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Essays on Policy Incentives and Labor Economics

  • Author(s): Williams, Katherine Ellyn
  • Advisor(s): Neumark, David
  • et al.
Abstract

My dissertation broadly examines how individuals respond to incentives imbedded in various policy designs. I study a variety of policies, including teacher retirement incentives, child care subsidies, and the Earned Income Tax Credit. The evidence presented here is of importance to policy analysis and design.

In the first chapter, I examine what types of teachers respond to early retirement incentives (ERIs). In recent years, many education programs have been faced with steep budget cuts. In response to these budget shortfalls, many school districts have turned to the use of ERIs to induce higher cost, but highly experienced teachers to retire. A key question is how these incentives affect students. Using a newly assembled panel dataset of school district ERI policies in California. I employ a difference-in-differences strategy and find that after districts offered retirement incentives, student test scores improved. These results suggest that less-effective, but highly experienced teachers respond the most to the retirement incentives.

The second chapter examines whether child care subsidy policies, which are intended to provide work-related support for low income families, can actually discourage work. Specifically, I examine how the sharp phase-out of subsidy benefits creates an incentive for parents near the maximum income eligibility limits to lower their labor supply in order to qualify for the subsidy. I exploit recent changes in income eligibility thresholds across different states and years and construct an exogenous simulated measure of eligibility. I find that an increase in subsidy generosity, primarily driven by an increase in maximum income eligibility thresholds, has a net negative effect on hours and earnings for single mothers.

Finally, the third chapter, which is joint work with Professor David Neumark, studies whether state supplemental Earned Income Tax Credits (EITCs) encourage participation in the federal EITC. The EITC provides refundable tax credit for working families with low to moderate income. Existing research has linked the EITC to many positive labor supply and welfare outcomes for low to moderate income families. States and local governments should be interested in maximizing participation of their constituents in the federal EITC not only because of these anti-poverty effects, but because of other economic benefits, such as an increase federal tax dollars being spent by EITC recipients. We use recent state EITC policy variation during a period when there were no major changes in the federal EITC to explore whether state EITCs actually influence participation in the federal program. We find evidence that state EITCs encourage federal participation for single filers with children.

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