Work requirements are pervasive in American social safety nets: for example, the federal Earned Income Tax Credit and Child Tax Credit both only kick in after a taxpayer makes a certain level of income. Work requirements are controversial because they exclude the worst-off (including those who are unable to work) from receiving government benefits. One important reason that they remain is that conditioning benefits on employment is thought to encourage labor force participation. But is this really true? A remarkable new paper by Jacob Goldin, Tatiana Homonoff, Neel Lal, Ithai Lurie, Katherine Michelmore, and Matthew Unrath provides compelling evidence that, at least in the context of state child tax credits, the answer is no.
In Work Requirements and Child Tax Benefits, the authors rigorously study the effects of conditioning child tax benefits on work. Their primary focus is a 2022 reform in California that eliminated the work requirement for the state’s Young Child Tax Credit (YCTC). Before this change, families needed at least $1 of earned income to receive the full $1000 credit; afterward, even non-working families qualified. The authors complement this analysis with evidence from five other states with varying child tax credit designs.
The paper is remarkably comprehensive and assembles an impressive dataset, examining different samples including Medicaid recipients and Census data to capture flows into and out of employment. The authors employ a regression discontinuity design that compares labor force participation of mothers whose children turn six just before versus just after the end of the year (which determines eligibility for these young child credits). They also develop an innovative “placebo-based tuning” methodology to optimize their empirical specification.
Drawing on administrative tax data, the authors find that eliminating the YCTC work requirement did not meaningfully reduce maternal labor force participation. Their estimates are extremely precise—the 95% confidence interval excludes reductions larger than 0.35 percentage points. The authors validate this headline finding with a variety of thoughtful robustness checks, which answer virtually every question I had (and plenty more that I didn’t) about the internal and external validity of the project.
These findings challenge conventional wisdom about work requirements. The estimated effect of eliminating work requirements is small—up to an order of magnitude smaller than the effect found in prior policy simulations. This suggests that concerns about work disincentives from expanding child tax credit eligibility to non-workers are significantly overstated. The authors’ finding that eliminating these requirements has minimal impacts on labor force participation therefore provides important evidence as policymakers weigh the pros and cons of maintaining work requirements, both at the state and federal level.
Like all good research, this paper leaves us with new questions. Why are labor supply responses so modest? The authors suggest several possibilities—perhaps the EITC’s substantial work incentives already dominate decision-making, or maybe tax credit eligibility rules aren’t sufficiently salient to influence behavior. The paper therefore provides a useful starting point for various deeper dives on extensions to its core findings.
Overall, the authors have produced a careful, methodologically innovative paper with important policy implications. Their findings suggest that we may be able to expand child tax benefits to non-working families—reaching those who may need assistance most—without meaningfully reducing labor force participation. This is an important result and definitely worth a read for anyone interested in tax or poverty law.
