LABOR-SUPPLY IMPACTS OF EFFECTIVE WELFARE PROGRAM PARAMETERS - A REANALYSIS

We quantify the impact of effective welfare programme parameters on th e labour supply of single female household heads - the primary group o f welfare recipients in the USA. Our panel of data is derived from the US Census Bureau's Current Population Survey for the years 1979 to 19 90 inclusive. Behavioural impacts from a range of economic variables a re consistent in sign with predictions made by economic theory. We fin d that effective welfare guarantee levels and the effective tax rate o n earned income both significantly decrease labour supply. The margina l effects of these welfare programme parameters are economically small : a US$1000 increase in the expected welfare guarantee level reduces a nnual labour supply by about 36 hours; a 10 percentage point increase in the effective tax rate on earned income reduces annual labour suppl y by about 7.5 hours.