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WELFARE, THE EARNED INCOME TAX CREDIT, AND THE LABOR SUPPLY OF SINGLE MOTHERS*

BRUCE D. MEYER AND DAN T. ROSENBAUM

During 1984–1996, welfare and tax policy were changed to encourage work by single mothers. The Earned Income Tax Credit was expanded, welfare benets were cut, welfare time limits were added, and welfare cases were terminated. Medicaid for the working poor was expanded, as were training programs and child care. During this same time period there were unprecedented increases in the employment and hours of single mothers. We show that a large share of the increase in work by single mothers can be attributed to the EITC and other tax changes, with smaller shares for welfare benet cuts, welfare waivers, training programs and child care programs.

I. INTRODUCTION

Between 1984 and 1996, changes in tax and transfer pro- grams sharply increased the incentive for single mothers to work. During this same period, single mothers began to work more as their weekly employment increased by about six percentage points and their annual employment increased by nearly nine percentage points. Other groups, such as single women without children, married mothers, and black men, did not experience similar gains in employment over this period (see Meyer and Rosenbaum [2000a]). These facts lead us to examine whether the changes in tax and transfer programs were responsible for single mothers working more and what changes were the most important.

  • *

    We thank Joseph Altonji, Timothy Bartik, Rebecca Blank, Janet Currie,

Steven Davis, Jeffrey Liebman, Thomas MaCurdy, Leslie Moscow, Derek Neal, Julie Rosenbaum, Christopher Ruhm, John Karl Scholz, seminar participants at the Association for Public Policy Analysis and Management Annual Meetings, University of California at San Diego, the Federal Reserve Board, the Institute for Research on Poverty, the Manpower Demonstration Research Corporation, the University of Maryland, the National Association for Welfare Research and Sta- tistics Annual Meetings, the National Bureau of Economic Research, the National Tax Association annual meetings, Northwestern University, Syracuse University, Texas A & M University, the Urban Institute, and the University of Wisconsin and many others for comments. We have been greatly aided by help with data and program details by Daniel Feenberg, Linda Giannarelli, Laura Guy, Phillip Le- vine, Robert McIntire, Steve Savner, Jill Schield, and Aaron Yelowitz. Brian Jenn and Christopher Jepsen provided excellent research assistance. This research has been partly supported by the Northwestern University/University of Chicago Joint Poverty Center, the Household International, Inc. Chair in Economics and the National Science Foundation (Meyer), and a Research Training Fellowship in Urban Poverty funded by the National Science Foundation and Northwestern University (Rosenbaum).

© 2001 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology. The Quarterly Journal of Economics, August 2001

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