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THE LABOR SUPPLY OF SINGLE MOTHERS

1089

effects of tax and welfare policy on the probability that a woman works. These specications provide estimates of the parameters in expression (5) of Section II, and can be used to obtain estimates of the effects of the different policy changes during the 1984 –1996 period. These specications also provide coefcients that can be used to summarize the effects of a wide range of policies and that can be used to simulate other policies. In addition to the variables shown in Table IV, each of these probits include the control variables reported in Table III (except for the YEAR ANY- CHILDREN interactions) along with a large number of family

composition variables listed variables imply that we are family types to identify our

in the table notes. These control not using simple differences across coefcients. We are using changes

over

time

or

differences

across

states

in

how

different

families

are

treated. We (1) and (5).

focus

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All of the coefcients on the income variables have the signs that are implied by our simple structural model and are signi- cantly different from zero.21 Lower taxes and maximum welfare benets increase employment, while higher welfare benets if a woman works (due to lower implicit taxes on earnings) increase employment. Rather than restricting the income variables to enter the work/nonwork decision as a single expected income variable, we have allowed the coefcients on the different compo- nents of income to differ. It is, thus, encouraging that the coef- cients on the income tax and welfare variables have roughly the same magnitude, as expected. The one exception to this rule is that the coefcient on Welfare Benets if Work in the weekly employment equation is substantially larger than the other in- come coefcients.

A. Taxes

The Income Taxes if Work coefcient implies that a one thousand dollar reduction in income taxes if a woman works increases employment last week by 2.7 percentage points, and increases employment last year by 4.5 percentage points. Both of these effects are strongly signicant. These coefcients indicate elasticities of the participation rate with respect to the return to

21. We examined the importance of allowing for correlation among the error terms at the level of state year ANYCHILDREN using STATA. These standard errors are very close to those without this correction for clustering.

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