Microsimulation Models and Labor Supply Responses to Welfare Reforms |
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| Authors: | Alberto Martini |
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| Affiliation: | Alberto Martini;is a senior research associate at the Income and Benefits Policy Center of the Urban Institute in Washington, DC. He received his PhD in economics from the University of Wisconsin-Madison in 1988. His research interests and publications focus on the evaluation of welfare programs, on the uses of microsimulation modeling for social policy analysis, and on the design of household surveys. |
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| Abstract: | While in principle including behavioral responses in microsimulation models is always desirable, the intrinsic difficulty of modeling individual behavior and the utilization of the results by a policy audience argue for a cautious and motivated use of behavioral responses. We report simulations of the effect on labor supply of four welfare reforms that affect female heads of households. We find that ignoring behavioral responses understates the disposable income gain (or overstates the losses) incurred by these families. In some cases the differences are trivial, while in others (the expansion of the Earned Income Tax Credit and the imposition of time limits) ignoring the labor supply response might provide a distorted view of the effects of the reform. |
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