Examining the impact of welfare reform, labor market conditions, and the Earned Income Tax Credit on the employment of black and white single mothers

Abstract

Using the Annual Demographic Files of the March Current Population Survey, we estimate the effects of welfare policies, labor market conditions, and the Earned Income Tax Credit on the probability of employment for black and white single mothers, and we investigate the extent to which changes in these macro-level factors account for racial differences in employment growth over this period. Compared to white single mothers, black single mothers are more likely to be high school dropouts, never married, and central city residents, and our results show that policy and labor market changes had a more profound effect on the employment of these groups. However, these compositional differences and interaction effects were not substantial enough to produce dissimilar explanations for the changes in employment by race. During the period of economic expansion, increases in the EITC were the most important factor, accounting for approximately 25% of the increase in employment for both black and white single mothers. Declines in the unemployment rate and welfare reform were less important, together accounting for an additional 25% of the increase.