Family Decisionmaking Over the Life Cycle: Some Implications for Estimating the Effects of Income Maintenance Programs.

by James P. Smith

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A model of the economic determinants of labor supply over the life cycle is derived and compared with the standard one-period model to clarify the circumstances under which each should be used. The appropriate model to analyze a Family Assistance Plan (FAP) is a marriage of the life cycle and the one-period models. This combined model indicates that estimates based on the one-period model: (1) probably underestimate labor supply withdrawal in periods in which families are eligible for FAP benefits; and (2) ignore the possibility of an increase in labor supply in noneligible periods. The model also predicts that an FAP will encourage investments in human capital. An empirical simulation of the effects of an FAP on labor supply confirms one of the major predictions of this theory that an FAP is likely to have a much larger effect on the market work effort of married women than on the work effort of married men. 71 pp. Bibliog.

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