The Impact of the Earned Income Tax Credit on Time Poverty: Evidence from South Korea

Background/Purpose: Human beings are constrained by the finite nature of time and must make choices accordingly. This limited resource can be broadly divided into two categories: labor time and non-labor time, which encompasses activities such as leisure, family care. The Earned Income Tax Credit(EITC) is a welfare policy aimed at reducing poverty and economic burdens by incentivizing low-income households to work. However, the resultant increase in working hours can lead to a reduction in non-working hours, which in turn may exacerbate time poverty. Therefore, while the EITC contributes to reducing poverty and improving economic well-being, there is a greater possibilities of encountering time poverty as a consequence of the increase in working hours. By examining the impact of increased labor time on time poverty, this study sheds light on the potential trade-offs policymakers face when increasing work hours while potentially exacerbating time poverty.

Methods: We employed the binomial logistic regression using data from the 14th wave (surveyed in 2019) of the Korean Welfare Panel Study(KoWeps). For analysis we extracted 657 household heads and their spouses, consisting of EITC recipients(n=297) and non-recipients(n=360). We used EITC eligibility as the independent variable, while the dependent variable was a binary variable indicating time poverty. Time poverty was defined as having less Total Available(Ta) time compared to actual working hours, based on data from the 5th Time Use Survey (2019).

Results: We found that receiving the EITC was significantly associated with a lower odds ratio of experiencing time poverty, with EITC recipients being nearly 55% less likely to experience time poverty compared to non-recipients(OR=0.55, p<.05). Moreover we conducted subgroup analyses to explore the impact of EITC eligibility on time poverty based on the presence of a spouse and preschool-aged children. For the first subgroup (with spouse and children), EITC recipients were 45% less likely to experience time poverty compared to non-recipients(OR=0.45, p<.05). Similarly, the second subgroup (with spouse and no children) showed a 51% decrease (OR=0.41, p<.05). However, the analyses for the group without a spouse did not yield significant findings.

Conclusions and Implications: Our hypothesis that the EITC could potentially increase time poverty among households receiving it has been invalidated by our empirical evidence. We provide evidence that the EITC contributes to alleviating time poverty, particularly for households with spouses. Tax reductions, work incentives, and retention effects through the EITC can increase households' disposable income and alleviate employment insecurity, thereby reducing time poverty. However, the Spouseless group, which spends relatively more time on non-labor activities such as care and housework, may experience less impact from EITC compared to the Spouse group, which can divide roles. Therefore, our findings confirm the necessity of institutional improvements in the EITC that take into account time poverty for Spouseless group.