Long-Run Effects of Incentivizing Work after Childbirth

The Intergenerational Transmission of Poverty and Public Assistance: Evidence from the Earned Income Tax Credit

“…Hoynes and Patel (2018), for example, estimate that a $1,000 increase in the EITC contemporaneously reduces poverty by nearly 20% among the first generation. Although this estimate makes our reduction in poverty of about 7 percentage points (off of a base of 13%, a more than 50% reduction) in the second generation seem very large, more recent evidence has demonstrated that these earnings gains among the first generation persist for several years after reforms took place (Kuka and Shenhav 2020). Hoynes and Patel (2018) capture the contemporaneous effect of the EITC on poverty, whereas Kuka and Shenhav (2020) show that single mothers most impacted by the large expansion to the federal EITC in the early 1990s had up to 20% higher earnings 5 to 9 years later, with positive effects on earnings up to 19 years later.…”

“…Although this estimate makes our reduction in poverty of about 7 percentage points (off of a base of 13%, a more than 50% reduction) in the second generation seem very large, more recent evidence has demonstrated that these earnings gains among the first generation persist for several years after reforms took place (Kuka and Shenhav 2020). Hoynes and Patel (2018) capture the contemporaneous effect of the EITC on poverty, whereas Kuka and Shenhav (2020) show that single mothers most impacted by the large expansion to the federal EITC in the early 1990s had up to 20% higher earnings 5 to 9 years later, with positive effects on earnings up to 19 years later. This work demonstrates that expansions to the EITC not only impact contemporaneous employment and earnings but also long-term earnings, which could have significant impacts on the children of EITC recipients.…”

“…Additionally, we leverage variation from changes in the number of children residing in the household over time and changes in state of residence. There is little evidence that fertility is affected by the EITC in the short-term (Baughman and Dickert-Conlin 2009;Kuka and Shenhav 2020), reducing concerns that the number of children in the household is endogenous. In our main analyses, we assume that cross-state moves are not related to EITC generosity, but we also test the robustness of our findings to individuals who do not move across states.…”

“…The large literature on the effects of the EITC on earnings and employment in the firstgeneration points to positive effects of the EITC on the labor supply of single mothers in both the short-(e.g., Schanzenbach and Strain 2021) and long-term (e.g., Kuka and Shenhav 2020). These increases in employment could also lead to positive impacts on poverty, earnings, and employment of the second generation through a variety of mechanisms that we discuss in more detail below.…”

“…Recent work illustrates that these earnings gains are long-lasting. Using a difference-in-differences design, Kuka and Shenhav (2020) estimate that single mothers have nearly 20% higher earnings 5 to 9 years after giving birth if they were exposed to larger EITC benefits in their child's first year of life, earnings gains that persist for up to 19 years.…”