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Non-Labor-Supply Responses to the Income Maintenance Experiments

Eric A. Hanushek
Published Date: 
In Alicia H. Munnell(ed.)
Lessons from the Income Maintenance Experiments
Boston, MA: Federal Reserve Bank of Boston and the Brookings Institution
pp. 106-121

A negative income tax will lower the costs of continuing schooling, by lessening the cost of not being in the labor force. Further, the reduction in costs observed in the experiment will be the same as that from an ongoing program. The uncertainty in evaluating the experiments and projecting to ongoing programs arises in considering the potential effects on the returns to more schooling. A negative income tax could potentially lower the benefits to more schooling, but this would depend upon the generosity of the program and the potential earnings of the individual with and without any added schooling. For the experimental time period, at least, a negative income tax does appear to induce more schooling. In fact, for youth the reduction in labor supply brought about by the negative income tax is almost perfectly offset by increased school attendance. Thus the encouragement of skill development by youth may be one of the positive sidelights of a negative income tax.