LABOR SUPPLY DIFFERENCES BETWEEN MARRIED HETEROSEXUAL WOMEN AND PARTNERED LESBIANS: A SEMI‐PARAMETRIC DECOMPOSITION APPROACH

Using 2000 U.S. Census data we illustrate the importance of accounting for household specialization in lesbian couples when examining labor supply differences between heterosexual married and partnered lesbian women. Specifically, we find the labor supply gap is substantially larger between married women and partnered lesbian women who specialize in market production (primary earners) than between married women and partnered lesbian women who specialize in household production (secondary earners). Applying a semi‐parametric decomposition approach we show that controlling for children significantly reduces the gap between married women and secondary lesbian earners both in terms of the decision to remain attached to the labor market (the extensive margin) and annual hours of work conditional on working (the intensive margin). Further, the effect of controlling for children primarily reduces the percentage of secondary lesbian earners working extremely high annual hours. (JEL J15, J16, J22)     

The EITC and the labor supply of adult dependents: direct effects and family income effects

Tax data suggest that the population of adult dependents—adults relying on the support of others for the majority of their financial needs—has more than doubled over the last decade. However, little is known about how taxes affect the labor supply decisions of this population. This paper provides an initial investigation, studying the impact of the Earned Income Tax Credit (EITC) expansions of the early 1990s on the labor supply of adult dependents living with their relatives. I find that dependent individuals who were not a part of the nuclear family responded to the EITC expansions, increasing labor force participation by about 5 percentage points. For adult children, I show that the absence of a net response is likely due to an unexpected consequence of the EITC: expanded family credits led to a decrease in their labor force participation.     

Tax incentives and family labor supply in Austria

The family policy reform 2009 introduced tax deductibles for children and child care expenditures in Austria. In this paper we evaluate this reform based on a structural labor supply model with unitary households which has been estimated on the European Statistics on Income and Living Conditions cross-sections 2004–2008. We find that the reform had only small employment effects, most of them being generated through the introduction of a child care deductible. However, to illustrate the employment potential of a shift from universal child transfers to tax deductibles we propose additional simulations showing that such a policy shift would yield an increase in full time equivalents of approximately .70 % of overall employment, with married females increasing their labor supply by up to 1.5 %. While the proposed policy shifts have regressive effects in terms of their distributional impact, we show that phasing-out the tax deductible at higher income allows for the compensation of lower-income households without jeopardizing positive employment effects.     

Redistributing Income and Relative Efficiency

This article considers the relative efficiency of marginally redistributing income from high- to low-income households. Additional spending on a negative income tax is compared with spending on an earnings or a wage subsidy. One set of reforms imposes the same burden on the nonpoor, and another set redistributes the same net benefit to the working poor. Additional spending on a negative income tax is more efficient than spending a similar amount on an earnings subsidy (the Earned Income Tax Credit), for some reforms and parameters. The wage subsidy is the most efficient, independent of parameters or type of reform.     

SOCIAL SECURITY AND RETIREMENT DECISIONS

One of the most striking features of the postwar U.S. economy has been the rapid decrease in the labor force participation of the elderly at a time when the health of this group has been improving. In spite of this, previous research, based on retrospective interviews with the retired population, usually concludes that poor health accounts for the overwhelming majority of retirements. This paper suggests that nothing could be further from the truth. Using data from the Panel Study of Income Dynamics, we follow a cohort of white married males through their sixties to estimate a model of retirement behavior. Using several definitions of retirement suggested in the literature, we find that the two key policy parameters of the social security system—the income guarantee and the implicit tax on earnings—exert an enormous influence on retirement decisions. For example, our results suggest that a decrease in the implicit tax rate on earnings from one-half to one-third would reduce the annual probability of retirement by about fifty percent! Applying the coefficient estimates to time series data on the labor force participation of the elderly implies that the social security system has been the major factor in the explosion in earlier retirement.     

