IRP Discussion Paper Abstracts - 2001

Notes: Abstracts are plain text. Downloadable papers are in Adobe Acrobat (.pdf) format.
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Segregation Forever? Racial Composition and Multiracial Friendship Segregation in American Schools
Lincoln Quillian and Mary Campbell

DP 1241-01 (For copies of this paper, please contact the author Lincoln Quillian)

Although past evidence suggests that there are more interracial friendships in racially integrated black-white settings than in racially segregated settings, little is known about patterns of segregation among students who are not black or white. Using data from the National Longitudinal Study of Adolescent Health to study contextual and class influences on interracial friendship formation among students in grades 7 to 12, we find that (1) little of the racial segregation in friendship results from class friendship segregation; (2) for students of Hispanic origin, their racial identification as white or black is strongly related to the race of friends selected; (3) for members of racial groups in a small minority within a school, the odds increase that a same-race dyad is a friendship dyad; (4) there is no significant negative effect of busing on the integration of friendships; and (5) attending a racially diverse school decreases the number of school friends named by white students. The results suggest that the increasingly Asian and Hispanic schools of the future will have some reduction in the level of racial segregation of friendship networks relative to current schools, but high levels of racial segregation of friendships will continue.

Business Development Financial Institutions: Theory, Practice, and Impact
John P. Caskey and Robinson Hollister

Full Text: DP 1240-01

Over the past decade, many communities have sought to promote their economic development by launching business development financial institutions, or BDFIs for short. A BDFI is a private financial institution that seeks to advance the economic development of a community by providing loans or equity capital to small- and medium-size businesses in a targeted region. BDFIs can be for-profit or not-for-profit entities, but to qualify as development financial institutions, they must be willing to accept below-market rates of return on their capital in order to further community economic development goals. Major funders of BDFIs have included local and state governments; the federal government, primarily through its Community Development Financial Institutions Fund; commercial banks, largely motivated by tax credits and the Community Reinvestment Act; and philanthropic foundations.

In this paper, we analyze the economic development theory underlying BDFIs. We examine their business practices and discuss efforts to quantify their development impact.

How Will Welfare Reform Affect Childbearing and Family Structure Decisions?
H. Elizabeth Peters, Robert D. Plotnick, and Se-Ook Jeong

Full Text: DP 1239-01

How will welfare reform affect family structure and childbearing decisions? To address this question we summarize changes in key elements of welfare policy as well as changes in closely related policies on child support enforcement and sex education and family planning programs. Drawing on a conceptual framework that highlights how incentives created by public policy can affect demographic behaviors, we conclude that, as Congress intended, reform has shifted welfare's incentives in directions that encourage marriage and discourage nonmarital pregnancy and childbearing, childbearing while on welfare, divorce, living independently from relatives, and avoiding child support responsibilities. We review the empirical evidence about welfare's effects on demographic behavior, including nonmarital childbearing, abortion, sexual activity, contraceptive use and pregnancy among teenagers, marriage and divorce, single parenthood, living arrangements, and nonresident parenting behavior. The general tenor of this evidence is that behavioral effects consistent with theoretical expectations and policymakers' intentions do exist. Their magnitudes are small or uncertain. A tentative but reasonable "bottom line" is that one should not expect welfare reform to dramatically alter low-income Americans' demographic behavior, but one can expect it to have modest effects in the directions desired by policymakers. There is little or no evidence about how several important aspects of recent reform are likely to affect demographic behavior. More definitive assessments of reform's effects on such behavior will require substantial additional research.

