Means-Tested Housing Voucher Work Disincentive

In Simple Words

Think of a discount coupon for rent where the savings shrink whenever a worker earns more money. If earning an extra dollar reduces the rent discount by thirty cents, taking on extra work hours yields less net benefit, encouraging individuals to work less or stay out of the workforce.

Research question

Means-tested housing vouchers subsidize rent for low-income households but create implicit marginal tax rates as earnings rise, potentially discouraging employment and overall labor supply.

Participants

N = 42,358 low-income, working-age, able-bodied adults residing in private-market housing (11,696 treatment group, 30,662 control group); Chicago, Illinois.

Study Design

Randomized housing voucher wait-list lottery linked with Illinois Unemployment Insurance quarterly earnings and public assistance records from 1997 through 2005, analyzed via Intent-to-Treat (ITT) OLS and Instrumental Variables (IV) 2SLS.

Results

Voucher utilization reduced quarterly employment rates by 3.6 percentage points (6 percent of control complier mean), reduced quarterly earnings by $329 (10 percent of control complier mean), and increased public assistance participation by 6.7 percentage points (12 percent of control complier mean).

Takeaway

Incorporate the 30 percent implicit marginal tax rate into labor supply models when designing means-tested housing assistance programs to prevent unintended employment disincentives.

Read alongside the research

Plain-English glossary

Original explanations, informed by the references below. Examples are illustrations, not data from the studies above. The research text stays unchanged.

Percentage points

The difference between two percentages.

ExampleA rise from 40% to 50% is 10 percentage points. Relative to the starting value, that is a 25% increase.

Office for National Statistics · Percentages ↗Read more about percentage points →

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