Hilary Williamson Hoynes

Welfare Transfers in Two-Parent Families: Labor Supply and Welfare Participation Under Afdc-Up

This paper examines the effect of cash transfers and food stamp benefits on family labor supply and welfare participation among two-parent families. The Aid to Families with Dependent Children-Unemployed Parent Program has been providing cash benefits to two-parent households since 1961 and recent congressional action has increased its importance. In this model, the husbands and wifes labor supply decisions are constrained by a family budget constraint which is non-convex due to features of the AFDC-UP program. The husbands and wifes labor supply decisions are restricted to no work, part-time work and full-time work. Features of the tax and transfer programs are modeled formally using kinked budget restraints. Maximum likelihood techniques are used to estimate parameters of the underlying hours of work and welfare participation equations. The estimates from the model are used to determine the magnitude of the work disincentive effects of the AFDC-UP program, and to simulate the effects of changes in AFDC-UP benefit and eligibility rules on family labor supply and welfare participation. The results suggest that labor supply and welfare participation among two-parent families are highly responsive to changes in the benefit structure under the AFDC-UP program.

Local Labor Markets and Welfare Spells: Do Demand Conditions Matter?

This paper examines the impact of changes in labor market conditions on participation in the Aid to Families with Dependent Children (AFDC) program in California. Transitions off welfare and transitions back onto welfare are estimated using discrete duration models that control for local labor market conditions, demographic and neighborhood characteristics, duration effects, county-fixed effects, time effects, and county- specific time trends. The results show that higher unemployment rates, lower employment growth, lower employment-to-population ratios, and lower wage growth are associated with longer welfare spells and higher recidivism rates. Hispanics, blacks, and two-parent families are the groups that are most sensitive to changes in local labor market conditions.

Inside the War on Poverty: The Impact of Food Stamps on Birth Outcomes

This paper evaluates the health impacts of a signature initiative of the War on Poverty: the introduction of the modern Food Stamp Program (FSP). Using variation in the month FSP began operating in each U.S. county, we find that pregnancies exposed to FSP three months prior to birth yielded deliveries with increased birth weight, with the largest gains at the lowest birth weights. We also find small but statistically insignificant improvements in neonatal mortality. We conclude that the sizable increase in income from FSP improved birth outcomes for both whites and African Americans, with larger impacts for African American mothers.

The Impact of Welfare Reform on Marriage and Divorce

The goal of the 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) was to end the dependency of needy parents on government benefits, in part by promoting marriage; the pre-reform welfare system was widely believed to discourage marriage because it primarily provided benefits to single mothers. However, welfare reform may have actually decreased the incentives to be married by giving women greater financial independence via the programs new emphasis on work. This paper uses Vital Statistics data on marriages and divorces during 1989-2000 to examine the role of welfare reform and other state-level variables on marriage and divorce rates. The results indicate that implementation of TANF is negatively associated with marriage and divorce rates, as are pre-TANF waivers from the AFDC program in some specifications.

Poverty in America: Trends and Explanations

Despite robust growth in real per capita GDP over the last three decades, the U.S. poverty rate has changed very little. In an effort to better understand this disconnect, we document and quantify the relationship between poverty and four different factors that may affect poverty and its evolution over time: labor market opportunities, family structure, anti-poverty programs, and immigration. We find that the relationship between the macro-economy and poverty has weakened over time. Nevertheless, changes in labor market opportunities predict changes in the poverty rate rather well. We also find that changes in female labor supply should have reduced poverty, but was counteracted by an increase in the rate of female headship. Changes in the number and composition of immigrants and changes in the generosity of anti-poverty programs seem to have had little effect.

Welfare Reform and Children's Living Arrangements.

Little is known about welfare reforms effects on family structure and childrens living arrangements, an important focus for reformers. Using March CPS data, we find that state welfare waivers are associated with children being less likely to live with unmarried parents, more likely to live with married parents, and more likely to live with neither parent. Children living with neither parent are living with grandparents or other relatives, or rarely, in foster care. The estimates vary somewhat by childrens race and ethnicity. Due to the limited variation in TANFs implementation timing across states, we focus on the waiver results.

