IRP Discussion Paper Abstracts - 1997

Notes: Abstracts are plain text. Downloadable papers are in Adobe Acrobat (.pdf) format.
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The Effect of Welfare on Marriage and Fertility: What Do We Know and What Do We Need to Know?
Robert A. Moffitt

Full Text: DP 1153-97

The recent literature on the effects of welfare on marriage and fertility includes studies employing a wide variety of methodologies and data sets and covering different time periods. A majority of the studies show that welfare has a significantly negative effect on marriage or positive effect on fertility rather than none at all, and thus the current consensus is that the welfare system probably has some effect on these demographic outcomes. Considerable uncertainty surrounds this consensus because a sizable minority of the studies find no effect at all, because the magnitudes of the estimated effects vary widely, and because puzzling and unexplained differences exist across the studies by race and methodological approach. At present, and with the information provided in the studies, the source of these disparities cannot be determined. While a neutral weighing of the evidence still leads to the conclusion that the welfare system affects marriage and fertility, research needs to be conducted to resolve the conflicting findings.

Are Public Housing Projects Good For Kids?
Janet Currie and Aaron Yelowitz

Full Text: DP 1152-97

One goal of federal housing policy is to improve the prospects of children in poor families. But little research has been conducted into the effects on children of participation in housing programs, perhaps because it is difficult to find data sets with information about both participation and interesting outcome measures. This paper combines data from several sources to provide a first look at the effects of participation in public housing projects on housing quality and on the educational attainment of children.

We first use administrative data from the Department of Housing and Urban Development to impute the probability that a Census household lives in a public housing project. We find that a higher probability of living in a project is associated with poorer outcomes. We then use a two-sample instrumental variables (TSIV) technique to combine information on the probability of living in a project, obtained from the 1990 to 1995 Current Population Surveys, with information on outcomes obtained from the 1990 Census. The instrument common to both samples is an indicator equal to one if the household is entitled to a larger housing project unit because of the sex composition of the children in the household. Families entitled to a larger unit because of sex composition are 24 percent more likely to live in projects. When we control for omitted variables bias using TSIV, we find that project households are less likely to suffer from overcrowding and less likely to live in high-density complexes. Project children are also 12 to 17 percentage points less likely to have been held back in school one or more grades, although this effect is confined to boys. Thus, most families do not face a tradeoff between housing quality and child outcomes-the average project improves both.

Accounting for the Decline in AFDC Caseloads: Welfare Reform or Economic Growth?
James P. Ziliak, David N. Figlio, Elizabeth E. Davis, and Laura S. Connolly

Full Text: DP 1151-97

Nationwide, AFDC caseloads have decreased by about 18 percent since March 1994, while some states, such as Wisconsin, Indiana, and Oregon, have seen declines of 40 percent or more. Two factors are frequently suggested as possible causes: state-level experiments with welfare reform and strong economic growth. In this paper, we use state-level monthly panel data from 1987 to 1996 to assess the importance of each of these factors by estimating a model of AFDC caseloads as a dynamic function of time-dependent state welfare reform variables (welfare waivers) and economic variables such as per capita employment. Our results from the dynamic model suggest that the decline in per capita AFDC caseloads is attributable largely to the economic growth of states and not to waivers from federal welfare policies. In the 26 states experiencing at least a 20 percent decline in per capita AFDC caseloads between 1993 and 1996, we attribute 78 percent of the decline to business-cycle factors and 6 percent to welfare waivers.

Perceived Fairness and Compliance with Child Support Obligations
I-Fen Lin

Full Text: DP 1150-97

This paper examines how the perceptions of nonresident fathers about the fairness of their child support orders affect their compliance with these orders. In particular, the study asks whether routine income withholding affects compliance in the absence of perceived fairness. The analytic sample includes 392 nonresident fathers who filed for divorce between 1986 and 1988 in the state of Wisconsin. Using the reports made by these fathers along with court records as an independent measure of their subsequent compliance with child support obligations over a 24-month period, the author concludes that fathers' perceptions of fairness increase their compliance with support orders. Moreover, routine income withholding has a greater effect on compliant behavior when fathers think their child support agreements are unfair than when they think their agreements are fair.

The Impact of Recent Welfare Reforms on Labor Supply Behavior in New Zealand
Tim Maloney

Full Text: DP 1149-97

New Zealand recently initiated sweeping reforms to its social welfare program by cutting benefits and tightening eligibility criteria. One of the objectives of these reforms was to provide incentives for people to enter or re-enter the labor force. Econometric analysis is used in this paper to isolate the actual effects of these benefit reforms on labor supply. Previous research has often failed to accurately measure the extent of these work disincentives, or to observe variation in these programs that would allow this empirical analysis to take place. The structure of the benefit programs and the nature of the reforms in New Zealand offer a unique opportunity to identify these behavioral responses. Quarterly random samples of individuals over the period 1987-1995 are used to isolate the effects of the reforms. This study finds compelling evidence that the recent benefit reforms in New Zealand increased both labor force participation and hours of labor supplied at the aggregate level.