The Earned Income Tax Credit and Rural Families: Differences Between Non-participants and Participants

Differences between rural low-income mothers who were non-participants and participants in the Earned Income Tax Credit (EITC) were examined. About one-third (35%) of the 224 eligible mothers in a multi-state USDA study, Rural Families Speak, did not claim the tax credit. The EITC non-participants were more likely to be Hispanic, be less educated, have larger families, perceive their income as being inadequate, live in more rural counties, and possess little understanding of the EITC. Participating mothers were more likely to be single, food secure, and satisfied with life. Analysis of qualitative data revealed that the mothers had many misconceptions about the EITC. These findings assist in formulating policies and outreach efforts that may increase rural low-income families’ EITC participation.     

Income Mobility and the Earned Income Tax Credit

Households who work full-time at minimum wage jobs earn more than the phasein range of the Earned Income Tax Credit (EITC). This means that the EITC mainly acts as a negative income tax. However, most families are eligible to receive the EITC for a relatively short time. Seventy-four percent of new EITC families will lose their eligibility in two years or less. Sixty-one percent of families already on the EITC will lose their eligibility in three years or less. EITC families are much more mobile than AFDC families. The main reason that families gain or lose EITC eligibility is changes in earnings.     

Labor Force Participation and Socioeconomic Status*

This study examined the relationship between labor force participation by more than one family member and the socioeconomic status of the family, as measured by the Census SES score. The data were derived from a special tabulation of the 1960 Census five percent sample tape. In general, labor force participation by more than one family member was associated with higher SES scores in both white and Negro families. Multiple wage earners in white families were associated with “above the middle” level scores, whereas in Negro families multiple wage earners appear to contribute to barely or almost attaining middle level scores.     

The earned income tax credit and union formation: The impact of expected spouse earnings

Using the Survey of Income and Program Participation from 2001, 2004, and 2008 and federal and state variation in earned income tax credit generosity over time, I investigate how changes in expected household earned income tax credit benefits associated with marriage affect cohabitation and marriage behavior among low-income single mothers. I simulate a marriage market to predict potential spouse earnings for a sample of single mothers in order to estimate the potential losses or gains in earned income tax credit benefits upon marriage. Using multinomial logistic regressions, I then analyze how the anticipated loss in earned income tax credit benefits upon marriage affects the likelihood of marrying or cohabiting. Results suggest that the average earned income tax credit-eligible woman can expect to lose approximately US$1,300 in earned income tax credit benefits in the year following marriage, or about half of pre-marriage benefits. Single mothers who expect to lose earned income tax credit benefits upon marriage are 2.5 percentage points less likely to marry their partners and 2.5 percentage points more likely to cohabit compared to single mothers who expect no change or to gain earned income tax credit benefits upon marriage. Despite recent policy efforts to reduce the size of the marriage penalty embedded in the earned income tax credit structure, these results suggest that the earned income tax credit still creates distortions in marriage and cohabitation decisions among low-income single mothers.     

The labor supply of married women and spousal tax deductions in Japan—a structural estimation

The Japanese tax system offers an opportunity to investigate the labor supply response of married women to the income tax and the intrahousehold resource allocation mechanism, since the deductible amount from the husband’s income decreases as the wife’s earnings increase. Using cross-section data, I structurally estimate the labor supply of married women under the piece-wise linear budget constraint created by the Japanese tax and social security system. I find that the wife’s labor supply response to her husband’s decreasing deduction tends to be greater than the response to her own income tax. This suggests that not only the unitary model is rejected but also that female labor is allocated inefficiently within a family. Finally, this study shows that the choice of household model affects the predicted effect of policy reform and that the currently proposed reforms will have less of an effect on the labor supply of married women than previous studies claim.

Shacking Up or Shelling Out: Income Taxes,Marriage, and Cohabitation

Anecdotal evidence suggests that the income tax penalty associated with marriage contributes to the decision of a couple to live together as a married vs. a cohabiting couple. In this paper, we use household data from the Panel Study on Income Dynamics to estimate the impact of various factors, including the federal individual income tax, on a couple's decision to marry instead of cohabit. We find that the initial decision to form either a cohabiting or a married union is only marginally affected by the income tax consequences of one form of union vs. another, and other factors play a more important role. However, for those already living together as a cohabiting couple, the decision to make the transition from a cohabiting to a married couple is significantly affected by the tax consequences of such a move. Here, an increase in the income tax at legal marriage, or an increase in the marginal tax rate with marriage, has a statistically significant and negative impact on the probability of transition from cohabitation to legal marriage. However, the magnitude of the tax impact is generally small, and several other variables are more important determinants.     

