Motivating Data – Earned Income Tax Credit Versus Temporary Assistance for Needy Families

In addition to the financial data collected for the TANF and the EITC for the year 2002, US quarterly data from 1947 through 2002 was used to establish the relationship between the change in unemployment rate and the change in GDP.[1] The Unemployment Rate of single mothers from 1990 to 2003 was compared with the TANF family recipiency rate from 1990 to 2003.[2] [3] Single mothers have been used in the analysis because they have a higher labor force participation rate for the obvious reason that the husbands are not present. Furthermore, female-headed households are one of the most poverty-prone cohorts in the labor force.

Single mothers tend to have all of the characteristics associated with a member of the low-income population in the United States. They face discrimination in the labor market and an important factor is that they have little choice but to work because of economic necessity. Single mothers have a lower household income on average compared to a traditional family as they do not have the privilege of joint incomes. 

The fraction of families headed by a female increased sharply among blacks from 29 percent in 1960 to 44 percent in 2000.[4] Among whites the figures are 7 percent and 13 percent, respectively.[5] Thus, single mothers provide a good sample to represent low-income individuals.

The figure[6] shows a positive correlation between the TANF recipiency rate and the unemployment rate of single mothers from 1990 to 2003. On the other hand, studies have used a before-and-after technique and found that increased benevolence of the EITC program leads to more labor force participation especially among single mothers.[7]

The model for explanation can now be found here.

[1] See Appendix for Graph of US quarterly data (not annualized) from 1947 through 2002.

[2] TANF family recipiency rate is based on HHS administrative data on monthly number of families receiving cash assistance through TANF or closely related “Separate State Programs,” averaged over the calendar year and divided by U.S. Census bureau data on total number of families with children under 18, July 1st of each year. Families in the territories were excluded from the numerator to be consistent with the denominator. Data for 1990-1997 are from the Aid to Families with Dependent Children (AFDC) program, the predecessor of TANF.

[3] Unemployment rate among single mothers with children is based on calendar year averages of monthly unemployment rates for 1995-2003 (unpublished tabulations of CPS data produced by the Bureau of Labor Statistics), but on data for a single month — March — for 1990-1994 (based on BLS published data). Fluctuations in 1990-1994 are likely due to the use of the single month.

[4] See Phyllis A. Wallace, Black Women in the Labor Force (Cambridge, Mass.: MIT Press, 1980).

[5] Kaufman, B.E., & Hotchkiss, J.L. (Eds.). (2006). The Economics of Labor Markets. Mason, Ohio: Thomson Higher Education.

[6] See Appendix for figure “Trends in TANF Receipt and Unemployment Rates, 1990-2003”.

[7] Meyer, D. Bruce D. and Rosenbaum, Dan T, Welfare, The Earned Income Tax Credit, and the Labor Supply of Single Mothers, Quarterly Journal of Economics, 2001, v116(3,Aug), 1063-1114.