Has "In-Work" Benefit Reform Helped the Labour Market?

The aim of this paper is to examine the labour market impact of in-work benefit reform in the UK. Evidence is drawn from the impact of earlier reforms in the UK and similar reforms in the US. We focus on the impact on labour supply -- employment and hours of work. In the US a large proportion of the dramatic increase in participation among low educated single parents in the 1990s has been attributed to the increased generosity of the EITC. The impact of apparently similar reforms in the UK appears to have been smaller. We argue that these differences can be attributed to four factors: the impact of interactions with other means tested benefits in the UK; the importance of workless couples with children in the UK, who make up nearly 50% of the recipients in the UK; the level of income support given to non-working parents; and the strength of the economic upturn in the US during the 1990s.

The state of the safety net in the post-welfare reform era

The passage of the 1996 welfare reform bill led to sweeping changes to the central U.S. cash safety net program for families with children. Importantly, along with other changes, the reform imposed lifetime time limits for receipt of welfare de facto ending the entitlement nature of cash welfare for poor families with children in the United States. Despite dire predictions about poverty and deprivation, the previous research shows that caseloads declined and employment increased, with no detectible increase in poverty or worsening of child-well-being. We re-evaluate these results in light of the severe recession which began in December 2007. In particular, we examine how the cyclicality of the response of program caseloads and family wellbeing has been altered by the implementation of welfare reform. We find that use of food stamps and non-cash safety net program participation have become significantly more responsive across economic cycles after welfare reform, going up more after reform when unemployment increases. By contrast, there is no evidence that cash welfare for families with children is more responsive after reform, and some evidence that it might be less so. There is some evidence that poverty increases more with the unemployment rate after reform (and no evidence that poverty increases less with unemployment after reform). We find that reform has led to no significant effects on the cyclical responsiveness of food consumption, food insecurity, health insurance, household crowding, or health.Public welfare ; Welfare

Tax Rates and Work Incentives in the Social Security Disability Insurance Program: Current Law and Alternative Reforms

The Social Security Disability Insurance (SSDI) Program has long been criticized by economists for its apparent work disincentives stemming from the imposition of 100-percent tax rates on earnings. However, the program has been modified in recent years to allow recipients to keep some of their earnings for fixed periods of time. Moreover, additional proposals have been made for lowering the tax rate further and for providing various additional financial work incentives. We use the basic labor supply model to show the expected effect of these reforms on work effort. In addition, we provide a numerical simulation that shows the magnitude of the monetary incentives provided by the reforms for different categories of individuals. We find that the proposed reforms have ambiguous effects on work effort and could, contrary to perceived wisdom, possibly reduce work effort and increase the number of SSDI recipients. However, the simulations show that reforms based on earnings subsidies for private employers are more likely to increase work effort and to lower the caseload.

Behavioral Responses to Taxes:Lessons from the EITC and Labor Supply

Twenty-two million families currently receive a total of $34 billion dollars in benefits from the Earned Income Tax Credit (EITC). In fact, the EITC is the largest cash transfer program for lower-income families at the federal level. An unusual feature of the credit is its explicit goal to use the tax system to encourage and support those who choose to work. A large body of work has evaluated the labor supply effects the EITC and has generated several important findings regarding the behavioral response to taxes. Perhaps the main lesson learned from the evidence is the confirmation that real responses to taxes are important; labor supply does respond to the EITC. The second major lesson is related to the nature of the labor supply response. A consistent finding is that labor supply responses are concentrated along the extensive (entry) margin, rather than the intensive (hours worked) margin. This distinction has important implications for the design of tax-transfer programs and for the welfare evaluation of tax reforms.labor supply

The Impact of Demographics on Housing and Non-Housing Wealth in the United States

Equity in housing is a major component of household wealth in the United States. Steady gains in housing prices over the last several decades have generated large potential gains in household wealth among homeowners. Mankiw and Weil (1989) and McFadden (1993b) have argued that the aging of the US population is likely to induce substantial declines in housing prices, resulting in capital losses for future elderly generations. However, if households can anticipate changes in housing prices, and if they adjust their non-housing savings accordingly, then welfare losses in retirement could be mitigated. This paper focuses on two questions: (1) Are housing prices forecastable from current information on demographics and housing prices?; and (2) How are household savings decisions affected by capital gains in housing? We use metropolitan statistical area (MSA) level data on housing prices and demographic trends during the 1980's and find mixed evidence on the forecastability of housing prices. Further, we use data on five-year savings rates from the Panel Study of Income Dynamics and find no evidence that households engage in changing their non-housing savings in response to expectations about capital gains in housing. Thus, the projected decline in housing prices could result in large welfare losses to current homeowners and large intergenerational equity differences.

The Employment, Earnings, and Income of Less Skilled Workers Over the Business Cycle

In this paper, I examine the effect of business cycles on the employment, earnings, and income of persons in different demographic groups. I classify individuals by sex, education, and race. The analysis uses data from the Current Population Survey's Outgoing Rotation Group file, covering the period 1979-1992, and March Annual Demographic files (ADF) covering the period 1975-1997. Many different individual and family outcome measures are considered including: employment to population ratios, weekly earnings, hourly earnings, annual hours, annual earnings, family earnings, family transfer income, and total family income. The regression model is specified such that the key parameters measure how the labor market outcomes of less skilled workers vary with the business cycle relative to the variability for high skill groups. The analysis uses variation across MSAs in the timing and severity of shocks. The results consistently show that individuals with lower education levels, nonwhites, and low skill women experience greater cyclical fluctuation than high skill men. These results are the most striking when examining comprehensive measures of labor force activity such as the likelihood of full-time year around work. Government transfers and the earnings of other family members decrease the differences between groups, as business cycles have more skill-group neutral effects on family income than individual earnings. The paper examines the stability of these results by comparing evidence across the 1982 and 1992 recessions. The evidence suggests that the 1992 recession led to more uniform effects across skill groups than earlier cycles.

Consumption Responses to In-Kind Transfers: Evidence from the Introduction of the Food Stamp Program

Economists have strong theoretical predictions about how in-kind transfer programs -- such as providing vouchers for food -- impact consumption. Despite the prominence of the theory, there has been little empirical work documenting actual responses to in-kind transfers. In this work, we leverage previously underutilized variation in the date of the county-level original implementation of the Food Stamp Program in the 1960s and early 1970s. Using the Panel Study of Income Dynamics, we employ difference-in-difference methods to estimate the impact of program availability on food spending, labor supply and family income. Consistent with theoretical predictions, we find that the introduction of food stamps leads to a decrease in out of pocket food spending, an increase in overall food expenditures, and a decrease (although insignificant) in the propensity to take meals out. The results are quite precisely estimated for total food spending, with less precision in estimating the impacts on out of pocket food costs. We find evidence of small work disincentive impacts in the PSID, which is confirmed with an analysis of the 1960, 1970 and 1980 Census.