Effects of Social Policy Reforms and the Economy on Welfare Participation and Employment Among Single Mothers

Abstract

Child care subsidies and the Earned Income Tax Credit (EITC) are vital government tools for increasing employment and reducing poverty among low-income families. This dissertation, therefore, explores many features of these policies, including their evolution, correlates of participation, and impacts on employment. Chapter 1 provides an overview of child care subsidies and the EITC, focusing on recent policy developments, labor supply incentives, and a critical review of the empirical employment literature.

Chapter 2 explores why, despite substantial growth in funding, participation in child care subsidy programs remains comparatively low. Results suggest that although 30 percent of households with children are eligible for child care subsidies, take-up is 14 percent. The low take-up rate is driven by several factors: eligible non-recipients differ from recipients in ways that make subsidies unnecessary or undesirable; the practice by states to trade-off generosity in eligibility for additional generosity in benefits; and the practice by states to ration benefits according to specific household characteristics.

Chapter 3 examines the effects of child care costs and net-of-taxes wages on the employment of single mothers. Although a substantial literature estimates separately the impact of prices and taxes, no study has created a modeling framework that accounts for both factors simultaneously. Merging empirical techniques from previous child care and EITC studies yields employment elasticities of -0.174 and 0.711, respectively. An implication of this finding is that price-effects are considerably smaller than those reported elsewhere, while tax-effects accord with previous estimates. Results also suggest that single mothers became less responsive to prices and more responsive to taxes throughout the 1990s, especially after expansions to subsidy programs and the EITC.

Chapter 4 investigates heterogeneous employment effects of social policy reforms across varying economic conditions. Allowing the effects of policy reforms on single mothers to vary with the economy leads to several interesting results. Policy "carrots" are more likely to reveal heterogeneous effects at low intensity work margins, while policy "sticks" show significant variation at increasingly demanding margins. However, all policies produce the largest employment effects in favorable economic conditions, implying that a strong economy reinforces the incentives created by social policy reforms.