The State of the Safety Net in the Post-Welfare Reform Era

The 1996 welfare reform led to sweeping changes to the central cash safety net program for families with children. Along with other changes, the reform imposed lifetime time limits for receipt of cash welfare, effectively ending its entitlement nature for these families. Despite dire predictions, previous research has shown that program caseloads declined and employment increased, with no detectible increase in poverty or worsening of child well-being. We reevaluate these results in light of the severe 2007-09 recession. In particular, we examine how welfare reform has altered the cyclicality of the response of caseloads and family well-being. We find that use of food stamps and noncash safety net program participation have become significantly more responsive to the economic cycle after welfare reform, rising more when unemployment increases. By contrast, we find no evidence that cash welfare for families with children is more responsive, and some evidence that it might be less so. We find some evidence that poverty increases more with increases in the unemployment rate after reform, and none that it increases less. We find no significant effects of reform on the cyclical responsiveness of food consumption, food insecurity, health insurance, household crowding, or health.

Some Evidence on Race, Welfare Reform, and Household Income

In 1996, federal welfare-reform legislation eliminated Aid to Families with Dependent Children (AFDC) and replaced it with Temporary Assistance for Needy Families (TANF). Numerous studies have estimated impacts of reform on welfare caseloads, employment, earnings, family structure, income, and poverty. Two principal challenges to identifying TANF’s impact have been discussed in the literature. First, factors other than welfare reform should have increased household income. It is well known that reform occurred during a period of strong economic performance. While the unemployment rate for blacks fell to the lowest level ever recorded, wages for low-skill groups rose for the first time since the 1970’s. Further, other policy changes in the second half of the 1990’s focused on improving the economic status of the disadvantaged. Examples include expansions in the Earned Income Tax Credit (EITC), minimum wages, and public health insurance (Medicaid and the Children’s Health Insurance Program). Second, TANF was implemented in all states over just 16 months (between September 1996 and January 1998), leaving only limited scope for identifying impacts of TANF through timing across states. While these challenges are well known, their implications for interpreting estimated TANF impacts in nonexperimental studies are not. In this paper, we do four things. First, we discuss the identification of TANF effects in a prototypical nonexperimental model. We show that if TANF effects are the same in every year, then the lack of time variation in TANF implementation is not problematic. However, if TANF and trend effects are allowed to vary over time in an unrestricted fashion, then TANF effects for later years are unidentified. Second, we propose a method for bounding impacts in light of this identification problem. Third, we apply this method to analyze the impact of TANF on household income for a sample of children in the Current Population Survey (CPS) covering calendar years 1988–1999. Fourth, we document significant heterogeneity in the association between household income and both TANF and residual factors across white, Hispanic, and black children.

The insurance value of state tax-and-transfer programs

This paper estimates the total value that individuals derive from their states tax-and-transfer program, and shows how this value varies by income. The paper decomposes this total value into two components: redistributive value, which is due to predictable changes in income (and family circumstances), and insurance value, which occurs when taxes and transfers compensate for unexpected income shocks. Our approach is a forward-looking one, where we examine income and transfers net of taxes over a 10-year period. We model state taxes (personal income taxes, the EITC, and sales taxes) and state means-tested transfers (AFDC/TANF and Medicaid/SCHIP). The calculations are made using the Panel Study of Income Dynamics and allow for analysis of the role of changes in tax-and-transfer programs, demographics, and income in the value of state net benefits over a period of more than 30years. We find that the redistributive value of state tax-and-transfer programs sharply declines with income, but that the insurance value is increasing in income. The resulting total value still declines with income, but not nearly as sharply as the redistributive value. Hence, the insurance value mitigates the incentives for mobility that would “undo” state redistributive spending.

Do In-Work Tax Credits Serve as a Safety Net?

We test the EITC’s response to economic need. Using IRS data we exploit differences in timing and severity of economic cycles across states. Because the EITC requires earned income, there is a theoretical ambiguity in the credit’s cyclicality. We find higher unemployment leads to increased likelihood of EITC recipiency and in credit amounts received for married couples but has insignificant effects for single individuals. The EITC’s protective effects are concentrated among skilled workers. The EITC mitigates income shocks for married couples with children and groups likely to have moderate earnings, but does not for most recipients: single parents with children.