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1092

QUARTERLY JOURNAL OF ECONOMICS

work of 1.07 for any employment during the year and 0.83 for work in an average week. We also estimated specications with separate coefcients on state and federal income taxes, although for brevity these full estimates are not reported here. The results for federal taxes were similar to all taxes, while the derivative (standard error) for state income taxes was a large and signicant

0.0336 (0.0083) in the ORG sample and a smaller and insigni-

cant

0.0165 (0.0139) in the March sample. Thus, while the state

tax estimates are much less precise and differ in the two samples, they give the same message as the other tax coefcients; i.e., that

the labor supply of single mothers responds to taxes.

B. Welfare

The full sample specications of columns (1) and (5) also indicate substantial effects of welfare on employment. A one thousand dollar reduction in the annual Welfare Maximum Bene-

  • t (the AFDC plus Food Stamp benet a women receives if she

does not work) increases employment last week by 3.4 percentage points, and increases employment last year by 3.0 percentage points. This calculation holds constant the other welfare vari- ables, Welfare Benets if Work and Probability of AFDC Receipt if Work, that generally change with the maximum benet. The Welfare Benets if Work effect is sizable, implying that a one thousand dollar increase in benets when one works increases employment last week by 7.2 percentage points and last year by 5.7 percentage points. These estimates suggest substantial posi- tive employment effects of reductions in implicit tax rates and increases in earnings disregards.

The transaction costs or stigma of welfare receipt as mea- sured by the Probability of AFDC Receipt if Work variable is negative and signicantly different from zero as expected (see equation (5)). The magnitude of this coefcient can be gauged by comparing it with the coefcients on the variables denominated in thousands of dollars. Such comparisons suggest a transaction cost of several thousand dollars, with the exact number depend- ing on the employment measure and the income variable used. For example, using the Welfare Benets if Work coefcient in the ORG sample yields a transaction cost estimate of $2571, while the March sample implies an estimate of $3051. This result agrees with past studies as well as ethnographies that have tended to nd substantial transaction costs or stigma of welfare receipt.

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