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The Earned Income Tax Credit and Labor Market Participation of Families on Welfare

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  • V. Joseph Hotz
  • Charles H. Mullin
  • John Karl Scholz

Abstract

In this paper we examine the effect of the EITC on the employment rates of adults who received welfare (AFDC) during the 1990s. The first part of the paper begins with a description of the changes in the EITC over the last ten years, its administration, and what is known about its of the changes in the EITC over the last ten years, its administration, and what is known about its welfare policy changes, earned income tax credit (EITC) increases in 1990 and 1993, and changes in local labor market conditions on the behavior of families who received welfare benefits in California during the early part of the 1990s. The data on welfare recipients that we analyze are drawn from the California Work Pays Demonstration Project (CWPDP). The CWPDP incorporated experimental variation in the benefits package received by treatment and control households drawn from California?s AFDC caseload in four counties during the first half of the 1990s. This experimental variation is used to help identify the effects of welfare changes from the effects of the EITC expansions and the effects of local labor market conditions over this same period. We use a variety of county-level labor market indicators to account for the influence that the local labor market had on the employment rates of heads of households in the CWPDP sample. We also exploit a change in the EITC in 1994 when the credit became significantly more generous for families with two or more children, relative to families with only one child. Our evidence is consistent with the EITC having large, positive effects on employment of adults from welfare families in California . This paper appears as Chapter 3 in the edited volume The Incentives of Government Programs and the Well-Beings of Families. To view the contents of the entire volume, please click here.

Suggested Citation

  • 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.
    • Handle: RePEc:wop:jopovw:214
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    References listed on IDEAS

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    1. Stacy Dickert & Scott Houser & John Karl Scholz, 1995. "The Earned Income Tax Credit and Transfer Programs: A Study of Labor Market and Program Participation," NBER Chapters, in: Tax Policy and the Economy, Volume 9, pages 1-50, National Bureau of Economic Research, Inc.
    2. N. Eissa & H. W. Hoynes, "undated". "The Earned Income Tax Credit and the Labor Supply of Married Couples," Institute for Research on Poverty Discussion Papers 1194-99, University of Wisconsin Institute for Research on Poverty.
    3. 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.
    4. Nada Eissa & Jeffrey B. Liebman, 1996. "Labor Supply Response to the Earned Income Tax Credit," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(2), pages 605-637.
    5. V. Joseph Hotz & Guido W. Imbens & Jacob A. Klerman, 2000. "The Long-Term Gains from GAIN: A Re-Analysis of the Impacts of the California GAIN Program," NBER Working Papers 8007, National Bureau of Economic Research, Inc.
    6. Carolyn J. Hill & V. Joseph Hotz & Charles H. Mullin & John Karl Scholz, 1999. "EITC Eligibility, Participation, and Compliance Rates for AFDC Households: Evidence from the California Caseload," JCPR Working Papers 102, Northwestern University/University of Chicago Joint Center for Poverty Research.
    7. 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.
    8. Rebecca M. Blank, 2001. "Declining caseloads/increased work: what can we conclude about the effects of welfare reform?," Economic Policy Review, Federal Reserve Bank of New York, issue Sep, pages 25-36.
    9. Daniel Feenberg & Elisabeth Coutts, 1993. "An introduction to the TAXSIM model," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 12(1), pages 189-194.
    10. V. J. Hotz & J. K. Scholz, "undated". "Measuring Employment and Income for Low-Income Populations with Administrative and Survey Data," Institute for Research on Poverty Discussion Papers 1224-01, University of Wisconsin Institute for Research on Poverty.
    11. Michael P. Keane, 1995. "A new idea for welfare reform," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 19(Spr), pages 2-28.
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    Cited by:

    1. Tim Dowd & John B. Horowitz, 2011. "Income Mobility and the Earned Income Tax Credit," Public Finance Review, , vol. 39(5), pages 619-652, September.
    2. V. Joseph Hotz & Charles H. Mullin & John Karl Scholz, 2002. "Welfare, Employment, and Income: Evidence on the Effects of Benefit Reductions from California," American Economic Review, American Economic Association, vol. 92(2), pages 380-384, May.
    3. 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.
    4. Luc Godbout & Matthieu Arseneau, 2005. "La prime au travail du Québec : Un véritable outil d'incitation au travail ou une simple façon de baisser l'impôt?," CIRANO Working Papers 2005s-01, CIRANO.
    5. Bruce D. Meyer, 2002. "Labor Supply at the Extensive and Intensive Margins: The EITC, Welfare, and Hours Worked," American Economic Review, American Economic Association, vol. 92(2), pages 373-379, May.
    6. Waldfogel, Jane, 2004. "Welfare reform and the child welfare system," Children and Youth Services Review, Elsevier, vol. 26(10), pages 919-939, October.
    7. Noonan, Mary C. & Smith, Sandra S. & Corcoran, Mary E., 2005. "Examining the Impact of Welfare Reform, Labor Market Conditions, and the Earned Income Tax Credit on the Employment of Black and White Single Mothers," Institute for Research on Labor and Employment, Working Paper Series qt7x25h6h3, Institute of Industrial Relations, UC Berkeley.

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