Marriage, Labor Supply and the Dynamics of the Social Safety Net

March 6, 2018
By: Hamish Low (University Cambridge) ; Costas Meghir (Cowles Foundation, Yale University) ; Luigi Pistaferri (Stanford University, NBER, CEPR and SIEPR) ; Alessandra Voena (University of Chicago, NBER, CEPR and BREAD)
The 1996 PRWORA reform introduced time limits on the receipt of welfare in the United States. We use variation by state and across demographic groups to provide reduced form evidence showing that such limits led to a fall in welfare claims (partly due to \banking” benefits for future use), a rise in employment, and a decline in divorce rates. We then specify and estimate a life-cycle model of marriage, labor supply and divorce under limited commitment to better understand the mechanisms behind these behavioral responses, carry out counterfactual analysis with longer run impacts and evaluate the welfare effects of the program. Based on the model, which reproduces the reduced form estimates, we show that among low educated women, instead of relying on TANF, single mothers work more, more mothers remain married, some move to relying only on food stamps and, in ex-ante welfare terms, women are worse off.
Keywords: Time limits, Welfare reform, Life-cycle, Marriage and divorce
JEL: D91 H53 J12 J21

People versus Machines: The Impact of Minimum Wages on Automatable Jobs

March 6, 2018
By: Lordan, Grace (London School of Economics) ; Neumark, David (University of California, Irvine)
We study the effect of minimum wage increases on employment in automatable jobs – jobs in which employers may find it easier to substitute machines for people – focusing on low-skilled workers for whom such substitution may be spurred by minimum wage increases. Based on CPS data from 1980–2015, we find that increasing the minimum wage decreases significantly the share of automatable employment held by low-skilled workers, and increases the likelihood that low-skilled workers in automatable jobs become nonemployed or employed in worse jobs. The average effects mask significant heterogeneity by industry and demographic group, including substantive adverse effects for older, low-skilled workers in manufacturing. We also find some evidence that the same changes improve job opportunities for higher-skilled workers. The findings imply that groups often ignored in the minimum wage literature are in fact quite vulnerable to employment changes and job loss because of automation following a minimum wage increase.
Keywords: minimum wage, employment, automation
JEL: J23 J38