One Step Forward, One Step Back? Labor Supply Effects of Minimum Wage Increases on Single Parents with Public Child Care Support

Randy Albelda () and Michael Carr

No 2017_01, Working Papers from University of Massachusetts Boston, Economics Department

Abstract: Cliff effects, or high marginal tax rates, occur when low-income workers using anti-poverty supports experience an increase in earnings that results in a substantial decrease in those supports, resulting in no gain in total resources. Cliff effects create a disincentive to work more hours or take a higher paying job. To investigate labor supply responses when faced with cliff effects, we use changes in federal and state minimum wages to estimate the responsiveness of work hours for single mothers with a childcare subsidy. Using single mothers with young children who are eligible to receive a childcare subsidy but do not as a control group, we estimate difference-in-differences models using the 2008 panel of the Survey of Income and Program Participation (SIPP). We find evidence that employed mothers with subsidies reduce hours more than those without subsidies after minimum wage increases, nearly offsetting the earnings increase.

Pages: 41 pages
Date: 2017-09
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