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THE LABOR SUPPLY OF SINGLE MOTHERS

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variation with which to identify the effects of tax and welfare parameters on labor supply. The magnitudes of these effects are key determinants of the gains or losses from changes in income redistribution and social insurance policies.

Second, understanding the effects of government policies during the 1984 –1996 period has taken on more importance due to the passage of the Personal Responsibility and Work Opportu- nity Reconciliation Act of 1996 (PRWORA). In 1997, PRWORA replaced the main cash assistance program for single mothers, AFDC, with Temporary Assistance for Needy Families (TANF). The increased state discretion under the new law combined with political changes has led to welfare reform which discourages welfare receipt and often diverts potential welfare recipients from traditional programs. These reforms are difcult if not impossible to characterize using a few variables. It is likely that many of the policies examined in this paper will be harder and more problem- atic to analyze using post-PRWORA data. 1

Third, there is surprisingly little previous work that esti- mates the effects of the EITC, Medicaid, or welfare changes on whether single mothers work. The only paper that directly exam- ines how the EITC affects single mothers’ labor supply is Eissa and Liebman [1996], which examines the effect of the Tax Reform Act of 1986.2 In his discussion of the labor supply effects of Medicaid, Moftt [1992] argues that there has been too little work to draw reliable conclusions.3 Moftt describes the labor supply effect of AFDC as being subject to considerable uncertainty and notes that the broader labor supply literature has examined single mothers “only rarely.”4 Dickert, Houser, and Scholz [1995] argue that this literature provides little guidance as to how the EITC will affect labor market participation, and that this omis- sion is especially important because past work suggests that most

1. See Ellwood [2000], National Research Council [1999], and Jencks and Swingle [2000] for related arguments.

2. Several papers use labor supply parameters estimated from the negative income tax experiments and other sources to simulate the effects of the EITC including Hoffman and Seidman [1990], Holtzblatt, McCubbin, and Gillette [1994], Browning [1995], and Dickert, Houser, and Scholz [1995]. Dickert, Houser, and Scholz estimate the effect of the after-tax wage and welfare programs on participation using a cross section of data from the 1990 panel of the Survey of Income and Program Participation (SIPP). They then apply these results to simulate the effects of the EITC on participation. Eissa and Hoynes [1998] examine the effects of the EITC on the labor supply of married couples.

3. See Blank [1989], Winkler [1991], and Moftt and Wolfe [1992], in particu- lar. The more recent work of Yelowitz [1995] examines the 1988 to 1991 period.

4. See Danziger, Haveman, and Plotnick [1981], and Moftt [1992].

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