The EITC and Employment Transitions: Labor Force Attachment and Annual Exit

Riley Wilson

National Tax Journal, 2020, vol. 73, issue 1, 11-46

Abstract: Many low-income households experience high-frequency labor market transitions. It is unclear how the earned income tax credit (EITC) work incentives affect these frequent entry and exit decisions. Exploiting the panel nature of the Current Population Survey (CPS), I show that EITC expansions induce less-educated single women with previous work experience to work more months, leading to more annual weeks worked and less annual exit, suggesting the EITC operates, in part, by keeping previously employed single women in the labor force. Employment responds to changes in the previous year’s EITC, consistent with people learning about how the returns to work have changed and then responding.

Date: 2020
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