The EITC and Employment Transitions: Labor Force Attachment, Annual Exit, and the Role of Information

Many low-income households experience high frequency labor market transitions. It is unclear how the Earned Income Tax Credit (EITC) work incentives affect these frequent entry and exit decisions. Exploiting the panel nature of the Current Population Survey, I show that EITC expansions induce less-educated single women with previous work experience to work more months, leading to more annual weeks worked and less annual exit, suggesting the EITC operates in part by keeping previously employed single women in the labor force. Employment responds to changes in the previous year's EITC, consistent with people responding to information about the returns to work.