Many government transfer programs require recipients to be working or looking for work in order to receive benefits. Gray et al. (2020) study the impact of work requirements for eligibility for the Supplemental Nutritional Assistance Program (SNAP) using data and policy variation from Virginia.
When Virginia’s work requirements were in place, non-disabled, childless adult beneficiaries (ages 18-49) needed to comply with work requirements to receive SNAP transfers. These beneficiaries could only participate in the program if they were employed, participated in qualifying job training programs, or completed approved community service for at least 80 hours each month. These requirements only applied to those below age 50, and so the setting provides a natural regression discontinuity for estimating the effect of work requirements. The authors exploit this age 50 cutoff to estimate the impact of SNAP work requirements on program participation, employment, and earnings of beneficiaries. The authors also exploit variation in Virginia’s work requirements over time. The requirements were suspended from 2009 to 2013, due to the Great Recession. This pause allows the authors to identify a sample of individuals who would be on SNAP in the absence of work requirements. That time variation allows them to explore how the age discontinuity impacts employment when work requirements were re-instated in 2013.
In the description below, the MVPF is framed as a relaxation of work requirements. Such a policy presumably imposes a cost on the government but has a positive willingness to pay for those who are no longer required to work. But, it is worth noting that this is equivalent to the MVPF of imposing work requirements. Such a policy would have both a negative willingness to pay by those who are harmed by the work requirements and a negative cost to the government.
MVPF = 1.1
To compute the costs of eliminating work requirements, the authors consider the direct costs and fiscal externalities. Direct costs are given by additional government expenditure due to an increase in program participation. The authors estimate that work requirements reduce program participation by 23.4 percentage points. Given that SNAP transfers are on average $189 per enrollee, the direct cost of eliminating work requirements is 0.234*$189 = $44.23 per ex-ante enrollee.
A fiscal externality arises because the elimination of work requirements also causes enrollees to reduce their work supply and earnings. The authors estimate that the policy causes an average change in earnings of $44.41 per enrollee. For single, unmarried workers working 80 hours per month the relevant average tax rate is 16.5 percent. Therefore, the elimination of work requirements creates an extra 0.165*$44.41 = $7.33 decrease in government revenues per enrollee, leading to a total cost of $44.23+$7.33 = $51.55 per ex-ante enrollee.
Upper MarginLower Margin
Willingness to Pay
To compute the willingness to pay (WTP) per ex-ante enrollee for the elimination of SNAP work requirements, the authors divide beneficiaries into two groups: (a) beneficiaries who remain in the program even in the presence of work requirements, but decrease their labor supply (and earnings) when work requirements are eliminated, and (b) beneficiaries who do not comply with work requirements and therefore lose access to SNAP in the presence of work requirements. To compute the WTP of group a), consider that the elimination of work requirements gives these beneficiaries the option of not working and keeping SNAP benefits. Beforehand, they still had the option of not working, but would lose a transfer of $189. They cannot be worse off with this extra option, and they also cannot value the option of keeping benefits at more than a dollar for dollar. Therefore, their WTP is between $0 and $189. As 13% of the relevant population change their earnings in response to the work requirements, the WTP of group (a) is bounded between $0 and 0.13*$189 = $24.57 per ex-ante enrollee. Members of group (b) gain $189 in transfers after they join SNAP. Assuming they value the transfer on a dollar-for-dollar basis, the total WTP in this group is 0.234*$189 = $44.23 per ex-ante enrollee, where 0.234 is the fraction of the relevant population in group (b) (i.e, the fraction of the population who enters the program due to the policy change). Therefore, total WTP per ex-ante enrollee is bounded between $44.23 and $44.23 + $24.57 = $68.80.
Upper MarginLower Margin
Dividing the willingness to pay by the net cost yields MVPFs of 0.86 (= $44.23/$51.55) to 1.33 (= $68.80/$51.55). For a point estimate MVPF, one can assume that the population is uniformly distributed between people in group (a) with a WTP of 0 and a WTP of $189, which implies that the average WTP for group (a) would be 0.5 x 0.13 x $189 = $56.51. This in turn implies an MVPF of $56.51/ $51.55 = 1.10.