Female Labor Supply, Human Capital, and Welfare Reform

We estimate a dynamic model of employment, human capital accumulation including education, and savings for women in the UK, exploiting policy changes. We analyze both the incentive effects and the welfare implications of tax credits and income support programs and we account for their insurance value. We find important incentive effects on education choice and labor supply, with single mothers having the most elastic labor supply. Returns to experience increase with education, but experience only accumulates when in full-time employment. Finally, marginal increases in tax credits are preferred to equally costly income support or to tax cuts. Acknowledgements: We thanks four anonymous referees and the editor of this journal for helpful comments. This research has greatly benefited from discussions with Joe Altonji, Mike Brewer, David Card, Jim Heckman, Enrico Moretti, Hamish Low and Corina Mommaerts. We are also grateful to participants at the European Economic Association Summer Meetings, the IZA/SOLE transatlantic meeting, the NBER TAPES conference 2014 and seminars at Yale University, the University of Mannheim, IFS, the University of Copenhagen, U. C. Berkeley and the DIW for their comments. This research is funded by the ESRC Centre for the Microeconomic Analysis of Public Policy and of the NCRM node Programme Evaluation for Policy Analysis, both at the IFS. Financial support from the ESRC, grant number RES-000-23-1524, is gratefully acknowledged. Costas Meghir thanks the Cowles foundation and he ISPS at Yale and the ESRC under the Professorial Fellowship RES-051-27-0204 for funding. The usual disclaimer applies. ∗University College London and Institute for Fiscal Studies. [email protected] †Institute for Fiscal Studies and CEF-UP at the University of Porto. monica [email protected]. ‡Yale University, Institute for Fiscal Studies, IZA and NBER. [email protected] §Institute for Fiscal Studies and University College London. [email protected].