Credit Cards and the Poor
Edward J. Bird, Paul A. Hagstrom, and Robert Wild

Full Text: DP 1148-97

We use data from four releases of the Survey of Consumer Finances, 1983 to 1995, to examine credit card use among the poor. The credit card market has expanded rapidly in the general population and, given the often transitory nature of poverty, more and more families may be using credit cards rather than welfare or other means to smooth consumption across income shortfalls. Indeed, from 1983 to 1995, the percentage of poor families holding a credit card rose from less than 20 percent to almost 40 percent, and the average real balance on these cards rose from about $700 to more than $1,300. In 1983 the proportion of poor families with a credit card balance more than twice its monthly income was less than 1 in 30, but rose to 1 in 8 by 1995. The growth in debt represents a new and increasingly important development in the nature of poverty since the mid-1980s, and may soon create a need for administrative policy responses in the form of credit and debt management counseling for at-risk families. Among the research questions are raised are (1) Why has the credit card market expanded to include more economically vulnerable households? and (2) Is the new existence of easy credit temporarily softening the impact of welfare reform?

Has 'Welfare Dependency' Increased?
Peter Gottschalk

Full Text: DP 1147-97

This paper uses the Panel Study of Income Dynamics from 1975 to 1992 to measure changes in the distribution of years of receipt of AFDC. The process generating the total number of years of welfare receipt is then disaggregated into four components: (1) the length of time until first birth, (2) the duration until a welfare spell begins, (3) the duration of a welfare spell, and (4) the duration until the woman re-enters the welfare system. Since much of the recent debate has focused on unwed teen mothers, we give special attention to this group. Finally, we focus on events that accompanied the end of welfare spells.

We find no systematic evidence of increased dependency, either for all women or for women who had their first child as unwed teens. The stability of the overall measures of total time on welfare, however, reflects offsetting changes in the underlying processes. For example, the duration until first birth declined but there was no trend in the time between first birth and entry onto welfare. This holds for unwed teens as well as other women. Furthermore, we find that the duration of welfare spells declined for unwed teens but increased for others.

Changes in events associated with entry onto welfare and exits from welfare also do not support the view that welfare recipients were less likely to use the labor market to change their welfare status.

Taxes and Transfers: A New Look at the Marriage Penalty
Stacy Dickert-Conlin and Scott Houser

Full Text: DP 1146-97

The public assistance transfer system typically has large marriage disincentives, while the income tax system is likely to subsidize marriage for many low-income families. In other words, the tax system may mitigate the loss of transfer benefits associated with marriage. The relevance of the income tax system for low-income families is even greater with the recent expansion of the Earned Income Tax Credit, for which filers may be eligible even if their tax liability is zero. The interaction of the transfer system with the income tax system has been largely overlooked. This paper describes the distribution of the joint change in 1990 transfer benefits and tax liability associated with a change in marital status.

How Does Adolescent Fertility Affect the Human Capital and Wages of Young Women?
Daniel Klepinger, Shelly Lundberg, and Robert Plotnick

Full Text: DP 1145-97

The consequences of teen childbearing for the future well-being of young women remain controversial. In this paper, we model and estimate the relationship between early childbearing and human capital investment, and its effect on wages in early adulthood. Taking advantage of a large set of potential instruments for fertility-principally state- and county-level indicators of the costs of fertility and fertility control-we use instrumental variables procedures to generate unbiased estimates of the effects of early fertility on education and work experience, and the effects of these outcomes on adult wages. For both black and white women, adolescent fertility substantially reduces years of formal education and teenage work experience. White teenage mothers also obtain less early adult work experience than young women who delay childbearing. We also find that, through these human capital effects, teenage childbearing has a significant effect on a young woman's market wage at age 25. Our results, unlike those of recent "revisionist" studies, suggest that public policies that reduce teenage childbearing are likely to have positive effects on the economic well-being of many young mothers and their families.

Using Siblings to Investigate the Effects of Family Structure on Educational Attainment
Gary D. Sandefur and Thomas Wells

Full Text: DP 1144-97

This paper examines the effects of family structure on educational attainment after controlling for common family influences, observed and unobserved, using data from siblings. The use of sibling data permits us to examine whether the apparent effects of family structure are due to unmeasured characteristics of families that are common to siblings. The data come from pairs of siblings in the National Longitudinal Survey of Youth, 1979-1992. The results suggest that taking into account the unmeasured family characteristics yields estimates of the effects of family structure on educational attainment that are smaller, but still statistically significant, than estimates based on analyses that do not take unmeasured family influences into account.

