The Marginal Labor Supply Disincentives of Welfare: Evidence from Administrative Barriers to Participation

Robert Moffitt and Matthew V. Zahn

Economics Working Paper Archive from The Johns Hopkins University,Department of Economics

Abstract: Existing research on the static effects of the manipulation of welfare program benefit parameters on labor supply has allowed only restrictive forms of heterogeneity in preferences. Yet preference heterogeneity implies that the marginal effects on labor supply of welfare expansions and contractions may differ in different time periods with different populations and which sweep out different portions of the distribution of preferences. A new examination of the heavily studied AFDC program uses variation in state-level administrative barriers to entering the program in the late 1980s and early 1990s to estimate the marginal labor supply effects of changes in program participation induced by that variation. The estimates are obtained from a theory-consistent reduced form model which allows for a nonparametric specification of how changes in welfare program participation affect labor supply on the margin. Estimates using a form of local instrumental variables show that the marginal treatment effects are quadratic, rising and then falling as participation rates rise (i.e., becoming more negative then less negative on hours of work). The average work disincentive is not large but that masks some margins where effects are close to zero and some which are sizable. Traditional IV which estimates a weighted average of marginal effects gives a misleading picture of marginal responses. A counterfactual exercise which applies the estimates to three historical reform periods in 1967, 1981, and 1996 when the program tax rate was significantly altered shows that marginal labor supply responses differed in each period because of differences in the level of participation in the period and the composition of who was on the program.

Keywords: Keywords; Marginal Treatment Effects; Welfare; Labor Supply (search for similar items in EconPapers)
JEL-codes: I38 J22 (search for similar items in EconPapers)
Date: 2022-01-19
New Economics Papers: this item is included in nep-his, nep-lma and nep-ltv
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://jhir.library.jhu.edu/handle/1774.2/66674

Related works:
Working Paper: The Marginal Labor Supply Disincentives of Welfare: Evidence from Administrative Barriers to Participation (2022)
Working Paper: The Marginal Labor Supply Disincentives of Welfare: Evidence from Administrative Barriers to Participation (2022)
Working Paper: The Marginal Labor Supply Disincentives of Welfare: Evidence from Administrative Barriers to Participation (2019)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:jhu:papers:66674

Access Statistics for this paper

More papers in Economics Working Paper Archive from The Johns Hopkins University,Department of Economics 3400 North Charles Street Baltimore, MD 21218. Contact information at EDIRC.
Bibliographic data for series maintained by Humphrey Muturi ().