Work, Human Capital, and Family Composition:

1
Work, Human Capital, and Family Composition

• An Analysis of Public Policies and Incentive
  Structures in Oklahoma
• Presentation to the
• Oklahoma Self-Sufficiency Coalition
• May 14, 2004
• Zohre Salehezadeh, PhD
• Kenneth Kickham, PhD
• Office of Planning, Policy and Research
• Oklahoma Department of Human Services

2
Research Questions

• How do welfare programs and tax system treat
  marriage, separately and cumulatively?
• - Is a single mother better or worse off if she
  takes the marriage vow? How about a cohabiting
  couple?
• How do public policies treat work?
• - Is work encouraged? Are there incentives to
  work? To increase human capital (through
  increased training or education)?
• Does family composition affect well-being among
  low-income households?
• - Is a family with two or more children able to
  reach self-sufficiency at the same wage rate as a
  family with one child?

3
The Model

• We started with Hepner's (1999) model that
  simulates Oklahomas Tax and Transfer System.
• We updated, modified and expanded the model for
  numerous changes in tax and welfare policy (as of
  Jan. 2004) and added the self-sufficiency
  feature.
• We plugged in some scenarios to examine resources
  available to our representative families assuming
  their full participation in our programs.
• We graphed the results, comparing household
  resources to the Self-Sufficiency Standard (SSS).

4
The Model

• Benefit programs included in the model are
• Temporary Assistance for Needy Families (TANF)
• Food stamps
• Medicaid
• Childcare Subsidy
• Housing subsidy
• Women, Infants, and Children (WIC)
• Unemployment Insurance
• Supplemental Security Income (SSI) and
• State Supplemental Payments (SSP)

5
The Model

• Taxes included in the model are
• Federal and state income tax
• Earned Income Tax Credit (EITC)
• Child and Dependent Care Tax Credit (CCTC)
• Child Tax Credit (CTC)
• Additional Child Tax Credit (ACTC)
• State sales tax rebate
• Payroll taxes (Federal Insurance Contributions
  ActFICAand Medicare Qualifying Federal
  EmployeeMQFE)

6
What Is the Self-Sufficiency Standard?

• SSS measures how much income based on 2001-02
  prices is needed for a family of a given
  composition in a given place to adequately meet
  its basic needswithout public or private
  assistance (Pearce and Brooks, 2002).
• We updated SSS using the updating method
  suggested by Dr. Pearce. The SS wages in our
  model are now based on the February 2004 regional
  CPI.
• The amount of SSS is calculated for each Oklahoma
  county for numerous family structures. We
  selected Oklahoma County for our analysis.

7
What Costs are Included in SSS?

• Food No eating out
• Housing No recreation
• Transportation No entertainment
• Childcare No savings
• Health Care No car payment
• Miscellaneous expenses
• Very Conservative Estimates
• Taxes (federal and state income taxes, payroll
  taxes, retail sales tax, EITC, Federal and State
  Child Care Tax Credit, Child Tax Credit) No
  Additional Child Tax Credit is Includedthis is
  perhaps the only SSS feature that is not
  conservative.

8
The Scenarios

• For all the scenarios we assume the adult male
  works 40 hours a week at minimum wage.
• We compare each familys total resources as
  mothers hours of work and her wage rate
  increases.
• We also compare the total household resources of
  a single mother receiving child support with
  those of the mother taking the marriage vow (with
  the father), and cohabiting with him, and whether
  reporting or concealing the cohabitation.
• The third type of comparison is when the number
  of children varies. Specifically, we look at the
  familys total resources with one, two or three
  children, holding everything else constant.

9
Output Sheet Showing All the Selections
10
Itemized Monthly Resources for the Single Mother
Scenario
The positive numbers are additions to household
resources. Numbers in parentheses are payments.
11
Total Monthly Resources for A Single Mother with
One Child
12
What Does the Graph Show?

• There are positive incentives to work for a
  mother who does not have a job or has a part-time
  job (i.e., the Net Income line is positively
  sloped).
• A single mother (with one child) working full
  time at minimum wage, earns only about 36 of
  what she needs to meet her basic needs.
• As the mothers wage rate increases from 5.15 to
  13 per hour, taxes increase and benefits
  decrease, leaving her in about the same situation
  as she was at minimum wage.
• The distance between the pink line and the black
  line indicates tax effects.

13
Comparing Married, Reported and Unreported
Cohabitation with One Child
14
What Does the Graph Show?

• At very low income levels, where the mother does
  not have a job or works 20 hours a week at 5.15
  per hour, married couple are slightly better off
  than cohabitant couple.
• When both parents work full time, they are always
  better off financially by cohabiting rather than
  marrying.
• There is a positive incentive for the cohabitant
  couple to conceal their cohabitation as long as
  theyre eligible to participate in benefit
  programs.

15
Total Monthly Resources for A Single Mother with
Two Children
16
Comparing Married, Reported and Unreported
Cohabitation with Two Children
17
Total Monthly Resources for A Single Mother with
Three Children
18
Comparing Married, Reported and Unreported
Cohabitation with Three Children
19
Conclusions

• There are cliffs along the way to increasing
  human capital and becoming self-sufficient.
• Cliffs occur because eligibility ends or phases
  out for more than one program at the same wage
  threshold, while taxes increase.
• The graphs reveal the fact that the tax system
  creates marriage disincentives while our welfare
  programs remove work incentives for our clients
  in addition to encouraging unreported
  cohabitation.

20
Conclusions

• A single mother (with a preschooler) working
  full-time and receiving child support, lives
  below self-sufficiency up to the point where she
  earns 15 per hour.
• A married couple with one child may reach
  self-sufficiency, given the mother works full
  time and earns between 16 and 17 per hour.
• The graphs also indicate that not only are single
  parents better off compared to married couples
  (assuming they receive all benefits theyre
  eligible for), but also cohabitation is
  encouraged over marriage.

21
Questions to Consider

• Should we strive to coordinate public policies
  for efficiency purposes (addressing the silo
  effect) and to smooth out the cliffs?
• Should it be a goal of public policy to ensure
  that people are rewarded for increasing their
  human capital?
• Should a family with a full-time wage earner be
  able to provide the basic necessities for her or
  his dependents?
• Should we do whatever it takes to remove marriage
  penalties from public policies?
• Is it the role of the government to pay wage
  subsidies to low-income workers in order for them
  to survive? Or, should the business owners pay,
  at minimum, self-sufficiency wages to their
  workers?