The Changing Economic Status of Disabled Women, 1982-1991: Trends and Their Determinants
Robert Haveman, Karen Holden, Barbara Wolfe, Paul Smith, and Kathryn Wilson

Full Text: DP 1143-97

This study provides an assessment of the intertemporal economic well-being of a representative sample of women who began receiving Social Security Disability Insurance (SSDI) in 1980-81. We compare their economic circumstances over the 1982-1991 period with those of disabled men who also began receiving SSDI in those years and with those of a matched sample of nondisabled women who had sufficient work experience for benefit eligibility should they have become disabled. In 1982, the new SSDI women beneficiaries were a relatively poor segment of U.S. society: one quarter of them lived in poverty and 48 percent had incomes below 150 percent of the poverty line. As of 1991, over one-half of these disabled women lived in families with income below 150 percent of the poverty line. Social Security benefits to disabled women have played an important, and growing, role in sustaining economic status. Nevertheless, the level of well-being of these women lies substantially below that of the comparison groups. We statistically relate the poverty status of these new female recipients to sociodemographic factors that would be expected to contribute to lower levels of well-being, and we simulate the effect of Social Security benefits in reducing poverty and replacing earnings. We suggest a number of SSDI-related policy changes that could, at low cost, reduce poverty among the poorest women.

School Finance Reforms, Tax Limits, and Student Performance: Do Reforms Level Up or Dumb Down?
Thomas A. Downes and David N. Figlio

Full Text: DP 1142-97

During the late 1970s and early 1980s, a majority of states substantially changed the ways in which schools were funded, either directly through court- or legislatively mandated school finance reform, or indirectly through tax and expenditure limits. To date, there have been few academic attempts to gauge the effects of these policy changes on actual outcomes of education. This paper is an attempt to fill this gap in the literature. We find compelling evidence that the imposition of tax or expenditure limits on local governments in a state results in a significant reduction in the mean for that state of student performance on standardized tests of mathematics skills. We also find that finance reforms in response to court mandates do not result in significant changes in either the mean level or the distribution of student performance on standardized tests of reading and mathematics. In addition, substantial finance reforms that are not legislative responses to explicit court mandates generally result in increases in mean student performance. Further, in those states that have implemented finance reforms of this type, the test performance of students residing in localities in which local revenues formed smaller shares of total revenue prior to the reforms improve relative to others after the reforms are implemented.

School Choice and Student Performance: Are Private Schools Really Better?
David N. Figlio and Joe A. Stone

Full Text: DP 1141-97

Are private schools really better than public schools, or is it simply that better students attend private schools? Although a number of recent studies find that students perform better in private schools (more specifically, Catholic schools), others do not. Typically, however, the instruments used to adjust for nonrandom selection are weak. This study employs uniquely detailed local instruments and jointly models selection into religious and nonreligious private high schools, relative to public high schools-improving instrument power in predicting private sector attendance to roughly three times that of prior studies. Failing to correct adequately for selection leads to a systematic upward bias in the estimated treatment effect for religious schools, but a downward bias for nonreligious private schools. With adequate correction, religious schools are modestly inferior in mathematics and science, while nonreligious schools are substantially superior. However, minority students, particularly in urban areas, benefit from religious schools. Other factors that may make both religious and nonreligious private schools attractive include possibly better retention rates, increased security and discipline, and greater opportunities for a variety of specialized school-day and extracurricular activities.

Family Structure, Substitute Care, and Educational Achievement
William R. Prosser

Full Text: DP 1140-97

Data from the National Longitudinal Survey of Youth are used to explore the educational achievement of youths who lived away from both biological parents for at least four months during childhood. The study focuses on those who spent some time in substitute care (in foster family care, living with relatives, or in institutions), those who left home to be on their own before age 17, and children who were adopted by a couple before age 2. Educational achievement is measured by high school completion, college completion, and highest grade completed by age 25. The 5 to 10 percent of youths in this study who experience surrogate forms of family care on average have lower educational achievement than those who grew up with both biological parents. The educational level of the parents appears to play an important role, and may explain a significant portion of this discrepancy. This study cannot sort out whether the differences in educational achievement reflect the types of youths who enter surrogate forms of care, the reasons for transitions, or the actual substitute care experiences. Its contribution is that it adds analysis of a nationally representative sample of youth to a very thin body of literature on substitute care.

Tax Rates and Work Incentives in the Social Security Disability Insurance Program: Current Law and Alternative Reforms
Hilary Williamson Hoynes and Robert Moffitt

Full Text: DP 1139-97

The Social Security Disability Insurance (SSDI) Program has long been criticized by economists for its apparent work disincentives stemming from the imposition of 100 percent tax rates on earnings. However, the program has been modified in recent years to allow recipients to keep some of their earnings for fixed periods of time. Moreover, additional proposals have been made for lowering the tax rate further and for providing various additional financial work incentives. We use the basic labor supply model to show the expected effect of these reforms on work effort. In addition, we provide a numerical simulation that shows the magnitude of the monetary incentives provided by the reforms for different categories of individuals. We find that the proposed reforms have ambiguous effects on work effort and could, contrary to perceived wisdom, possibly reduce work effort and increase the number of SSDI recipients. However, the simulations show that reforms based on earnings subsidies for private employers are more likely to increase work effort and to lower the caseload.