Medical Spending, Health Insurance, and Measurement of American Poverty
Gary Burtless and Sarah Siegel

Full Text: DP 1238-01

Critics of U.S. poverty measurement have long complained that the official poverty definition has serious defects. These deficiencies are most apparent in its treatment of health spending needs. Unfortunately, there are no simple approaches to incorporating medical spending in poverty measurement that command wide support among economists and policy analysts. This paper examines the effects of three methods of including household spending on health care in the measurement of poverty. The first is the method embodied in the current poverty statistics. The second is based on the proposal of a National Academy of Sciences panel. The third adds an estimate of "reasonable" medical spending to the modified poverty thresholds proposed by the NAS panel, which include poverty budgets for food, clothing, and shelter. Two conclusions stand out in our analysis. First, the inclusion of medical spending in the poverty definition has a large effect on the level and composition of poverty, providing a very different picture than the one produced using the official poverty guidelines. Groups that are heavy users of medical care, such as the aged and disabled, appear to suffer relatively worse poverty when explicit account is taken of the burden of medical spending. This is true whether medical spending is subtracted from family resources-as proposed by the NAS panel-or approximations of "reasonable" spending levels are added to the poverty thresholds. Under either of these procedures, groups with high out-of-pocket expenditures on health care appear to suffer worse poverty rates than revealed by the official poverty statistics. Second, levels and composition of poverty are comparatively unaffected by the decision to add "reasonable" medical spending to poverty thresholds rather than subtract actual medical spending from family resources. By judiciously selecting estimates of "reasonable" health spending, analysts can derive estimates of poverty thresholds that nearly duplicate the level and pattern of poverty found when actual medical spending is subtracted from family resources. The choice between these two methods of measuring poverty depends on the user's theoretical preferences, since both approaches to including health spending can produce virtually identical pictures of the nation's poor.

Job Performance and Retention among Welfare Recipients
Harry J. Holzer, Michael A. Stoll, and Douglas Wissoker

Full Text: DP 1237-01

In this paper we use data from a recent survey of employers to analyze the job performance and retention rates of recently hired welfare recipients. In particular, we analyze (1) whether or not the employer experienced each of a set of problems with that employee, (2) subjective employer ratings of worker performance, and (3) employee turnover. The results indicate that most welfare recipients perform as well as or better than employees in comparable jobs, and that their turnover rates appear fairly low. Still, absenteeism is pervasive and is often linked to child care and transportation problems. Problems such as poor attitudes toward work and poor relations with coworkers are observed fairly frequently as well. These problems are strongly related to job performance and retention difficulties and often plague those who quit as well as those who are discharged. Several particular characteristics of the workers, their employers, and the jobs they hold are also associated with performance and retention difficulties among working welfare recipients.

Why Are Black Employers More Likely than White Employers to Hire Blacks?
Michael A. Stoll, Steven Raphael, and Harry J. Holzer

Full Text: DP 1236-01

A consistent observation is that black employers tend to hire blacks at greater rates than do their white counterparts. This paper examines the reasons for this pattern using data from the 1992-1994 Multi-City Employer Survey, which is a representative sample of firms in Atlanta, Boston, Detroit, and Los Angeles. Using standard regression techniques and decomposition analysis, we find that black employers are more likely to hire blacks because they receive applications from blacks, and hire them out of the black applicant pool, at greater rates than do white employers. Thus, to the extent that there is concern over the persistent unemployment difficulties of blacks, having more blacks in positions with hiring authority within firms would help to alleviate this problem.

Predicting Early Fatherhood and Whether Young Fathers Live with Their Children: Prospective Findings and Policy Reconsiderations
Sara R. Jaffee, Avshalom Caspi, Terrie E. Moffitt, Alan Taylor, and Nigel Dickson

