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Did Expanding Medicaid Affect Welfare Participation?

Using data from the 1988-1996 Current Population Surveys (CPS), we re-examine the evidence presented in Yelowitz (1995) showing that expansions in Medicaid eligibility for children were associated with increased labor force participation and reduced participation in Aid to Families with Dependent Children (AFDC) among single mothers. We find that Yelowitz's results were the result of two factors. First, he imposed a strong restriction on the parameter estimates that is not predicted by theory and is rejected in the CPS data. Second, he used only one of the two income tests that families must pass to be eligible for AFDC, resulting in higher imputed AFDC breakeven income levels for larger families. Once these problems are addressed, the Medicaid income limits have no significant effect on AFDC participation. The AFDC income limits, however, are significantly related to welfare and labor force participation in both his original sample and the entire 1988-1996 sample.

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Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2003-08.

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Length: 38 pages
Date of creation: Jun 2003
Date of revision:
Publication status: Published in Industrial and Labor Relations Review, April 2005, v. 58, iss. 3, pp. 452-70
Handle: RePEc:wil:wileco:2003-08
Contact details of provider: Postal: Williamstown, MA 01267
Phone: 413 597 2476
Fax: 413 597 4045
Web page: http://econ.williams.eduEmail:


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  1. 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.
  2. Robert Moffitt & Barbara Wolfe, 1990. "The Effect of the Medicaid Program on Welfare Participation and Labor Supply," NBER Working Papers 3286, National Bureau of Economic Research, Inc.
  3. 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.
  4. David M. Cutler & Jonathan Gruber, 1995. "Does Public Insurance Crowd Out Private Insurance?," NBER Working Papers 5082, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
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