Suppose a state were to cut the welfare guarantee 30% between 2012 and 2014.Furthermore,suppose that hours of work per year among single mothers rose 20%.Use the time series estimate of the effect to come up with an elasticity of total hours worked with respect to benefits.

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Quizplus · Accepted Answer

Elasticity is calculated as the percentage change in quantity divided by the percentage change in price. Here, the quantity is hours worked, and the price is welfare benefits. The percentage change in hours worked is +20%, and the percentage change in benefits is -30%. Thus, elasticity = (20% / -30%) = -0.67.

Suppose a State Were to Cut the Welfare Guarantee 30