Poster Paper: How the Supplemental Nutrition Assistance Program Affects Labor Force Decisions

Saturday, November 10, 2018
Exhibit Hall C - Exhibit Level (Marriott Wardman Park)

*Names in bold indicate Presenter

Bita Fayaz Farkhad and Chad Meyerhoefer, Lehigh University

Labor supply theory predicts that social welfare programs will induce counterproductive behaviors through work disincentives among low paid workers. In response to concerns about welfare dependency, policy reforms linked work requirements to the Supplemental Nutrition Assistance Program (SNAP). As a result, the labor supply effect of SNAP participation is theoretically ambiguous. This paper offers empirical evidence on the impact of SNAP enrollment on labor supply.

To account for the endogeneity of SNAP, we use instrumental variables approach. Annual cost of living adjustments are made to SNAP benefit levels to account for national inflation in the cost of food. However, regional variations in food prices are not accounted for. Thus, households living in areas of the country with food prices that are higher than the national average will rely less on SNAP for their food purchases. We use the ratio of maximum allotment (the benefit level if the family has no income) to the regional food price as an instrument. However, direct use of regional food price would largely eliminate our ability to account for unobservable shocks and differential trends in food prices across market regions. To ensure appropriate statistical inference, we partial out market-by year characteristics, and use residual price. Variation in the instrument is due to differences in the cost-of-living across regions. Additionally, in 2009, the American Recovery and Reinvestment Act increased per household benefits by an average of $80. We use USDA’ Food-At-Home Price Database to measure regional food prices over time, and assign them to the the Medical Expenditure Panel Survey.

Preliminary results suggest that SNAP participation increases the likelihood of employment, and working full time. Our subgroup analyses indicate that the effects of SNAP on employment decisions are concentrated among women. We find similar results when we use state SNAP program rules as an alternative instrument for SNAP. Our identification strategy allows us to estimate the impact of SNAP at the intensive margin among participant households. We find that additional benefit increases the likelihood of employment for SNAP adults.

One potential mechanism for work incentive effects of SNAP is child care affordability. Since SNAP participation frees up income for nonfood expenditures, participant households may face fewer challenges in terms of arranging for safe and reliable child care. In accordance with work incentive effects of SNAP, we find that children in SNAP households are more likely to receive non-parental care.

We believe that our study has important implications for thinking through the labor market effects of public policies. First, we provide foundational analysis necessary to understand how low paid workers react to SNAP participation, and insight into how states can structure the design of policies that address the negative consequences of SNAP participation. Second, these findings are relevant to recent policy debates discussing making work requirement a condition of Medicaid eligibility, and serve as a test of whether linking work regulations are fulfilling their purpose.