Macroeconomic Mitigation of Work Disincentives
The magnitude of labor supply disincentives caused by social assistance programs may fluctuate depending on broader economic and labor market conditions at the time of program entry.
Picture this
In a high-unemployment job market, workers have fewer opportunities to adjust their working hours or switch jobs even if a voucher reduces their incentive to work. Weak economic conditions act like a constraint that prevents recipients from altering their labor effort immediately, locking in labor choices made during downturns.
What the evidence says
A 1 percentage point increase in the unemployment rate surrounding the time of the voucher offer mitigated the ITT employment reduction by 0.006 (relative to an average ITT employment effect of -0.017), indicating weaker economic conditions at offer buffer against labor supply drops.
- Who
- N = 42,358 household heads across 405 cohort-by-calendar-quarter observations from 1997 to 2005; Chicago, Illinois.
- How
- Two-step GLS estimation regressing 405 post-offer Intent-to-Treat (ITT) employment effects on local unemployment rates at the time of voucher offer versus contemporaneous unemployment rates.
What to do
Evaluate local unemployment rates when measuring social assistance program disincentives, as tight labor markets amplify labor reductions while weak markets constrain them.
From the source
"In contrast, it appears that weak economic conditions at the time of voucher offer might mitigate the work disincentive effects associated with a voucher offer."
The Effects of Housing Assistance on Labor Supply: Evidence from a Voucher Lottery