Friday, November 8, 2013
:
9:45 AM
Boardroom (Ritz Carlton)
*Names in bold indicate Presenter
In this paper, I examine the impact of the Great Recession on Earned Income Tax Credit (EITC) eligibility and take-up rates. Because the EITC is structurally tied to earnings, the direction of this impact is not immediately obvious. Families who experience complete job loss for an entire tax year lose eligibility, while those experiencing underemployment (part-year employment, a reduction in hours, or spousal unemployment in married households) may become eligible. Determining the direction and magnitude of the impact is important for a number of reasons. The EITC has become the largest cash-transfer program in the U.S., and many low-earning families rely on it as a means of support in tough times. The program has largely been viewed as a compensation for welfare reform, enticing former welfare recipients into the labor force. However, the impact of the EITC during a period of very high unemployment has not been assessed. To answer these questions, I use the Current Population Survey matched to Internal Revenue Service data from tax years 2005 to 2009 to assess the pattern of employment and eligibility over the Great Recession for different labor-force groups defined by skill, demographic characteristics, and family structure. Results indicate that, compared with high-skilled married men, low-skilled groups experienced greater volatility in employment, responding more strongly to local labor market conditions in terms of total job loss and a reduction in hours and weeks worked. This response was strongest for low-skilled single men and women. However, greater volatility in employment did not translate into higher EITC eligibility or take-up. The results provide some evidence that the EITC, as an important part of the safety net, fails to reach its target population at times when it is most needed.
