Skip to main content

The impact of earnings disregards on the behavior of low‐income families. (Matsudaira & Blank 2014)

Citation

Matsudaira, J. D., & Blank, R. M. (2014). The impact of earnings disregards on the behavior of low‐income families. Journal of Policy Analysis and Management, 33(1), 7-35.

Highlights

  • The study’s objective was to examine the impact of earnings disregards—the amount of earned income that is not counted when calculating whether someone is eligible for public benefits—for welfare assistance on the employment, earnings, and public assistance receipt of low-skilled single mothers.
  • The study used a difference-in-differences approach to compare the outcomes of women before and after changes in the disregard rate within their state relative to women in other states over the same time period.
  • The study did not find any statistically significant effects of earnings disregards on the outcomes of interest.
  • The quality of causal evidence presented in this report is moderate because it was based on a well-implemented nonexperimental design; this is the highest causal evidence rating possible for a nonexperimental design. This means we would be somewhat confident that any estimated effects would be attributable to earnings disregards, but other factors might also have contributed. However, the study did not find statistically significant effects.

Intervention Examined

Earnings Disregards for Welfare Assistance

Features of the Intervention

Following welfare reform in 1996, many states opted through their Temporary Assistance for Needy Families programs to disregard a higher share of the earnings of working women used to calculate their welfare benefits. The increase in earnings disregards effectively reduces the implicit tax rate imposed on earnings, which according to economic theory should induce greater labor supply among low-wage workers. Holding earnings constant, higher earnings disregards should also increase income among welfare recipients by allowing them to retain a larger share of their total earnings.

Features of the Study

The study used information on mothers’ income sources in the past year from the Current Population Survey and the Survey of Income and Program Participation from 1985 to 2004. The sample consisted of single mothers between the ages of 18 and 54 who had less than a high school education and were living with children age 18 or younger. The sample was on average 32 years old, 30 percent black, 32 percent Hispanic, and had two children living with them.

The authors conducted a difference-in-difference analysis to compare the employment, earnings, and public assistance receipt of women before and after changes in the disregard rate within their state relative to women in other states over the same time period. This model assumes that parallel trends in outcomes would exist across states absent any changes in earnings disregards. The authors showed the trends in women’s employment and earnings and concluded that the trends were fairly similar across states before welfare reform in 1996. In addition, the model took into account several individual-level and state-level time-varying characteristics and state-specific time trends.

Findings

  • The study did not find any statistically significant effects of earnings disregards on low-skilled single mothers’ employment, earnings, or public assistance receipt.

Considerations for Interpreting the Findings

The authors suggested one reason for the lack of statistically significant findings could be that few employed women took advantage of the higher earnings disregards.

Causal Evidence Rating

The quality of causal evidence presented in this report is moderate because it was based on a well-implemented nonexperimental design; this is the highest causal evidence rating possible for a nonexperimental design. This means we would be somewhat confident that any estimated effects would be attributable to earnings disregards, but other factors might also have contributed. However, the study did not find statistically significant effects.

Reviewed by CLEAR

December 2016

Topic Area