Full Text: DP 1235-01

This prospective study of a birth cohort addressed three questions. Which individual and family-of-origin characteristics predict the age at which young men make the transition to fatherhood? Do these same characteristics predict how long young men live with their children? Are individual differences in the amount of time fathers spend living with their children associated with the fathers' psychosocial characteristics in young adulthood? In this unique study, it was found that by age 26, 19 percent of the 499 study men had become fathers. Individual and family-of-origin characteristics were assessed from birth until age 15, and contemporaneous characteristics were assessed at age 26. Young men who experienced a stressful rearing environment and a history of conduct problems were more likely to become fathers at an early age and to spend less time living with their children. Of those who experienced none of the risk factors, fewer than 10 percent had become fathers by age 26, versus more than 60 percent of those who experienced five risk factors. Fathers who lived apart from their children reported the most social and psychological difficulties in young adulthood. These findings point to individual and family-of-origin characteristics that might be targeted to delay fatherhood and increase levels of paternal involvement. However, given their troubled life histories and poor social-psychological adjustment in young adulthood, some absent fathers might have difficulties providing positive parenting and partnering unless policy initiatives to promote intact families also support young fathers.

Welfare Reform and Household Saving
Erik Hurst and James P. Ziliak

Full Text: DP 1234-01

In order to receive many forms of government assistance, a household's assets must be below the federal or state mandated limits. Recent theoretical work has shown that such means-tested welfare programs can explain the low levels of saving observed in the data for households with relatively low lifetime resources. In this paper, we use micro-level data from the Panel Study of Income Dynamics to examine the impact of new saving incentives that were implemented as part of the overhaul of U.S. welfare policy during the mid-1990s on the saving of households at risk of entering welfare. The Temporary Assistance for Needy Families program devolved responsibility of program rules to the states, and many states have responded by relaxing liquid asset and vehicle-equity limits that determine program eligibility, by introducing targeted Individual Development Accounts whose contributions do not count against program eligibility, and by introducing time limits on benefit receipt. According to the recent theoretical work and statements made by public officials, such policies are predicted to increase total savings for those households who have a large ex-ante probability of welfare receipt. Among those households with a high risk of entering welfare we find that increasing asset limits had a modest positive effect on liquid saving, and no effect on broader measures of saving; that liquid saving fell in states that removed their vehicle equity limits; and that IDAs had a positive, but small, impact on liquid saving. In general, though, there has been no near-term impact of welfare policy changes on the saving of those with only a moderate risk of facing welfare policies.

Income Transfers and Assets of the Poor
James P. Ziliak

Full Text: DP 1233-01

Contrary to the predictions of the standard life-cycle model, many low lifetime-income households accumulate little wealth relative to their incomes compared to households with high lifetime income. In this paper, I use data from the Panel Study of Income Dynamics and a correlated random-effects Generalized Method of Moments estimator to decompose the rich-poor wealth-to-permanent income gaps into the portions attributable to differences in characteristics such as labor-market earnings, income uncertainty, observed demographics, and the utilization of transfer programs which may have stringent income and liquid-asset tests, and to differences in the estimated coefficients on the respective characteristics. The results suggest that while wealth-to-permanent income ratios are increasing in permanent labor income and income uncertainty, transfer income, with or without asset tests, discourages liquid-asset accumulation. The decompositions indicate that most of the rich-poor wealth gap is attributable to differences in average characteristics and not coefficients. The leading factor driving the liquid wealth-to-permanent income gap between the rich and poor is asset-tested transfer income, while the primary factor driving the net worth-to-permanent income gap is labor-market earnings.

Welfare Reform in Wisconsin: The Local Role
Lawrence M. Mead

Full Text: DP 1232-01

I suggest a new model for the implementation of social programs based on welfare reform in Wisconsin. Existing models tend to be top-down or bottom-up, but in Wisconsin the leading counties and the state government worked interactively to transform welfare. Existing accounts of the Wisconsin reform stress state-level leadership, but key features such as high participation in work programs and an emphasis on "work first" rather than training were developed first in Kenosha and several other counties, then adopted statewide. The story also dramatizes the critical role of strong program management and organization.