Earnings of Black and White Youth and Their Relation to Poverty
Philip M. Gleason and Glen G. Cain

Full Text: DP 1138-97

This paper examines the relation between youth employment and poverty for black and white families. An increase in the employment proportions of black men ages 16-19, which have lagged far behind their white counterparts, would reduce poverty among blacks to a moderate but meaningful degree. We provide evidence of a small positive feedback relation between black youth employment and family incomes that would magnify gains in both variables if either variable were increased. We also provide evidence that improvements in labor market conditions that affect youth employment, in the educational attainments of black youth, and in other policy-related variables would raise both youth employment and their family incomes.

Do Teens Make Rational Choices? The Case of Teen Nonmarital Childbearing
Robert Haveman, Barbara Wolfe, Kathryn Wilson, and Elaine Peterson

Full Text: DP 1137-97

With emphasis on the role of economic incentives, we explore the determinants of a woman's choice of whether or not to give birth as an unmarried teenager. Our data are taken from the Panel Study of Income Dynamics. Guided by a simple utility-maximization model, we represent the income possibilities available to teenaged women if they do and do not give birth out of wedlock. We estimate these choice-conditioned income possibilities through a two-stage probit procedure, relying on the observed incomes of a secondary sample of somewhat older women. The response of the young women in our primary sample to these income expectations is measured after controlling for the effects of a variety of other factors, including the characteristics of the girl's family, the social and economic environment in which she lives (including such policy-related factors as expenditures by states on family planning programs and education), and her own prior choices. We use the estimated structural parameters from our model to simulate the effects of a variety of policy interventions on the probability of becoming an unmarried teen mother. Our estimations provide evidence that income expectations have a persistent influence on the childbearing decision. They also provide evidence that the provision of public family planning expenditures and increases in parental education could reduce the prevalence of teen nonmarital births.

Public Policy and Health Care Choices of the Elderly: Evidence from the Medicare Buy-In Program
Aaron S. Yelowitz

Full Text: DP 1136-97

This study provides evidence on the economic decisions of senior citizens with respect to the largest means-tested program in the United States: the Medicaid program. Virtually all senior citizens have health insurance coverage through Medicare, but poor seniors may also be eligible for Medicaid, which fills in many of the gaps in Medicare coverage. Since 1987, the Medicaid program has undergone a series of changes relating to eligibility. In particular, two new categories of elderly Medicaid recipients, known as Qualified Medicare Beneficiaries (QMBs) and Specified Low-Income Medicare Beneficiaries (SLMBs), were created. This study uses the Survey of Income and Program Participation to explore three issues relating to the expansions. First, how much did the QMB expansions increase Medicaid eligibility? Second, how did increases in Medicaid eligibility affect supplemental insurance coverage? Finally, does increased Medicaid coverage translate into increased health care utilization?

There are five principal findings. First, actual Medicaid eligibility increased dramatically, from 8 percent in 1987 to 12.5 percent in 1995. Second, the expansions for the elderly resulted in dramatically higher Medicaid take-up rates than similar expansions for children. For every 100 elderly who became eligible, 49 took it up. Nearly 30 out of 100 elderly dropped private coverage, however, resulting in crowd out of 60 percent. Third, crowd out was concentrated among the youngest of senior citizens. Fourth, crowd out came from individuals dropping privately purchased health insurance rather than dropping employer-provided retiree health insurance. Finally, Medicaid coverage increased the number of hospitalizations, though the findings on health care utilization are generally inconclusive.

Public Health Insurance and Private Savings
Jonathan Gruber and Aaron Yelowitz

Full Text: DP 1135-97

Recent theoretical work suggests that means and asset-tested social insurance programs can explain the low savings of lower income households in the United States. We assess the validity of this hypothesis by investigating the effect of Medicaid, the health insurance program for low-income women and children, on savings behavior. We do so using data on asset holdings from the Survey of Income and Program Participation, and on consumption from the Consumer Expenditure Survey, matched to information on the eligibility of each household for Medicaid. Exogenous variation in Medicaid eligibility is provided by the dramatic expansion of this program over the 1984-1993 period. We document that Medicaid eligibility has a sizeable and significant negative effect on wealth holdings; we estimate that in 1993 the Medicaid program lowered wealth holdings by 17.7 percent among the eligible population. We confirm this finding by showing a strong positive association between Medicaid eligibility and consumption expenditures; in 1993, the program raised consumption expenditures among eligibles by 5.2 percent. We also exploit the fact that asset testing was phased out by the Medicaid program over this period to document that these Medicaid effects are stronger in the presence of an asset test, confirming the importance of asset testing for household savings decisions.

