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Relative Prices And Substitution Across Wage, Welfare, And Disability Income, James P. Ziliak

University of Kentucky Center for Poverty Research Discussion Paper Series

In this paper I exploit the fact that the social and economic reforms over the past two decades differentially affected the opportunity costs of non-participation in work, welfare, and disability programs for single mothers across different birth-year and education cohorts. This cohort variation in after-tax wages and transfer benefits is used to identify own- and cross-price elasticities of demand for and substitution across wage, welfare, and disability income over 1979 to 2001 in the Current Population Survey. To estimate these key parameters I model household preferences with a conditional Almost Ideal Demand System that admits corner solutions, nonseparability, endogenous wages …