Welfare Reform and the Labor Market

Abstract

This article reviews the basic theoretical models that are appropriate for analyzing different types of welfare reforms, as well as the related empirical literature. We first present the canonical labor supply model of a classical welfare program and then extend this basic framework to include in-kind transfers, incomplete take-up, human capital, preference persistence, and borrowing and saving. The empirical literature on these models is presented. The negative income tax, earnings subsidies, US welfare reforms with features that differ from those in other countries, and childcare reforms are then surveyed in terms of both the theoretical models and the empirical literature surrounding each.

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

“…That would allow a better analysis of counterfactuals than can the method used here. Another is to extend the static model to dynamic models where dynamics are introduced through intertemporal elasticities of labor supply, human capital, and preference persistence (Chan and Moffitt (2018)). Yet another avenue for more model development is to add an analysis of inframarginal responses to transfer program reforms to the analysis of marginal responses, since any reform involving alteration of program parameters affects both.…”

“…The canonical static model of the labor supply response to transfers (Moffitt (1983), Chan and Moffitt (2018)) assumes utility to be…”

The PCDID Approach: Difference-in-Differences When Trends Are Potentially Unparallel and Stochastic

“…8 Effect of Waiver Programs on Welfare Caseloads DID regressions have been widely used for examining the effects of various welfare reforms on labor market outcomes (see e.g., Chan and Moffitt (2018) for a recent survey). In this illustration, we examine the effects of waiver programs on caseloads in the Aid to Families with Dependent Children (AFDC) program.…”

“…For simplicity, we do not consider earnings disregards and parental responsibility waivers, which yield mixed evidence in the literature, e.g. seeChan (2013) andChan and Moffitt (2018) for details.…”

Questioning the feasibility and justice of basic income accounting for migration

“…In our model, the basic income benefit is accompanied by the introduction of an income tax to finance it. If one assumes a static labor supply model, this combination yields a decrease in labor supply (Chan and Moffitt, 2018: 350–352; Moffitt, 2002: 2402–2408). However, the impact of basic income on hours worked is ambiguous and depends on the income effect.…”