Michelmore and Pilkauskas find EITC boosts employment, with decreasing impact as children age

October 4, 2021

Existing research has largely overlooked the variation in maternal employment effects of the Earned Income Tax Credit (EITC) depending on the age of their children. In a new study, Katherine Michelmore and Natasha Pilkauskas, both associate professors at the University of Michigan’s Gerald R. Ford School of Public Policy, found the EITC boosted employment the most for mothers with infants and toddlers, with decreasing employment effects as children age.  The EITC was also found to increase the use and cost of child care among mothers with very young children, particularly in informal settings that are linked to lower quality care.

Michelmore and Pilkauskas focus on unmarried mothers, as they are the primary recipients of EITC, and of particular interest in efforts to reduce poverty. Using data from the Current Population Survey Annual Social and Economic Supplement between 1990 and 2016, they examine differences in maternal labor supply by child age. They also analyze the effect of the EITC on child care arrangements, amount of time spent in care, and costs of care using data from the Survey of Income and Program Participation from 1996 to 2008.

The study observed that with a $1,000 increase in average EITC benefits, unmarried mothers with children under age three are more likely to work full-time, increasing pre-tax earnings by more than $2,400, and reducing poverty by approximately five percentage points. Parents of school-aged children also experienced positive outcomes, but with no significant effects on poverty reduction.

The authors state, “Overall, our findings suggest that although tax credits targeted to young families will likely increase income, there may be unintended negative consequences of such policies on child outcomes.”

Michelmore and Pilkauskas conclude that the employment effects seen with the EITC among families with children under three may be related to the absence of other income support policies found in other western nations that support families with children. “Policies like family or maternity leave, little availability of subsidized or free child care, and a lack of a child benefit may in part explain why we see such large effects of the EITC in early childhood and why we find large increases in the use of informal care relative to center-based care,” they write. 

Read the complete study, ‘Tots and Teens: How Does Child’s Age Influence Maternal Labor Supply and Child Care Response to the Earned Income Tax Credit?’, published by the University of Chicago Press.