Uncovering the Impact of Expanded Child Tax Credit on Employment: A Focus on Disadvantaged Groups and Employment Stability

Background and Purpose: The American Rescue Plan (ARP) temporarily expanded the Child Tax Credit (CTC), providing up to $300 of monthly payment per child from July through December 2021. Contrary to concerns raised by simulation estimates, empirical studies consistently indicate that the expanded CTC did not reduce the employment rate among adults living with children (Ananat et al., 2022; Par and Berger, 2023). This study adds to the current literature in two ways. First, the study examines the impact of the expanded CTC on employment, with a specific focus on historically underserved groups by CTC benefits, including Hispanic, non-Hispanic Black, low-income, and low-educated adults, as well as those facing higher childcare burdens, such as female, single adults, and individuals with young children. Furthermore, the study investigates the impact of expanded CTC on employment stability. Employment instability is an important indicator as it may yield different results for a household's economic well-being compared to static employment indicators. Research suggests that while consistent unemployment is strongly linked to poverty and low income, employment instability, encompassing both job gains and losses, is more closely associated with material hardship (Cai et al., 2023). Thus, this study aims to examine how expanded CTC may affect the instability and complexity inherent in employment trajectories.

Methods: Unlike prior studies using cross-sectional survey datasets, this study employs panel data from the Survey of Income and Program Participation to observe individual monthly employment status before and after the CTC expansion. The study sample includes adults aged between 18 and 64 including those with and without children in households. Our identification strategy utilizes a series of difference-in-differences and triple-difference models with time and individual fixed effects. We examine the continuous treatment effects of the expanded CTC by exploiting variations in additional CTC payments resulting from the expansion.

Results: Preliminary findings suggest that the expanded CTC had no significant impact on employment for the overall population. However, results differ when examining heterogeneous effects across socio-demographic groups. The study finds suggestive positive effects on employment for female, non-Hispanic Black, low-educated, single adults, and those with young children under 6. While the policy effects on employment stability show mixed findings, some models show a small positive effect on employment stability.

Conclusions and implications: Labor supply is unresponsive to the expanded CTC at the aggregate level. Thus, income and substitution effects cancel. However, does the policy's impact vary among different demographic groups? Importantly, the observed policy effects are particularly pronounced for households facing substantial childcare responsibilities. These findings highlight the critical significance of considering subgroup effects in policymaking, as they provide insights into where interventions may be most effective and where targeted support is most urgently needed.