QUARTERLY JOURNAL OF ECONOMICS
The largest change in the work incentives of single mothers between 1984 and 1996 was a tenfold increase in credits through the Earned Income Tax Credit (EITC). Only working families (primarily those with children) receive the EITC, so its expansion increased the incentive for single mothers to work. We analyze not only the federal EITC, but other federal income tax changes, state income taxes, and state EITCs, as well. The Medicaid pro- gram also greatly expanded during this period. Between 1984 and 1994 the number of children receiving health coverage through Medicaid increased 77 percent, while the number of covered adults with dependent children increased 35 percent. The expan- sions increased coverage for nonwelfare families with incomes near the poverty line, thus making work more attractive for low-income single mothers. Cash assistance to single parents through Aid to Families with Dependent Children (AFDC) also changed quite dramatically over this period. Nearly every state experimented with changes, often under federal waivers of the existing AFDC rules. These changes typically imposed work re- quirements, time limits, or other measures to encourage single mothers to work. We also investigate the effects of other changes to the AFDC and Food Stamp programs, including changes in benet levels, earnings disregards, and benet reduction rates. Finally, we examine the effects of changes in child care and training programs during this period.
Our main research strategy identies the effects of these policies on single mothers’ labor supply through the differential treatment of single mothers and single women without children under welfare and tax laws. However, the richness of these policy changes allows us to consider additional specications that focus on narrower sources of variation, including differences among single mothers in their numbers and ages of children, and differ- ences across states in their taxes, benets, and living costs. These sources of variation are likely to be unrelated to underlying differences across individuals in their desire to work, and thus are likely to be exogenous to labor supply decisions. We also develop a new methodology for summarizing the key features of the complex, nonlinear budget sets created by policies such as the EITC, Medicaid, and AFDC.
Understanding the relationship between the changes in gov- ernment policies and the increases in the labor supply of single mothers during this period is important for several reasons. First, these changes in policies provide a plausible source of exogenous