Effect of the 1996 Welfare Reform on Undocumented Immigrants

Abstract

This paper examines the labor market effects of ending the Earned Income Tax Credit (EITC) for undocumented immigrants in the United States. The Welfare Reform Act of 1996 required that tax filers have a valid Social Security number to claim the EITC, thus disqualifying undocumented immigrants from receiving the EITC benefits. Comparing EITC per person in counties with different percentages of undocumented immigrants before and after 1996 reveals that counties with relatively higher percentages of undocumented immigrants lost approximately 154 USD per person of the EITC. Utilizing a difference-in-differences design that compares undocumented immigrants with and without children, uncovers that ending the EITC sharply reduced the labor supply of single-mothers undocumented immigrants by five percentage points even though it did not affect the labor force participation and earnings of undocumented immigrants in general. The results reflect the extremely inelastic labor supply of undocumented immigrants as a whole, but a high elasticity (0.88) for single-mother undocumented immigrants.