Special Education and School Achievement: An Explanatory Analysis
Arthur Reynolds and Barbara Wolfe

Full Text: DP 1134-97

Since the passage of Mills v. Board of Education in 1972, school district spending on special education has increased dramatically nationwide. Are the high expenditures on special education justified in order to improve school performance? To shed some light on this question, we looked at the school achievement of 1,245 low-income, mostly black children in grades 1 through 6 who participated in the Chicago Longitudinal Study from 1987 to 1992. About 15 percent of the study sample received special education services, half in learning disabilities and half in other disabilities, 22 percent were retained in grade, and 50 percent changed schools more than once during their elementary schooling. Controlling for school achievement prior to placement in special education, as well as for family background, school experiences, and school attributes, children receiving special education services had lower reading and math achievement scores than other sample children who did not receive services, especially during grades 4 through 6. Children with learning disabilities benefitted less from special education services than did children with other disabilities. Grade retention and school mobility during the primary grades were associated with significantly lower reading and math achievement above and beyond prior achievement and other factors. Alternatives to special education placement services as well as grade retention, at least as they currently exist, may benefit children with learning difficulties.

Physical Custody in Wisconsin Divorce Cases, 1980-1992
Patricia Brown, Marygold Melli, and Maria Cancian

Full Text: DP 1133-97

This report examines data from the court record of 9,500 Wisconsin divorce cases in twenty-one representative counties for a period of twelve years, from 1980 to 1992, in order to document how child custody is being handled in divorce. We find an increased involvement of fathers with their children after divorce, particularly through joint legal custody (81 percent in 1992), but also in shared physical custody (14 percent in 1992), and in an increase in specific and detailed physical placement awards. We find substantial differences in custody awards related to situations and actors in the divorce process, and wide variations in custody awards between counties. We also find major differences between families who have equal 50/50 time-share and those who have unequal shared-custody arrangements. These two kinds of shared-custody cases have been treated as one type in the research on custody to date, but appear in our data to characterize two quite different kinds of families.

Shifts in U.S. Relative Wages: The Role of Trade, Technology, and Factor Endowments
Robert E. Baldwin and Glen G. Cain

Full Text: DP 1132-97

This paper investigates three hypotheses to account for the observed shifts in U.S. relative wages of less educated workers compared to more educated workers during the period from 1967 to 1992: (1) increased import competition, (2) changes in the relative supplies of labor of different educational levels, and (3) changes in technology. Our analysis relies on a basic relationship of the standard general equilibrium trade model that relates changes in product prices to factor price changes and factor shares, together with information about changes in the composition of output and trade, within-industry factor use, and factor supplies.

For the period from 1967 to 1973, we conclude that the relative increase in the supply of well-educated labor was the dominant economic force that narrowed the wage gap among workers of different educational levels. In the 1980s and early 1990s, however, the wage gap between more educated and less educated workers widened sharply, despite the continued relative increase in the supply of workers with more education. We conclude that increased import competition cannot account for the observed increase in inequality among the major education groups, although it could have been a contributory cause of the decrease in the relative wages of the least educated workers. Instead, we find support for technical progress that is saving of less educated labor and that is more rapid in some manufacturing sectors intensively using highly educated labor as the dominant force in widening the wage gaps among college-educated workers, workers with a completed high school education, and workers with 1-11 years of schooling.

Finally, we use the Deardorff-Staiger model, which allows changes in the factor content of trade to reveal the effects of trade on relative factor prices. Our empirical tests reinforce the conclusion that increased import competition between 1977 and 1987 was not the dominant force in widening the wage

Uninsured Spells of the Poor: Prevalence and Duration
Timothy D. McBride

Full Text: DP 1131-97

The number of persons in the United States without health insurance, particularly those lacking private health insurance, is increasing. Although there is a large body of research documenting the insurance status of people in poverty at a point in time, the duration of spells without health insurance, and the duration of poverty spells, much less attention has been paid to the dynamics of spells without health insurance among those in poverty. The results presented here, based on data from the 1990 Survey of Income and Program Participation (SIPP), conclude that the typical uninsured spell is longer for the uninsured poor (roughly 8.3 months) than for the uninsured nonpoor (roughly 6 months) and that the duration of spells has increased over time. The findings suggest that over 40 percent of the uninsured at a point in time are chronically uninsured and poor or near poor. The cost of obtaining health care is particularly prohibitive for this group, with serious implications for the reform of health care.

Patterns of Child Support Compliance in Wisconsin
Daniel R. Meyer and Judi Bartfeld

Full Text: DP 1130-97

This paper examines five-year compliance patterns among Wisconsin child support cases that came to court in 1986-88. We find only limited support for the common assumption that compliance with child support orders declines over time: the average percent paid is about .65 during each of the first five years. The most predominant trend is an increasing polarization into groups of nonpayers and full payers. Although we find considerable stability from year to year among nonpayers and full payers, there is considerable change over the course of five years. Compliance during the first year provides some indication of long-term compliance, but about half of fathers change their compliance rate over the period. We find important differences between divorced and nonmarital fathers, differences that are more pronounced than are apparent from a single year of data. Policy implications are discussed and further research is suggested.

