Welfare policies such as tax and transfer programs are often criticized for disincentivizing recipients from working, and many policies require that recipients work to attain eligibility. In this paper, the authors study a pandemic-era federal policy change to determine whether households receiving unrestricted cash transfers tend to work less as a result. The American Rescue Plan of 2021 expanded the Child Tax Credit (CTC), increasing the amount of the benefit and removing the work requirement for the tax year 2021.
In addition, monthly advanced payments were sent out from July to December 2021. The authors use data from the Current Population Survey to study how this expansion impacted labor force participation and hours worked among recipients before and after the change. They find the following:
- The expanded CTC and temporary removal of the work requirement did not significantly reduce labor force participation or total hours worked. These results hold for recipients of varying gender, education, and racial backgrounds, as well as across families with different numbers of children.
The expansion of the CTC during COVID provides a unique opportunity to study the effect of switching from a transfer with work requirements to an unconditional cash benefit. The results suggest that beneficiaries’ work behavior does not change when a work requirement is temporarily eliminated, though these patterns may change with a more permanent policy change.