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1104

QUARTERLY JOURNAL OF ECONOMICS

and 1.4 percentage points during the year over the 1984 –1996 period. These numbers are equivalent to 28.4 percent of the relative increase in weekly employment and 12.2 percent of the relative increase in annual employment of single mothers over the period.

In results not shown, we recalculate the shares of the em- ployment increase due to various policies using the parameter estimates from specications with only single mothers (specica- tions (2) and (6) of Table V). These results suggest a much smaller role for the EITC and other tax changes in explaining the changes in employment, ranging from 49 to 56 percent as large as those in Table VI. Changes in the maximum welfare benet are less important, while the results for welfare waivers, job training, and child care are largely unchanged.

VIII. CONCLUSIONS

Between 1984 and 1996 tax and transfer policy were reori- ented to encourage work by single mothers. Single mothers have responded to these incentives by working more, especially after 1991 and especially those with children under six. To assess which policy changes have led to the employment increases, we examine the incentives of federal and state income taxes, AFDC, Medicaid, Food Stamps and their implicit tax rates, and earnings disregards, as well as AFDC waivers instituting time limits or work requirements. Our detailed examination of these policy changes using two large micro data sets indicates that EITC and other tax changes account for over 60 percent of the 1984 to 1996 increase in the weekly and annual employment of single mothers relative to single women without children. Changes to welfare programs were less important but still account for a substantial share of the employment increases. Changes in Medicaid, train- ing, and child care programs play a considerably smaller role. These ndings are conrmed in an analysis of hours worked.

This paper makes several methodological improvements over past research, including the estimation of a simple structural model of employment which provides several independent tests of the hypothesis that single mothers respond to economic incen- tives. Our results indicate that nancial incentives have powerful effects on single mothers’ employment decisions and that the different sources of these incentives have effects of plausible magnitudes. We also nd a sizable transaction cost or stigma to

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