Duration of Public Assistance Receipt: Is Welfare a Trap?
Gary D. Sandefur and Steven T. Cook

Full Text: DP 1129-97

This paper uses data from the National Longitudinal Survey of Youth to answer two questions about the effects of the Aid to Families with Dependent Children (AFDC) program: (1) Does the length of time that one receives AFDC affect the likelihood of permanently leaving AFDC? (2) What personal and family characteristics are associated with the long-term receipt of AFDC? The answer to the first question is that the likelihood of permanently leaving AFDC decreases with the length of time that individuals receive benefits, after adjustments for other measured and unmeasured attributes of individuals and their families. The answer to the second question is that not having a high school diploma, never having married, having more than two children, and having little work experience are associated with long-term receipt. Many of the recipients who will reach the five-year limit imposed by the new federal legislation are in situations that make it difficult for them to support themselves and their families without public assistance.

Welfare Reform and the Labor Market: Earnings Potential and Welfare Benefits in California, 1972-1994
Peter Brady and Michael Wiseman

Full Text: DP 1128-97

Promotion of work is prominent in the rhetoric of current welfare reform efforts. The success of welfare-to-work policies is in part dependent on earnings available in employment. In this paper we use Current Population Survey data for the years 1972-1994 to develop measures of potential earnings from full-time work for low-skilled men and women in California and to compare the trend in earnings capacity for such people to welfare benefits. We find that while benefits have declined, earnings capacity has fallen faster, and the downward trend is particularly pronounced for men. Both the downward trends in benefits and potential earnings appear to have accelerated in recent years. State attempts to address the problem of low wages by expanding the opportunity for combining welfare with work may conflict with federal efforts to require that assistance be transitory.

An Empirical Analysis of Income Dynamics among Men in the PSID: 1968-1989
John Geweke and Michael Keane

Full Text: DP 1127-97

This study uses data from the Panel Survey of Income Dynamics (PSID) to address a number of questions about life-cycle earnings mobility. It develops a dynamic reduced-form model of earnings and marital status that is nonstationary over the life-cycle. A Gibbs sampling-data augmentation algorithm facilitates use of the entire sample and provides numerical approximations to the exact posterior distribution of properties of earnings paths. This algorithm copes with the complex distribution of endogenous variables that are observed for short segments of an individual's work history, not including the initial period.

The study reaches several firm conclusions about life cycle earnings mobility. Incorporating non-Gaussian shocks makes it possible to account for transitions between low and higher earnings states, a heretofore unresolved problem. The non-Gaussian distribution substantially increases the lifetime return to postsecondary education, and substantially reduces differences in lifetime wages attributable to race. In a given year, the majority of variance in earnings not accounted for by race, education, and age is due to transitory shocks, but over a lifetime the majority is due to unobserved individual heterogeneity. Consequently, low earnings at early ages are strong predictors of low earnings later in life, even conditioning on observed individual characteristics.

The Chicago Child-Parent Centers: A Longitudinal Study of Extended Early Childhood Intervention
Arthur J. Reynolds

Full Text: DP 1126-97

In this study, the effects of the Child-Parent Center and Expansion (CPC) Program on scholastic development up to age 14 were reported for a large sample of economically disadvantaged children. The CPC program is a state- and federally funded early childhood educational intervention for children in the Chicago Public Schools who are at risk of academic underachievement due to poverty and associated factors. The CPCs provide comprehensive educational and family support services from ages 3 to 9, for up to six years of continuous intervention. Longitudinal findings from a matched 1989 graduating cohort of 878 program and 286 comparison-group children indicated that (a) any participation in the program was significantly associated with school performance up to eighth grade, (b) duration of participation was significantly associated with school performance, especially for children who participated for five or six years, (c) participation in extended childhood intervention to second and third grade yielded significantly better school performance than participation ending in kindergarten, and (d) longer-term effects of the program were largely explained by cognitive-advantage and family-support factors, both of which are theoretically linked to the program activities.

Family Structure, Early Sexual Behavior, and Premarital Births
Lawrence L. Wu, Andrew J. Cherlin, and Larry L. Bumpass

Full Text: DP 1125-97

In this paper, we argue that entry into first sexual intercourse is a key process mediating the effects of family structure on premarital childbearing. We explicate three ways in which onset of sexual activity can mediate effects of family structure on premarital first births. First, the gross association between family structure and premarital birth risks may be due entirely to the effect of family structure on age at first intercourse. Second, the earlier the age at first intercourse, the longer the duration of exposure to the risk of a premarital first birth. Third, an early age at first intercourse may proxy unmeasured individual characteristics correlated with age at onset but uncorrelated with other variables in the model. We develop methods to assess such mediating effects and analyze data from two sources, the 1979-93 National Longitudinal Survey of Youth and the 1988 National Survey of Family Growth. We find that age at first intercourse partially mediates the effect on premarital birth risks of both snapshot measures of family structure at age 14 and a time-varying measure of the number of family transitions, but that significant effects of these variables remain net of age at first intercourse. Delaying age at intercourse by one year reduces the cumulative relative risk of a premarital first birth by a similar amount for both white and black women. For black women, the magnitude of this effect is roughly the same as that of residing in a mother-only family at age 14.

