aikyam school

Means-Tested Housing Voucher Work Disincentive

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.

Picture this

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.

What the evidence says

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).

Who
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.
How
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.

What to do

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

From the source

"We find that among working-age, able-bodied adults, housing voucher use reduces labor force participation by around 4 percentage points (6 percent) and quarterly earnings by $329 (10 percent), and increases Temporary Assistance for Needy Families program participation by around 2 percentage points (15 percent)."

The Effects of Housing Assistance on Labor Supply: Evidence from a Voucher Lottery

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