Implementing Work Requirements in Wisconsin
Lawrence M. Mead

Full Text: DP 1231-01

Top-down models of implementation predict that a program will achieve its formal goals more fully when the political and financial resources behind it increase and policy design improves. This study confirms that expectation in the case of implementing welfare work requirements in Wisconsin. Welfare work programs in the state had little impact on dependency up through the mid-1980s because work was not a priority in welfare policy and work programs were underdeveloped. In 1985-86, however, the state sharply increased funding and built up the job search bureaucracy. It required that more recipients participate in work programs, enter jobs rather than education, and avoid welfare if possible. It also attuned the bureaucracy to its goals using funding incentives. Improved work requirements, along with strong economic conditions, then helped drive down the welfare rolls.

Governmental Quality and Welfare Reform
Lawrence M. Mead

Full Text: DP 1230-01

In the last decade, caseloads in AFDC/TANF have shifted dramatically up, then down. Existing studies fail to explain the changes well. Also, they do not reveal the policies behind the changes, nor the important role of governmental quality in shaping welfare reform. In this study, I use cross-sectional models based on states, measure welfare reform policies directly using program data, and relate these policies to background features of states' politics and government. Results show that grant levels, work and child support requirements, and sanctions are important explainers of caseload change, together with some demographic factors and unemployment. These policies in turn are tied to states' political opinion, political culture, and institutional capacity. Moralistic states seem the most capable of transforming welfare as the public wants.

Involvement of TANF Applicants with Child Protective Services
Mark E. Courtney, Irving Piliavin, and Peter Power

Full Text: DP 1229-01

This paper presents findings from an exploratory study of Temporary Assistance for Needy Families (TANF) applicants in Milwaukee County, Wisconsin. We examine the level of involvement of TANF applicants with the child welfare system both before and after their application for TANF assistance and inclusion in our study. We also present preliminary multivariate models of the hazard of our sample's CPS involvement with child protective services subsequent to their application for TANF. We find a high level of overlap between TANF and child welfare populations. We also find a set of correlates of CPS involvement after TANF application that are robust to a variety of model specifications. Although our findings are preliminary and further analyses based on longer-term follow-up of our sample will no doubt provide greater clarity, we believe that our findings to date provide food for thought for the designers and administrators of both TANF and child welfare programs.

Examining Policies to Reduce Homelessness Using a General Equilibrium Model of the Housing Market
Erin Mansur, John M. Quigley, Steven Raphael, and Eugene Smolensky

Full Text: DP 1228-01

In this paper, we use a general equilibrium simulation model of the housing market to assess the potential to reduce the incidence of homelessness of various housing-market policy interventions. A version of the model developed by Anas and Arnott is extended and adapted to study homelessness and is calibrated to the four largest metropolitan areas in California. Using data from the Census of Population and Housing for 1980 and 1990 and the American Housing Survey for various years, we explore several alternative simulations. First, we calibrate the model for each metropolitan area to observed housing market and income conditions in 1980 and assess how well the model predicts observed changes in rents during the decade of the 1980s. Next, using models calibrated to 1990 conditions, we assess the effects on homelessness of changes in the income distribution similar to those which occurred during the 1980s. Finally, we explore the welfare consequences and the effects on homelessness of three housing-market policy interventions: extending housing vouchers to all low-income households, subsidizing all landlords, and subsidizing those landlords who supply low-income housing. Our results suggest that a very large fraction of homelessness can be eliminated through increased reliance upon well-known housing subsidy policies.

Who Are the Asset Poor?: Levels, Trends, and Composition, 1983-1998
Robert Haveman and Edward N. Wolff

Full Text: DP 1227-01

The booming U.S. economy of the 1990s has created the impression that all American households are doing well, particularly in terms of wealth acquisition. Our results show that this is decidedly not the case. In this paper, we develop several measures of "asset poverty" and use them to document changes from 1983 to 1998 in the extent to which American households are unable to rely on an asset cushion to sustain themselves during temporary hard times. These measures indicate that in the face of the massive growth in overall assets in the United States, the level of asset poverty has actually been rising. In addition to showing the trends in overall asset poverty in the United States, we describe the patterns of asset poverty rates for various socioeconomic (e.g., race, age, schooling, family structure) groups over the 1983-1998 period. We find that the prosperity of the 1990s brought an unexpected increase in asset poverty for groups that are generally viewed as not particularly vulnerable (such as whites and college-educated families), and a sizable reduction in asset poverty for vulnerable groups such as racial minorities and single-parent families.

