Welfare Dynamics under Time Limits

Jeffrey Grogger

Charles Michalopoulos

Evrim Aydin-Saher

PRWORA (1996)

AFDC TANF → Time Limits

Prediction:

Incentive to conserve welfare benefits for future use

should be stronger, younger the youngest child in the

family.

Welfare acts as insurance used to smooth consumption in lifetime utility maximization.

Longer the horizon, higher the value of retaining eligibility for such insurance.

Eligible for welfare as long as youngest child < 18 years old.

Families with youngest children have longest eligibility horizons

Fang & Keane (2004) : “option value”

Use welfare if benefit exceeds earnings at least by the

option value of preserving a month of eligibility.

Florida Family Transition Program (FTP)

Randomized experiment, (applying or recertifying), Waiver from AFDC program rules, Recruitment : May 1994 – October 1996, Escambia County (Pensacola) Time-limit 24 months

Exception : poor families → 36 months (48% of sample) Follow single-parent families for 24 months after random

assignment

Sample families could not exhaust benefits within

the 24-month follow up period.

!

• FTP : Time limits

Financial incentives (FI)

Enhanced employment & training services (ES)

• MWRA exemption age different for the groups

• FTP MWRA : recipient /case manager ratio low

enhanced employment & training services

• All else equal, FI and ES expected to welfare use

Estimation

1. Difference-in-difference estimates

2. Regression Estimates I. Step Function specification II. Linear Interaction specification Advantages:

1. Controlling for personal characteristics2. Reducing variance of error term – covariates3. Alternative functional forms for Age-FTP

interaction

Difference-in-difference Methodology

Pre-treatment Post-treatment

Treated AFDC <15 FTP <15

Control AFDC 15+ FTP 15+

difference

_ −0.086

DD

DD Assumptions:

• “parallel trends”

• constant treatment effects

• additivitytime

treatment

effect

Assumptions :

1. No time-limit effects on families over the threshold age 16 for 24-month time-limit 15 for 36-month time-limit

2. Effects of individual reforms are additive : FI + ES + TL

3. Effects of FI and ES are age-invariant. Evidence:

i. National Evaluation of Welfare-to-Work Services (NEWWS)ii. Vermont Welfare Restructuring Project (WRP)iii. Minnesota Family Investment Program (MFIP)

Age groups:

• Group 0 : 6 months - 2 years• Group 1 : 3 - 5 years• Group 2 : 6 -10 years• Group 3 : 11 - 14/15 years• Group 4 : 15/16 - 17 years

MWRA exemptions

unable to identify effects on Group 0

Difference-in-difference Estimates

FTP1 = 0.001

FTP2 = − 0.031

FTP3 = 0.03

FTP4= 0.086

TL + FI + ES

FI + ES

FTP4 > 0 & significant → FI & ES welfare use, all else equal

FTP Total = 0.003 → full sample effect masks variation in age group effects

DD1, DD2, DD3 < 0

DD2 < DD3 (Child care constraints?) DD2 < DD1 control for pre-sample

welfare use → G2 used less

DD1 = FTP1 – FTP4 = - 0.085

DD2 = FTP2 – FTP4 = - 0.117

DD3 = FTP3 – FTP4 = - 0.031

Age-Invariance Assumption

Time-limit Effects

I. Step Function Specification

yit = α + α0A0it + α1A1it + α2A2it + α3A3it +

+τ0A0itEi + τTL1A1itEi + τTL

2A2itEi + τTL3A3itEi +

+ τEi + Xitβ + μi + εit

Ajit = 1 if youngest child in ith family falls in group j at time t

Ei = 1 if family i is in FTP group

Xit : exogenous regressors;

( mother’s age, black/white, 2/3 year time limit, number of children in family, mother’s years of schooling, pre-sample welfare use, quarters of employment pre-assignment etc.)

II. Linear Interaction Specification

yit = α + α0A0it + α1Ait + τ0A0itEi + τTL1A′

itEi + τEi + Xitβ + μi + εit

[Ait − threshold age] if 3 ≤ Ait < threshold age

0 otherwise

• Family effects (μ) → group-wise dependence

→ OLS std errors downward biased• Binary dependent variable → heteroskedasticity

Huber-White Covariance Matrix Estimator

( Heteroskedasticity-Robust Standard Errors )

A′it =

Step Function Results

• G0 6.9 %-pt G0 MWRA → welfare use

G1 7.4 %-pt (TYCS, vocational training)

• τTL1 < τTL

2 < τTL3

non-price barriers to child care preschool families cannot fully respond to time-limits

All groups receive child care subsidies.

Linear Interaction Results

+1 year age 0.7 %-pts

“reduction in likelihood of

welfare use”

36-month, 5 year old → 7 %-pts reduction

36-month, 13 year old → 1.4 %-pts reduction

Main results:

Time-limits substantially reduced welfare use among families with young children.

Anticipatory responses to time-limits, with leaving reducing welfare use well before they could have exhausted their benefits.

Additional Estimates

1. Prior welfare use

• 12 months use & 24 months use – focus most dependent group

2. Shorter follow-up period - 12 months

3. Robustness

• urban/rural - job market differences

• post-TANF & FTP-TANF – behavioural changes - Oct 1996

• out-of-county mobility – no differential mobility between groups

• FI & age-invariance

• ES & age-invariance

Conclusion

• Families with younger ‘youngest children’ less likely to use welfare than families with older ‘youngest children’.

• FTP time-limits would have reduced welfare receipt by 16%

(reductions weighted by age distributions).

Implication

• Poverty at younger age → greater adverse effects on educational attainment

• Early poverty – ability, adolescent poverty – achievement (Guo, 1998)

• Income poverty – preschool ability, later achievement (Duncan et al. 1998)

If welfare reductions

income reductions

policies withage-neutral effects

Further studies

• Grogger (2003) : March CPS (1978−99)

relative to threshold families, ‘3 years old’ families

welfare use 6.6 %-pts, employment 3.4 %-pts

• Grogger (2004) : March CPS (1978−99)

time-limits reduce welfare use by 6−7 %

• Fang and Keane (2004) : March CPS (1980−2002)

welfare participation rate 23%-pts

time-limits 11% of this decrease.