Decreasing Opportunities for Low-Wage Workers: The Role of the Nondiscrimination Law for Employer-Provided Health Insurance
Amy M. Wolaver, Timothy D. McBride, and Barbara L. Wolfe

Full Text: DP 1124-97

As of 1978, the favorable tax treatment of fringe benefits, including health insurance, has been regulated via a nondiscrimination clause such that low-wage, full-time workers must be offered health insurance (and other benefits) that are offered to higher-wage workers by the firm. Part-time workers may be excluded from coverage, however, creating incentives for firms to hire some types of workers part time to deny them coverage. We hypothesize that firms will hire fewer workers whose relative costs have increased, that is, low-wage workers. These workers will be less likely to work for firms that offer coverage, and those that do will be more likely to work part time without being eligible for the firm's health insurance benefits. We use the 1988 and 1993 Employee Benefits Supplements to the Current Population Surveys and an employer premium imputation to examine these hypotheses. Both the descriptive and multivariate analysis are consistent with our hypotheses. We predict the probability of working for a firm that offers health insurance to decrease as premiums increase for both high- and low-wage workers. An increase in the premium is also associated with a decrease in the probability of part-time work, but an even greater decrease in the joint probability of part-time work with eligibility for health insurance.

Shifting Family Definitions: The Effect of Cohabitation and Other Nonfamily Household Relationships on Measures of Poverty
Kurt Bauman

Full Text: DP 1123-97

Recently there have been proposals to change the way we define families for the purpose of measuring poverty. This paper used the 1990 and 1992 SIPP to examine several of the practical and conceptual issues of changing the definition of "family." This research found that the poverty rate for 1990 was not greatly affected by expanding the definition of family for poverty calculations to include persons with nonfamily household relationships, although some population subgroups-including single-parent families-were more affected. If the family definition were changed, many currently available surveys would provide an inaccurate picture of poverty because they measure living arrangements at a single point in time, rather than longitudinally. Finally, the main rationale for expanding the family definition-that persons in cohabiting and other nonfamily household relationships are likely to share resources-was not given strong support in this research. Income from persons in nonfamily household roles was found to have contributed slightly less to helping other household members avoid financial hardship, implying that they tend to keep more of this income to themselves.

Customer Discrimination and Employment Outcomes for Minority Workers
Harry J. Holzer and Keith R. Ihlanfeldt

Full Text: DP 1122-97

In this paper we investigate the effects of consumer discrimination on the employment and earnings of minorities, particularly blacks. We do so using data from a new survey of employers in four large metropolitan areas in the United States. Our results show that the racial composition of an establishment's customers has sizable effects on the race of who gets hired, particularly in jobs that involve direct contact with customers. Although we find evidence of customer discrimination in both predominantly white and black establishments, the net effect of such discrimination appears to be some reduction in overall labor demand and wages for blacks. Evidence is also presented which suggests that the role of customer discrimination may be growing more important over time.

Correlates of Poverty and Participation in Food Assistance Programs among Hispanic Elders in Massachusetts
Luis M. Falcón, Katherine Tucker, and Odilia Bermudez

Full Text: DP 1121-97

Hispanics are a rapidly growing population in Massachusetts, but little is known about the health, nutrition, and economic situation of the elder segment of these groups. In this report, we examine factors associated with poverty and the use of food assistance programs, using data from an NIA-funded project on Hispanic elders in Massachusetts. Poverty is shown to be a major problem with differences across Hispanic subgroups. Puerto Rican and Dominican elders have lower incomes, on average, than other Hispanics-mainly Cubans, and Central and South Americans-or than non-Hispanic whites living in the same neighborhoods. Older age, lower education, and living alone are associated with poverty within this population. Limited income sources and recent immigration are also important factors. Hispanic elders are more likely to receive SSI benefits, but are much less likely to have pension income. Financial insecurity in old age among Hispanics is associated with more chronic ailment and mobility limitations. Puerto Rican and Dominican elders have the highest poverty and disability rates and report the most food insecurity. However, with the exception of the Food Stamp program, participation in food programs tends to be very low for these Hispanic elders. Given the prevalence of problems demonstrated by these groups, more attention to program outreach and adaptation for Hispanic elders is needed.

