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When is tinkering with safety net programs harmful to beneficiaries?

Author

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  • Jeffrey Clemens
  • Michael Wither
Abstract
Interactions between redistributive policies can confront low‐income households with complicated choices. We study one such interaction, namely the relationship between Medicaid eligibility thresholds and the minimum wage. A minimum wage increase reduces the number of hours a low‐skilled individual can work while retaining Medicaid eligibility. We show that the empirical and welfare implications of this interaction can depend crucially on the relevance of labor market frictions. Absent frictions, affected workers may maintain Medicaid eligibility through small reductions in hours of work. With frictions, affected workers may lose Medicaid eligibility unless they leave their initial job. Empirically, we find that workers facing this scenario became less likely to participate in Medicaid, less likely to work, and more likely to spend time looking for new jobs, including search while employed. The observed outcomes suggest that low‐skilled workers face substantial labor market frictions. Because adjustment is costly, tinkering with safety net program parameters that determine the location of program eligibility notches can be harmful to beneficiaries.

Suggested Citation

  • Jeffrey Clemens & Michael Wither, 2024. "When is tinkering with safety net programs harmful to beneficiaries?," Southern Economic Journal, John Wiley & Sons, vol. 91(1), pages 213-256, July.
    • Handle: RePEc:wly:soecon:v:91:y:2024:i:1:p:213-256
    DOI: 10.1002/soej.12530
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    Cited by:

    1. Jonathan Meer & Joshua Witter, 2022. "Effects of the Earned Income Tax Credit for Childless Adults: A Regression Discontinuity Approach," NBER Chapters, in: Tax Policy and the Economy, Volume 37, pages 175-198, National Bureau of Economic Research, Inc.
    2. Adams, Camilla & Meer, Jonathan & Sloan, CarlyWill, 2022. "The minimum wage and search effort," Economics Letters, Elsevier, vol. 212(C).
    3. David Neumark, 2024. "The effects of minimum wages on (almost) everything? A review of recent evidence on health and related behaviors," LABOUR, CEIS, vol. 38(1), pages 1-65, March.
    4. Clemens, Jeffrey, 2016. "The Low-Skilled Labor Market from 2002 to 2014: Measurement and Mechanisms," MPRA Paper 75690, University Library of Munich, Germany.
    5. Hampton, Matt & Totty, Evan, 2023. "Minimum wages, retirement timing, and labor supply," Journal of Public Economics, Elsevier, vol. 224(C).

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    More about this item

    JEL classification:

    • H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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