The Effect of the Medicaid Program on Welfare Participation and Labor Supply
Although there is a large literature on the effect of AFDC and Food
Stamps on labor supply and welfare participation, there has been little work
on the effects of Medicaid, despite its importance in the O.S. transfer
system. In this paper we use 1986 data from the Survey of Income and Program
Participation to examine the effect of Medicaid on the labor supply and
welfare participation decisions of female heads of family. A key contribution
is the development of a family-specific proxy for the valuation of Medicaid
benefits which depends upon the health and other characteristics of the
family. We find that Medicaid has strong and significant effects on labor
supply and welfare participation that are negative and positive in sign,
respectively, but which are concentrated in the tail of the distribution with
the highest expected medical expenditures. We also find that the availability
and level of private health insurance have very large effects opposite in sign
to those of Medicaid.
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