Disaggregation of Income Maintenance Impacts on Family Earnings

Abstract

THE impact of a negative income tax (NIT) on family labor supply is important for policy and research reasons. Income maintenance transfers are likely to be based on family size and family income. Because family earnings are a major component of total income in many families, exactly how the NIT treatment alters family earnings is a main evaluative issue. Both transfer costs and foregone production may be affected by the impact of the NIT on family earnings. A second reason for examining NIT impacts on family labor supply is that recent theoretical advances in labor supply theory (Kosters, 1966; Ashenfelter and Heckman, 1973; and Killingsworth, 1976) have stressed the role of individual decision making in the context of a family. Killingsworth concluded that while the introduction of the NIT would reduce family earnings, it is not necessarily true that each member of the family has reduced earnings. In the present analysis the adding up property of ordinary least squares estimates is used to demonstrate how NIT impacts are distributed across different family members. Our findings support Killingsworth's theoretical conclusion. Next, we examine whether the NIT impact on family earnings stems primarily from some NIT families reducing work efforts without stopping work or merely involves a few families allowing their earnings to fall to zero. Tobit estimates are used to provide separate estimates of NIT impacts on the likelihood of any family earnings and the level of conditional family earnings. Data on family earnings from the Gary Income Maintenance Experiment are used in the analysis.