Welfare programs and labor supply (original) (raw)
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Welfare Reform and the Labor Market
Annual Review of Economics
This article reviews the basic theoretical models that are appropriate for analyzing different types of welfare reforms, as well as the related empirical literature. We first present the canonical labor supply model of a classical welfare program and then extend this basic framework to include in-kind transfers, incomplete take-up, human capital, preference persistence, and borrowing and saving. The empirical literature on these models is presented. The negative income tax, earnings subsidies, US welfare reforms with features that differ from those in other countries, and childcare reforms are then surveyed in terms of both the theoretical models and the empirical literature surrounding each.
The Marginal Labor Supply Disincentives of Welfare Reforms
Existing research on the static effects of the manipulation of welfare program benefit parameters on supply has allowed only restrictive forms of heterogeneity in preferences. Yet preference heterogeneity implies that the marginal effects of welfare reforms on labor supply may differ in different time periods with different populations and which sweep out different portions of the marginal distributions of preferences. A new examination of the heavily studied AFDC program examines changes in its tax rates in 1967, 1981, and 1996 and estimates the marginal effects on labor supply of each of the reforms in those years. A theory-consistent reduced form model is formulated which allows for a nonparametric specification of how changes in welfare program participation affect labor supply on the margin. Estimates of the model using a form of local instrumental variables show that the individuals on the margin at each of the historical reform dates differed because of differences in the composition of who was on the program and who was not, and who the marginal person was, in each period.
Explaining welfare reform: Public choice and the labor market
International Tax and Public Finance, 1999
This paper seeks to identify factors which could plausibly have led to the contractionary welfare reform initiatives begun at the state and federal levels in the US in the 1990s, initiatives concentrated on the AFDC program. A review of aggregate time series evidence, cross-section ...
Journal of Business & …, 2011
Welfare reform has been the recurrent subject of heated debate in the United States, culminating in far-reaching legislation in 1996. Taking the measure of that legislation requires attention both to the broader context of which welfare policy is a part and to the merits of the 1996 law itself. Ultimately, the success or failure of welfare reform, which evoked a great deal of partisan rhetoric, will be assessed on empirical rather than partisan grounds. It cannot be determined merely by changes in the size of welfare caseloads. It is crucial to any piece of legislation to analyze the cost in relations to its benefits. Most importantly, we must ask: What has happened to the families and children who have left the welfare system? Personal Responsibility and Work Opportunity Reconciliation Act of 1996 is a successful legislation that needs a little troubleshooting, so it will not be the failed anti-poverty prescription A billion dollars every week for Iraq, 87billionforIraq.Wecan′tget87 billion for Iraq. We can't get 87billionforIraq.Wecan′tget5 billion for childcare over five years in welfare reform. -Jim Wallis
Twentieth Century British History, 1995
Throughout the 1990s, the combination of economic expansion and major policy changes to the nation's public assistance programs resulted in rapidly declining welfare caseloads and rapidly increasing labor force participation. Program eligibility changed, with more applicants subject to sanctions, time limits, or diversion activities, and the robust economy fueled a strong labor market. It is difficult to forecast what will happen to caseloads and employment in a future recession. The 1996 welfare reform legislation contained three provisions to help states weather a recession: the ability to carry over block grant funds, a loan fund, and a contingency fund. These and other public assistance programs, however, need reworking to be entirely effective during a recession. Future policy options include making the welfare block grant funding cyclical, revising the trigger for contingency fund payments, authorizing state "rainy day" funds for welfare programs, increasing state flexibility on time limits, encouraging public employment programs, and reforming the current unemployment insurance system.
Midwest Welfare Program and Labor Force Participation
2001
This paper examines family welfare and labor force participation of families potentially eligible for the new Temporary Assistance for Needy Families (TANF) program in the Midwest region. High wage rates and low unemployment rates decrease the probability of welfare participation. For these low-wealth families, labor supply is shown to be highly responsive to the wage rate.
Regional Welfare Program and Labor Force Participation
2007
Welfare program dependency and expenditures rise during recessions, while income tax revenues from working people fall. Thus, now that states are responsible for their own welfare programs, they need to know how responsive their citizens are to workplace and safety net opportunities. This paper investigates household welfare program and labor force participation behavior. A choice-theoretic model is developed and estimated for each of the four census regions (Northeast, Midwest, South, and West) using crosssectional data on households, labor markets, and policies. We show that household responses to welfare program parameters do differ regionally. But we find that labor supply does not depend on welfare program participation or program payoffs. Furthermore, unlike under the previous welfare program, participation in Temporary Assistance for Needy Families (TANF) does not significantly reduce household labor supply. The finding of significant differences across regions justifies the efficiency rationale for the devolution of authority to the states. We also discuss how states may be able to contain expenditures on welfare programs.
Evaluating welfare reform in the United States
2002
This paper reviews the economics literature on welfare reform over the 1990s. A brief summary of the policy changes over this period is followed by a discussion of the methodological techniques utilized to analyze the effects of these changes on outcomes. The paper then critically reviews the econometric and experimental literature on caseload changes, labor force changes, poverty and income changes, and family formation changes. A growing body of evidence suggests that the recent policy changes have influenced economic behavior and well-being in a variety of ways. One particular set of "new-style" welfare programs seems to show especially promising results, with significantly increased work and earnings and reduced poverty.