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Financial Incentives for Increasing Work and Income Among Low-Income Families

  • Rebecca M. Blank
  • David Card
  • Philip K. Robins

This paper investigates the impact of financial incentive programs, which have become an increasingly common component of welfare programs. We review experimental evidence from several such programs. Financial incentive programs appear to increase work and raise income (lower poverty), but cost somewhat more than alternative welfare programs. In particular, windfall beneficiaries -- those who would have been working anyway -- can raise costs by participating in the program. Several existing programs limit this effect by targeting long-term welfare recipients or by limiting benefits to full-time workers. At the same time, because financial incentive programs transfer support to working low-income families, the increase in costs due to windfall beneficiaries makes these programs more effective at alleviating poverty and raising incomes. Evidence also indicates that combining financial incentive programs with job search and job support services can increase both employment and income gains. Non-experimental evidence from the Earned Income Tax Credit (EITC) and from state Temporary Assistance to Needy Families (TANF) programs with enhanced earnings disregards also suggests that these programs increase employment, and this evidence is consistent with the experimental evidence on the impact of financial incentive programs.

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File URL: http://www.nber.org/papers/w6998.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6998.

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Date of creation: Mar 1999
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Publication status: published as Finding Jobs: Work and Welfare Reform, Blank, Rebecca and David Card,eds., New York: Russell Sage, 2000.
Handle: RePEc:nbr:nberwo:6998
Note: LS
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  1. Philip K. Robins, 1985. "A Comparison of the Labor Supply Findings from the Four Negative Income Tax Experiments," Journal of Human Resources, University of Wisconsin Press, vol. 20(4), pages 567-582.
  2. Shore-Sheppard Lara D., 2008. "Stemming the Tide? The Effect of Expanding Medicaid Eligibility On Health Insurance Coverage," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(2), pages 1-35, July.
  3. Eissa, Nada & Hoynes, Hilary Williamson, 1999. "The Earned Income Tax Credit and the Labor Supply of Married Couples," Department of Economics, Working Paper Series qt1024b9z8, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  4. Card, David & Robins, Philip K., 2005. "How important are "entry effects" in financial incentive programs for welfare recipients? Experimental evidence from the Self-Sufficiency Project," Journal of Econometrics, Elsevier, vol. 125(1-2), pages 113-139.
  5. Bruce D. Meyer & Dan T. Rosenbaum, 1999. "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers," NBER Working Papers 7363, National Bureau of Economic Research, Inc.
  6. Eissa, Nada & Liebman, Jeffrey B, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 605-37, May.
  7. Lara D. Shore-Sheppard, 2005. "Stemming the Tide? The Effect of Expanding Medicaid Eligibility on Health Insurance," Department of Economics Working Papers 2005-06, Department of Economics, Williams College.
  8. Saul D. Hoffman & Laurence S. Seidman, 1990. "The Earned Income Tax Credit," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number eitc, December.
  9. Robert A. Moffitt, 1996. "The effect of employment and training programs on entry and exit from the welfare caseload," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 15(1), pages 32-50.
  10. Rebecca M. Blank & Patricia Ruggles, 1993. "When Do Women Use AFDC & Food Stamps? The Dynamics of Eligibility vs. Participation," NBER Working Papers 4429, National Bureau of Economic Research, Inc.
  11. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, vol. 73(5), pages 1023-35, December.
  12. Michael C. Keeley & Philip K. Robins & Robert G. Spiegelman & Richard W. West, 1978. "The Labor-Supply Effects and Costs of Alternative Negative Income Tax Programs," Journal of Human Resources, University of Wisconsin Press, vol. 13(1), pages 3-36.
  13. Daniel Friedlander & David H. Greenberg & Philip K. Robins, 1997. "Evaluating Government Training Programs for the Economically Disadvantaged," Journal of Economic Literature, American Economic Association, vol. 35(4), pages 1809-1855, December.
  14. Jeffrey B. Liebman, 1998. "The Impact of the Earned Income Tax Credit on Incentives and Income Distribution," NBER Chapters, in: Tax Policy and the Economy, Volume 12, pages 83-120 National Bureau of Economic Research, Inc.
  15. Irwin Garfinkel & Philip K. Robins & Pat Wong & Daniel R. Meyer, 1990. "The Wisconsin Child Support Assurance System: Estimated Effects on Poverty, Labor Supply, Caseloads, and Costs," Journal of Human Resources, University of Wisconsin Press, vol. 25(1), pages 1-31.
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