Three Years of Food Security Measurement Research in Hawaii
Joda P. Derrickson

Full Text: DP 1226-01

This paper consolidates findings and synthesizes recommendations from three years of food security measurement research completed in Hawaii by the author. A practical outcome of this research has been the development of an effective food security monitoring tool for use in Hawaii. Among its key findings, this research (1) confirmed the face validity of the Core Food Security Module (CFSM) with Asians and Pacific Islanders in Hawaii; (2) indicated that the CFSM yields valid and reliable scale measures among Asians and Pacific Islanders in Hawaii, except possibly with American Samoans; (3) questioned the CFSM categorical algorithm; (4) confirmed the importance of reducing response burden of the 18 items for hungry households with children; (5) documented the alternative "face valid" categorical algorithm as a more sensitive way to categorize affirmative responses; and (6) questioned the effectiveness of the recommended six-question food security subscale. Recommendations generated by a comprehensive assessment of these findings include (1) continue ongoing food security research efforts; (2) reassess fundamental aspects of the national food security monitoring tool; and (3) support local/state food security monitoring. Findings warrant further assessment of the purpose of food security monitoring and how food security monitoring can be implemented most effectively at the state or local level to make progress on the Healthy People 2010 food security objective, and ultimately to end resource-constrained hunger in the United States.

Explaining Variation in the Effects of Welfare-to-Work Programs
David Greenberg, Robert Meyer, Charles Michalopoulos, and Michael Wiseman

Full Text: DP 1225-01

Evaluations of government-funded employment and training programs often combine results from similar operations in multiple sites. Findings inevitably vary. It is common to relate site-to-site variations in outcomes to variations in program design, participant characteristics, and the local environment. Frequently such connections are constructed in a narrative synthesis of multisite results. This paper uses data from the evaluation of California's Greater Avenues for Independence (GAIN) program and the National Evaluation of Welfare-to-Work Strategies (NEWWS) to question the legitimacy of such syntheses. The discussion is carried out using a simple multilevel evaluation model that incorporates models of both individual outcomes within sites and variation in program effects across sites. Our results indicate that tempting generalizations about GAIN and NEWWS effects are statistically unjustified, but that significant progress might be made in identifying the determinants of program effects in future demonstrations with some changes in evaluation strategy.

Measuring Employment and Income for Low-Income Populations with Administrative and Survey Data
V. Joseph Hotz and John Karl Scholz

Full Text: DP 1224-01

We discuss the strengths and weaknesses of income and employment data in national surveys, in unemployment insurance (UI) wage records, and in tax returns. The CPS, SIPP, NLS, and PSID surveys provide valuable information on the behavior of the low-income population. They have broad and fairly accurate measures of income for national samples, and their focus on families as the unit of analysis and their ease of access greatly enhance their value.

The value of these data sets for evaluating welfare reform is severely limited, however. With the devolution of responsibility for TANF, the CPS and SIPP sampling frames and sample sizes mean that, at best, they can be only supplementary data sources for understanding the effects of welfare reform at the state and local levels. The apparent decline in program coverage in the CPS is also worrisome.

UI data are available at the state level and can be matched to individuals in existing samples at relatively low cost. It is straightforward to do follow-up analyses on income and employment for workers who remain in the state, and UI data are timely. However, earnings are available only for individuals, while changes in family composition upon exit from welfare have been shown to have a large bearing on economic well-being. UI data do not allow us to track these changes. There also appears to be a substantial problem with some workers being classified as independent contractors and hence not entering the UI system. Overall gaps in coverage appear to be at least 13 percent and may be significantly higher. Even when wages are reported, there is some evidence that they are understated by a significant amount.