THE LIFE-CYCLE LABOR SUPPLY OF MARRIED WOMEN AND ITS IMPLICATIONS FOR HOUSEHOLD INCOME INEQUALITY

In a life-cycle model of married womens' labor supply the husband's expected lifetime income should have a greater effect on his wife's labor supply than should his current income. Using the Panel Study of Income Dynamics data, the husband's average lifetime income (over the panel years) does have a greater negative income effect than current income. However, this income effect has declined over time: the labor supply of wives is becoming less sensitive to their husbands' incomes. This declining elasticity would cause household income inequality to worsen over time, but has been offset by other factors.     

State TANF Time Limit and Work Sanction Stringencies and Long-Term Trajectories of Welfare Use,Labor Supply,and Income

While the 1996 welfare reform increased employment and reduced the participation of the Temporary Assistance for Needy Families (TANF) program immediately after its inception, little is known about the extent to which the reform and stringencies of time limit and work sanction policy features have impacted individuals in the long term. This study used the Survey of Income and Program Participation 1996, 2001, and 2004 panels (1996–2007) and a difference-in-difference-in-difference design to follow low-skilled single mothers’ trajectories of welfare use, labor supply, and income for 10 years after the welfare reform and compare how these trajectories differ by stringencies of state work sanction and time limit policies. The findings indicate that welfare reform had sustained impacts on reducing welfare use (TANF and the Supplemental Nutrition Assistance Program [SNAP] program) and increasing employment. Stringent work sanction and time limit policies were associated with lower TANF participation rates in the long term, but only short time limit policies were associated with reduced SNAP participation. Neither stringent policy feature increased employment nor income. The differential effects by race were also examined and discussed.

     

The economic safety net for low-income families with children

Following the passage of welfare reform in the mid-1990s and the end of entitlement benefits under Temporary Assistance for Needy Families, the U.S. economic safety net has become increasingly individualized. In fact, it is no longer clear whether low-income families tend to rely on particular types of public benefits, or whether there are characteristics that differentiate benefit “packaging”.This study examines the combinations of various income sources comprising economic safety nets for low-income families participating in the Fragile Families and Child Wellbeing Study. The income sources we explore include earnings, child support, Temporary Assistance for Needy Families (TANF), Supplemental Nutritional Assistance Program (SNAP) benefits, childcare subsidies, unemployment insurance (UI) benefits, Supplemental Security Income (SSI), the Earned Income Tax Credit (EITC), housing subsidies, and Medicaid. We use cluster analysis to determine the most common patterns of income and benefit sources, and identify four distinct clusters of income and benefits that are associated with different family demographic characteristics. The findings from this investigation may be useful to social service programs as they attempt to identify relevant safety net resources for economically struggling families, and to policymakers attempting to reconcile requirements associated with programs and benefits that are regularly combined by beneficiaries.     

Re-examining female labor supply responses to the 1994 Australian pension reform

Many governments are aiming to extend working lives by raising the age at which people can claim retirement pensions. This makes it vital to understand how these policies affect retirement decisions. In this paper, I revisit the labor supply effects of a major Australian reform that increased women’s pension age from 60 to 65. Atalay and Barrett (2015) studied these effects using repeated household surveys and a differences-in-differences design in which male cohorts form the comparison group. They estimate that the reform increased female labor force participation by 12 percentage points. Using earlier data, I show that the parallel-trends assumption did not hold before the reform because of a strong female-specific trend in participation rates across the relevant cohorts. Accounting for this trend, the estimated effect on female participation falls by two-thirds and becomes statistically insignificant at conventional levels. This highlights the importance of carefully assessing and controlling for trends across cohorts when evaluating pension reforms, which are typically phased in across cohorts.

