The Impact of the Earned Income Tax Credit and Welfare Reforms on Work Entry and Exit
This paper examines whether the employment effects associated with the Earned Income Tax Credit (EITC) and welfare reforms are due to increased work entry or decreased work exit. Differentiating entry and exit effects is important for understanding how those well-regarded policies raise employment among people with different labor market attachment. My empirical analysis focuses on the 1993 EITC expansion and 1992/1996 welfare reforms. I find that the EITC increased employment of unmarried mothers by six percentage points. Approximately half of the employment increase can be attributed to fewer labor market exits and half to additional entry. In contrast, welfare reforms increased employment by 5.6 percentage points entirely through increased entry. The findings suggest direct work requirement such as those associated with welfare reforms are more effective at inducing labor market entry, while the tax credit is more successful at preventing job interruptions for low-skilled mothers by reducing exits.