The incentive effects of Medicaid on women's labor supply
Winkler, Anne Elizabeth
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Permalink
https://hdl.handle.net/2142/22101
Description
Title
The incentive effects of Medicaid on women's labor supply
Author(s)
Winkler, Anne Elizabeth
Issue Date
1989
Doctoral Committee Chair(s)
Blau, Francine D.
Department of Study
Economics
Discipline
Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Labor
Language
eng
Abstract
Studies have consistently shown that cash benefits provided by the Aid to Families with Dependent Children (AFDC) program alter the labor supply of female heads of households. By federal law, AFDC recipients are also automatically entitled to in-kind Medicaid benefits. As a consequence, it is possible that individuals may also alter their work effort in response to income-tested health insurance benefits in the form of Medicaid. No previous study has sought to quantify Medicaid's impact on labor supply; however such incentive effects deserve further attention.
In this dissertation, Medicaid's potential incentive effects are examined theoretically and empirically, taking into account the institutional link between the Medicaid and AFDC programs. Using the neoclassical labor-leisure framework, two major hypotheses are derived: Medicaid generosity is expected have a negative impact on both labor force participation and hours worked given labor force participation.
The empirical analysis focuses on Medicaid's impact on the labor force participation decision of female heads with children and on the expanded sample of all single women with children. The data were obtained from the 1986 Current Population Survey. The in-kind Medicaid benefit is treated as insurance and is cashed out at its market value. The individual's labor force participation decision, estimated using probit, is specified as a function of state-level policy variables, including the AFDC guarantee, effective AFDC tax rate and Medicaid benefit, and individual-level control variables. In an alternative model specification, state policy variables are interacted with each individual's predicted probability of AFDC receipt to create expected tax and benefit variables.
Across all model specifications, Medicaid is found to have a statistically significant negative impact on the probability of labor force participation. Among the findings, a 10 percent increase in Medicaid's market value is expected to reduce the average female head's probability of labor force participation by 1.6 percent.
Medicaid's impact on interior hours worked is estimated using the Heckman two-step procedure to correct for possible selectivity bias. Contrary to initial expectations, Medicaid is found to have a negative, though insignificant, impact on hours worked.
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