     

Income Volatility and Family Structure Patterns: Association with Stability and Change in Food Stamp Program Participation

Using the Fragile Families and Child Well-Being Study, this research investigated how income volatility and family structure patterns influence participation patterns of stability and change in Food Stamp Program participation among a sample of young families (n = 1,263). Multinomial logistic regression models suggested that families that experienced significant declines in income were more likely to persistently participate and initiate participation than to never participate. Furthermore, stably married families were more likely to never participate; while other stable family structures (cohabitating couples and singles) and transitional unions were associated with persistent participation compared to other participation patterns. Immigration status, health, multiple indicators of economic hardship, and participant access rates were also significant in predicting patterns of participation. Strategies to increase participation are discussed.     

The value of the second income to two-earner families with children

An increasing number and percentage of families in the United States endeavor to improve family income by placing two adults in the paid work force. This study examines the impact of the second earner on family income for 1,624 married-couple families with children, including 871 one-earner and 753 two-earner families. After-tax income is regressed on one- or two-earner status as well as covariates which confound the income-earner relationship for families of various income levels. The actual after-tax income differential of $7,172 is reduced to $6,076 in the regression analysis. Further, income for each family type is estimated by applying the regression coefficients from one-earner households to the characteristics of two-earner households and the regression coefficients from two-earner households to one-earner household characteristics. Actual incomes for two-earner families are found to be higher than those of one-earner families. However, income differences are reduced from 34% higher actual before-tax income to an estimated 14% lower after-tax income. The findings have important implications for families selecting two earners solely for the purpose of increasing after-tax income.This study received funding from the Graduate School Fund at Northern Illinois University. An earlier version of this paper was presented at the Family Economics/Home Management Conference, Indianapolis, IN, June 1987.Mary Pritchard is an Assistant Professor, Department of Human and Family Resources, Northern Illinois University, DeKalb, IL 60115. She received her Ph.D. from Purdue University and includes family economic well-being, family income and expenditures, and spending patterns of adolescents among her research interests.     

Non-income effects of welfare receipt on early childhood cognitive scores

Child poverty in America has become an enduring part of the social landscape that many families must navigate. As prior research has established that income transfers can affect child outcomes, we focus our attention on the conditions under which these transfers occur. Using panel data from the Fragile Families and Child Wellbeing Study, we examine the non-income effects of TANF participation on children's early cognitive development using methods to address statistical concerns about endogeneity and selection. Our results indicate that participating in TANF is negatively associated with cognitive development. Furthermore, we are able to identify maternal stress as a viable causal pathway between TANF receipt and cognitive development, a result that we are unable to replicate with a falsification test involving the Earned Income Tax Credit (EITC). Our results suggest that the structure of cash transfers may have effects on early childhood outcomes.     

Options for balancing the OASDI Trust Funds for the long term

This article explores policy alternatives that can bring Social Security (OASDI) into long-term balance. The alternatives conform to long-standing principles that benefits are: an earned right, related to pay and time in the workforce, not based primarily on need; and related to annual changes in the cost of living. Furthermore, the OASDI is self-financed, employers and employees contribute equally, and participation is compulsory. In order to maintain public support, the policy alternatives also spread the "pain" of change between workers and beneficiaries, maintain income replacement rates for low-income earners, and retain a positive correlation between taxes and benefits. The article discusses varying four policy parameters to balance the funds: the primary insurance amount, the cost-of-living adjustment; the normal retirement age; and the payroll tax rate. Only by changing several policy parameters can all the objectives be satisfied. Discussed in detail are three scenarios, each of which includes a COLA cut and a pay-as-you-go FICA tax rate.     

REAL WAGE AND EMPLOYMENT UNCERTAINTY AND THE LABOR FORCE PARTICIPATION DECISIONS OF MARRIED WOMEN

This paper argues that an important factor in a married woman's decision to enter the labor force is the degree of uncertainty associated with expectations offuture wages and (husband's) income, and that high levels of uncertainty during the 1970s may have contributed substantially to the growth in participation in that decade. We apply a model of autoregressive conditional heteroskedasticity to aggregate time series data to measure the level of uncertainty in each period. Our estimates support our hypothesis that the level of uncertainty is an important determinant of labor force participation for married women.