Nutritional Consequences of Food Insecurity in a Rural New York State County
Edward A. Frongillo, Jr., Christine M. Olson, Barbara S. Rauschenbach, and Anne Kendall

Full Text: DP 1120-97

This study of women with children in a rural county of upstate New York examined the relationships of food insecurity and income with two nutritional consequences (adiposity and fruit and vegetables consumption), and assessed whether disordered eating patterns is a mediator for the effects of food insecurity and income on these nutritional consequences. Each of 193 respondents was interviewed twice in her home. Data were collected on household food stores, socioeconomic and demographic characteristics, methods of obtaining food, food program participation, household expenditures, food intake, the Radimer/Cornell hunger and food insecurity items, height, weight, frequency of fruit and vegetable consumption, and disordered eating patterns. Regression analysis was used to analyze the relationships of body mass index and an obesity classification with height, income, education, single parenthood, employment, food insecurity, disordered eating, and frequency of fruit and vegetable consumption. Regression analysis was also used to examine the relationships of disordered eating and frequency of fruit and vegetable consumption with the other variables.

Lower income and unemployment were related to higher adiposity. The effects of income on adiposity were not mediated through disordered eating patterns or through fruit and vegetable consumption. Food insecurity was related to adiposity, and part of this effect of food insecurity was mediated through disordered eating. This mediating effect of disordered eating partially explained why those experiencing the least severe food insecurity were more likely to be overweight than those who were food secure, but those experiencing the most severe food insecurity were less likely to be overweight than those who were food secure. Food insecurity was related to lower fruit and vegetable consumption, but this did not translate into effects on adiposity.

Why Do Small Establishments Hire Fewer Blacks than Large Ones?
Harry J. Holzer

Full Text: DP 1119-97

This paper shows that small establishments are much less likely to hire and employ blacks than are larger establishments. A number of possible explanations for this result are considered, such as differences across establishments in application rates from blacks, skill needs, locations, and recruiting behavior. Although these factors can account for some of the differences between small and large employers, much remains unexplained. The results suggest that discrimination in hiring may be much more pervasive at smaller establishments than larger ones.

Will Extending Medicaid to Two-Parent Families Encourage Marriage?
Aaron S. Yelowitz

Full Text: DP 1118-97

Several welfare programs in the United States restrict eligibility to single-parent families. This paper asks whether eliminating this restriction for Medicaid encourages marriage. I identify Medicaid's effect through a series of health insurance reforms that were passed in the 1980s and 1990s targeting young children. These reforms were associated with an increase in the probability of marriage of 1.7 percentage points. While the expansions offered some incentives to become married, they also created other incentives to become divorced (known as the "independence effect"). After controlling for the outflows from marriage due to the independence effect, the estimated effect increases by 10 percent.

The Effect of the 1981 Welfare Reforms on AFDC Participation and Labor Supply
Paul A. Smith

Full Text: DP 1117-97

From 1992 to 1995, forty states applied for federal waivers in order to test new welfare reforms. About 80 percent of these waiver applications included expansions of earnings disregards and asset limits for welfare recipients. These changes would effectively reverse the changes imposed by the 1981 Omnibus Budget Reconciliation Act (OBRA81), which significantly restricted eligibility and reduced earnings disregards for working recipients. Hence an understanding of the effects of OBRA81 can be helpful in predicting the effects of new welfare reform proposals.

This paper presents empirical estimates of the labor supply and AFDC participation effects of the individual components of OBRA81. Estimates are obtained from a discrete-choice maximum likelihood model in which female heads of household choose among six welfare/work combinations: on or off welfare together with zero, half-time, or full-time work. The paper focuses on estimation of parameters that define the utility of leisure and of welfare participation.

Estimates are obtained from a sample of 2462 female heads of household from the Panel Study of Income Dynamics (PSID), covering the years 1978 to 1984. The changes imposed by OBRA81 are explicitly accounted for in the budget set, as are the decline in real benefits, changes in the federal tax system, and the interaction of AFDC and Food Stamps. Estimated utility parameters are used to decompose the individual effects of the 1981 reforms. Descriptive evidence shows that the overall effect of the legislation was to reduce participation by about 8 percent and cut the incidence of working recipiency by more than 40 percent. Simulations based on structural parameters suggest that lower real needs and payment standards reduced AFDC eligibility and participation by more than the OBRA81 changes combined. An important result is that for many recipients, the share of Food Stamps in total income increased as real AFDC benefits declined. Hence the Food Stamps program played an important role over this period in preventing the well-being of welfare recipients from eroding more than it did.

Estimated utility parameters are also used to predict the effects of hypothetical policy changes. Lower payment standards cause some recipients to leave welfare and others to increase their work effort. Working recipiency is significantly encouraged by lower benefit-reduction rates, but this effect is offset by lower labor supply among women drawn on to AFDC. Finally, the AFDC participation choice is quite responsive to wage levels, but increasing wages would have only a small effect on working recipiency in the absence of higher disregards.