' Benefit Reform Helped the Labor Market?," NBER Chapters,in: Seeking a Premier Economy: The Economic Effects of British Economic Reforms, 1980-2000, pages 411-460 National Bureau of Economic Research, Inc.
    11. Scholz, John Karl, 1996. "In-Work Benefits in the United States: The Earned Income Tax Credit," Economic Journal, Royal Economic Society, vol. 106(434), pages 156-169, January.
    12. Marianne Bitler & Jonah Gelbach & Hilary Hoynes & Madeline Zavodny, 2004. "The impact of welfare reform on marriage and divorce," Demography, Springer;Population Association of America (PAA), vol. 41(2), pages 213-236, May.
    13. Angrist, Joshua D. & Krueger, Alan B., 1999. "Empirical strategies in labor economics," Handbook of Labor Economics,in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 23, pages 1277-1366 Elsevier.
    14. Marianne Bertrand & Esther Duflo & Sendhil Mullainathan, 2004. "How Much Should We Trust Differences-In-Differences Estimates?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 249-275.
    15. Nada Eissa & Jeffrey B. Liebman, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 605-637.
    16. Eissa, Nada & Hoynes, Hilary Williamson, 2004. "Taxes and the labor market participation of married couples: the earned income tax credit," Journal of Public Economics, Elsevier, vol. 88(9-10), pages 1931-1958, August.
    17. Richard Blundell & Monica Costa Dias & Costas Meghir & John Van Reenen, 2004. "Evaluating the Employment Impact of a Mandatory Job Search Program," Journal of the European Economic Association, MIT Press, vol. 2(4), pages 569-606, June.
    18. Sara Connolly & Mary Gregory, 2002. "The National Minimum Wage and Hours of Work: Implications for Low Paid Women," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 64(s1), pages 607-631, August.
    19. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2003. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," American Economic Review, American Economic Association, vol. 93(1), pages 38-62, March.
    20. Stephen Machin & Alan Manning, 1992. "Minimum Wages," CEP Discussion Papers dp0080, Centre for Economic Performance, LSE.
    21. Jaap H. Abbring & Gerard J. van den Berg, 2003. "The Nonparametric Identification of Treatment Effects in Duration Models," Econometrica, Econometric Society, vol. 71(5), pages 1491-1517, September.
    22. Robert A. Moffitt, 2003. "The Negative Income Tax and the Evolution of U.S. Welfare Policy," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 119-140, Summer.
    23. Richard Dickens & Alan Manning, 2004. "Has the national minimum wage reduced UK wage inequality?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 167(4), pages 613-626.
    24. Mark B. Stewart, 2004. "The employment effects of the national minimum wage," Economic Journal, Royal Economic Society, vol. 114(494), pages 110-116, March.
    25. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," Journal of Economic Literature, American Economic Association, vol. 40(4), pages 1105-1166, December.
    26. Blundell, Richard, 2001. "Welfare Reform for Low Income Workers," Oxford Economic Papers, Oxford University Press, vol. 53(2), pages 189-214, April.
    27. Wilbert van der Klaauw, 2002. "Estimating the Effect of Financial Aid Offers on College Enrollment: A Regression-Discontinuity Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(4), pages 1249-1287, November.
    28. David Strömberg, 2004. "Radio's Impact on Public Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 189-221.
    29. Kirby, Simon & Riley, Rebecca, 2004. "Compulsory work-focused interviews for inactive benefit claimants: an evaluation of the British ONE pilots," Labour Economics, Elsevier, vol. 11(4), pages 415-429, August.
    30. H. W. Hoynes, "undated". "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.
    31. Hahn, Jinyong & Todd, Petra & Van der Klaauw, Wilbert, 2001. "Identification and Estimation of Treatment Effects with a Regression-Discontinuity Design," Econometrica, Econometric Society, vol. 69(1), pages 201-209, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Flight's right
      by chris dillow in Stumbling and Mumbling on 2010-11-25 23:39:08

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pierre Lefebvre & Philip Merrigan & Matthieu Verstraete, 2006. "Impact of Early Childhood Care and Education on Children's Preschool Cognitive Development: Canadian Results from a Large Quasi-experiment," Cahiers de recherche 0636, CIRPEE.
    2. Pierre Lefebvre & Philip Merrigan & Matthieu Verstraete, 2008. "Childcare Policy and Cognitive Outcomes of Children: Results from a Large Scale Quasi-Experiment on Universal Childcare in Canada," Cahiers de recherche 0823, CIRPEE.
    3. Cordula Zabel, 2008. "Patterns of partnership formation among lone mothers in Russia," MPIDR Working Papers WP-2008-020, Max Planck Institute for Demographic Research, Rostock, Germany.
    4. Marco Francesconi & Wilbert van der Klaauw, 2007. "The Socioeconomic Consequences of "In-Work" Benefit Reform for British Lone Mothers," Journal of Human Resources, University of Wisconsin Press, vol. 42(1).
    5. Pierre Lefebvre & Philip Merrigan & Francis Roy-Desrosiers, 2011. "Québec's Childcare Universal Low Fees Policy 10 Years After: Effects, Costs and Benefits," Cahiers de recherche 1101, CIRPEE.
    6. Pierre Lefebvre & Philip Merrigan, 2005. "Low-fee ($5/day/child) Regulated Childcare Policy and the Labor Supply of Mothers with Young Children: A Natural Experiment from Canada," CIRANO Working Papers 2005s-09, CIRANO.
    7. Brewer, Mike & Duncan, Alan & Shephard, Andrew & Suarez, Maria Jose, 2006. "Did working families' tax credit work? The impact of in-work support on labour supply in Great Britain," Labour Economics, Elsevier, vol. 13(6), pages 699-720, December.
    8. Pierre Lefebvre & Philip Merrigan, 2005. "The Québec's Experiment of $5 per Day per Child Childcare Policy and Mother's Labour Supply: Evidence Based on the Five Cycles of the NLSCY," CIRANO Project Reports 2005rp-21, CIRANO.
    9. Chiara Daniela Pronzato, 2015. "Fighting Lone Mothers’ Poverty Through In-Work Benefits: Methodological Issues and Policy Suggestions," CESifo Economic Studies, CESifo, vol. 61(1), pages 95-122.
    10. Lefebvre, Pierre & Merrigan, Philip & Verstraete, Matthieu, 2009. "Dynamic labour supply effects of childcare subsidies: Evidence from a Canadian natural experiment on low-fee universal child care," Labour Economics, Elsevier, vol. 16(5), pages 490-502, October.
    11. Konle-Seidl, Regina, 2005. "Lessons learned: Internationale Evaluierungsergebnisse zu Wirkungen aktiver und aktivierender Arbeitsmarktpolitik," IAB-Forschungsbericht 200509, Institut für Arbeitsmarkt- und Berufsforschung (IAB), Nürnberg [Institute for Employment Research, Nuremberg, Germany].
    12. Ghazala Azmat, 2006. "The impact of tax credits on labour supply," Economics Working Papers 979, Department of Economics and Business, Universitat Pompeu Fabra, revised Jul 2009.

    More about this item

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J12 - Labor and Demographic Economics - - Demographic Economics - - - Marriage; Marital Dissolution; Family Structure
    • J13 - Labor and Demographic Economics - - Demographic Economics - - - Fertility; Family Planning; Child Care; Children; Youth
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ese:iserwp:2004-13. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jonathan Nears). General contact details of provider: http://edirc.repec.org/data/rcessuk.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.