The Labor Supply Effects of US Social Safety Net Programs
(Poverty and Income Policy)
*Names in bold indicate Presenter
This session includes three papers on the labor supply effects of US social safety net programs. These programs, which include Head Start, the Temporary Assistance for Needy Families program (TANF), and Workers’ Compensation insurance, are intended to decrease poverty and inequality through cash or in-kind transfers. Changes in the program policies generate changes in labor supply incentives among those who may be eligible to participate.
Pepin uses policy variation across states and over time to estimate the effects of stricter TANF time limit policies on program participation, labor market outcomes, and income. Within a targeted population, she finds that stricter time limits decrease annual TANF participation by 23 percent. Pepin also finds evidence that decreased TANF generosity increases employment and earnings among mothers without young children and mothers of both young and adolescent children but decreases employment and earnings among mothers of young children only. The pattern of results suggests that work becomes relatively less attractive in the absence of TANF income and work requirements among mothers who face the highest child care costs. Wilke and Wilson and Jinks, in contrast, estimate the effects of increased program generosity on labor market outcomes. Wilke and Wilson exploit variation from three natural experiments to estimate the effect of the Head Start program on labor supply. The authors find that Head Start funding and enrollment expansions are associated with a 2 percentage point increase in employment among single mothers. Wilke and Wilson’s results suggest that the labor supply increases induced by Head Start are largest among women without young children or when Head Start programming is available all day. Finally, Jinks estimates the effect of increased wage replacement payment levels within Workers’ Compensation insurance. She finds that increased wage replacement leads to longer time off of work but does not change short-term health outcomes. Nonetheless, increased wage replacement payments are associated with fewer re-injury cases, and a welfare analysis suggests that the increased generosity of Workers’ Compensation benefits reduces employer costs in the long run. Taken as a whole, this research suggests that US social safety net programs and policies affect individuals’ labor supply decisions and, therefore, that policy decisions have implications for families’ economic well-being.