We also present evidence on the degree to which tax data can be used to understand the incomes and employment of low-skilled workers. The paper concludes with brief recommendations for future research that might help fill some of the gaps we have identified.

Britain's New Deal and the Next Round of U.S. Welfare Reform
Robert Walker and Michael Wiseman

Full Text: DP 1223-01

The United States will begin another round of debate on welfare reform during the 107th Congress, which convened in January 2001. The new congress and administration must decide on reauthorization of funding for Temporary Assistance for Needy Families, the program established in 1996 as a replacement for Aid to Families with Dependent Children. Among other things, the reauthorization debate will focus on issues of program funding, rationalization, performance, best practice, and direction. This paper argues that all phases of this debate would benefit from more widespread understanding and appreciation of the British Labour government's welfare reform program, including both the New Deal welfare-to-work programs and related changes in benefits and coverage. This paper reviews the ideology, strategy, and implementation of British innovations with regard to links to U.S. reforms and as a source of new perspectives and ideas for the reauthorization debate.

Making Ends Meet: Private Food Assistance and the Working Poor
Ann Nichols-Casebolt and Patricia McGrath Morris

Full Text: DP 1222-01

Concern is growing that large segments of low-income Americans are slipping through, or are not adequately served by, the public food assistance safety net. Many of these individuals are turning to the private network of food pantries and soup kitchens for their nourishment. In particular, a significant percentage of individuals seeking private food assistance are the working poor. In this paper, we look at the characteristics of a sample of employed Virginia households who depend on soup kitchens or food pantries to help them make ends meet. Our data indicate that these individuals have demographic characteristics that do not bode well for their being able to earn high enough wages to all allow them to meet basic family needs without some type of additional supports.

The Memberships Theory of Poverty: The Role of Group Affiliations in Determining Socioeconomic Outcomes
Steven N. Durlauf

Full Text: DP 1221-01

This paper describes a particular perspective on the causes of poverty: a memberships based theory. The idea of this theory is that an individual's socioeconomic prospects are strongly influenced by the groups to which he is attached over the course of his life. Such groups may be endogenous; examples include residential neighborhoods, schools and firms. Other groups are exogenous, including ethnicity and gender. I describe the main ideas of the memberships theory, characterize the empirical evidence in its support, and remark on its implications for anti-poverty policy.

A Framework for the Study of Individual Behavior and Social Interactions
Steven N. Durlauf

Full Text: DP 1220-01

Recent work in economics has begun to integrate sociological ideas onto the modelling of individual behavior. In particular, this new approach emphasizes how social context and social interdependences influence the ways in which individuals make choices. This paper provides an overview of an approach to integrating theoretical and empirical analysis of such environments. The analysis is based on a framework due to Brock and Durlauf (2000a, 2000b). Empirical evidence on behalf of this perspective is assessed and some policy implications are explored.

Welfare Benefits and Female Headship in U.S. Time Series
Robert A. Moffitt

Full Text: DP 1219-01

A considerable amount of work has been done on the relationship between AFDC benefits and family structure in the United States. The evidence to date-based on cross-state variation in welfare benefits and family structure, often with state fixed effects-indicates that there is some nonzero effect of those benefits on marriage and fertility, although disagreement remains about the magnitude of the effect. It is undisputed, however, that time-series trends in family structure are not correlated in the direction that the cross-state evidence would suggest, because real benefits have been falling, even relative to wages, in aggregate time series. This paper reexamines the time-series evidence with particular attention to the role of wages in explaining trends in headship, and notes that the correct specification includes male as well as female wages. When both are controlled, welfare benefits have a slight positive impact on female headship even in time series. The results demonstrate the importance of labor market factors in explaining trends in female headship.