State Earned Income Tax Credits and Participation in Regular and Informal Work

I use variation in state EITCs between 1997-2005 to identify changes in informal and regular labor supply by unmarried men and women with children. Men’s participation in the informal sector declines by 6 percentage points if a state EITC increases by 10% of the federal credit. Usual regular-sector hours worked per week increase by 4.1 and informal-sector hours per week fall by 2.7 with no effect on total hours. Single men with children appear to respond to state EITCs on the intensive rather than extensive margin and shift away from informal work toward regular work without changing total labor supplied. I find no effects on women’s participation in either regular or informal work.