IRP Discussion Paper Abstracts - 1999

Notes: Abstracts are plain text. Downloadable papers are in Adobe Acrobat (.pdf) format.
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Income Transfers and Assets of the Poor
James P. Ziliak

Full Text: DP 1202-99

Compared with nonpoor households, many poor households accumulate little wealth over their lifetimes. This rich-poor wealth gap may be due to different abilities to accumulate assets, possibly because the poor face a lifetime of lower incomes and higher income uncertainty. Alternatively, the wealth gap might be due to different responses to economic incentives to accumulate, such as transfer-program policies. In this paper, I use data from the Panel Study of Income Dynamics and a correlated random-effects estimator to estimate the wealth-disincentive effects of both transfer-program income and policies in a buffer-stock model of asset accumulation. With the estimated parameters, I decompose the rich-poor wealth gap into the fraction attributable to ability-to-accumulate differences and the fraction attributable to differences in responses to asset-accumulation incentives. The results suggest that welfare income and policies discourage accumulation of liquid assets, but do not reduce net wealth. However, the wealth decomposition indicates that at least 75 percent of the rich-poor wealth gap emanates from ability differences. This suggests that the disincentives created by transfer programs have a small impact on the overall asset position of the poor.

Youth Living Arrangements, Economic Independence, and the Role of Labor Market Changes: A Cohort Analysis from the Early 1970s to the Late 1980s
Robert Haveman and Brian Knight

Full Text: DP 1201-99

Between the late 1960s and early 1990s, young workers experienced declining average real wages and increasing labor market inequality. High-skilled youths-those with a college degree-fare better in this new economy relative to youths with few skills and little formal education. This paper studies two separate, but related, indirect effects of this labor market deterioration: changes in living arrangements and changes in economic independence, the ability to financially support oneself and dependents. We find that over this period, youths tended to shift away from living arrangements with significant financial responsibility, such as living with a spouse and children, and toward arrangements with less responsibility, such as remaining at home with one's parents or living alone. This shift is especially pronounced for low-skilled youths, those most adversely affected by the labor market deterioration. These changes in living arrangements tended to increase the economic independence of youths relative to their loss in economic independence were they unable to alter these living arrangements.

The Changing Role of Child Support among Never-Married Mothers
Judi Bartfeld and Daniel R. Meyer

Full Text: DP 1200-99

This paper documents the changing role of child support as an income source to never-married mothers during the 1990s. Data are drawn from multiple panels of the Current Population Survey. We find that child support receipt has increased among successive cohorts of never-married mothers, and that within cohorts, child support increases over the first years of a child's life. Changes in child support have occurred in tandem with substantial changes in other income sources, notably declines in public assistance and gains in earnings. Despite recent gains, child support plays only a minor role in the income packages of never-married mothers.

The Employment, Earnings, and Income of Less-Skilled Workers over the Business Cycle
Hilary Hoynes

Full Text: DP 1199-99

In this paper, I examine the effect of business cycles on the employment, earnings, and income of persons in different demographic groups. I classify individuals by sex, education, and race. The analysis uses data from the Current Population Survey's Outgoing Rotation Group data, covering the period 1979-1992, and March Annual Demographic File data, covering the period 1975-1997. Many different individual and family outcome measures are considered, including employment to population ratios, weekly earnings, hourly earnings, annual hours, annual earnings, family earnings, family transfer income, and total family income. The regression model is specified such that the key parameters measure how the labor market outcomes of less-skilled workers vary with the business cycle relative to the variability for high-skill groups. The analysis uses variation across MSAs in the timing and severity of shocks. The results consistently show that individuals with lower educational levels, nonwhites, and low-skill women experience greater cyclical fluctuation than high-skill men. These results are the most striking when examining comprehensive measures of labor force activity such as the likelihood of full-time, full-year work. Government transfers and the earnings of other family members decrease the differences between groups, resulting in more skill-group-neutral effects of business cycles on family income than on individual earnings. The paper examines the stability of these results by comparing evidence across the 1982 and 1992 recessions. The evidence suggests that the 1992 recession led to more uniform effects across skill groups than did earlier cycles.

Government Mandates and Employer-Based Health Insurance: Who Is Still Not Covered?
David Vanness and Barbara Wolfe

Full Text: DP 1198-99

In this paper we explore the probability that employees have employer-based health insurance. Health insurance is a fixed cost which when added to cash compensation raises the cost of a low-wage worker more than that of a non-low-wage worker. A worker who has high expected medical expenditures or whose family has such expenditures may raise the cost of health insurance for all workers in the firm, particularly in a small firm. The minimum wage reduces an employer's ability to shift the cost of coverage to low-wage employees. These factors, along with a government subsidy that is more valuable to higher-income employees, lead to private-employer-based coverage that is highly correlated with wages. The nondiscrimination law attempts to change this pattern. We explore the resulting pattern of coverage and the effectiveness of the nondiscrimination law using national medical expenditure data from 1977 and 1987. Individual expected medical expenditures are estimated using a nonparametric approach; wages and premiums are also imputed and coverage itself is estimated using logit models over low-wage and non-low-wage samples separately for 1977 and 1987. Bootstrap methods test the robustness of our model.

WHITHER DUTCH CORPORATISM?  Or: A Turbulent Tango for Market and State
Joop Hartog

Full Text: DP 1197-99

The "Dutch Model" has attracted wide international attention for its presumed ability to reduce unemployment, introduce market incentives in the former public domain, and maintain essential provisions of the welfare state. This paper documents and evaluates policy changes, labor market performance, and welfare reform, with emphasis on the institutional framework, its continuity, and the reforms themselves.

Migration and the Employment and Wages of Native and Immigrant Workers
Franklin D. Wilson and Gerald Jaynes

Full Text: DP 1196-99

This paper assesses the association between migration (both international and internal) and the employment status and earnings of young noncollege-educated native white, black, Hispanic, Asian, and immigrant white-collar and blue-collar workers in the United States during the decade from 1980 to 1990. We seek to determine (1) whether internal and/or international migration contributed to the increased joblessness observed for blacks, Asians, and Hispanics in the 1980s, particularly among males, and (2) whether migration contributed to the decline in the hourly wages of both native and immigrant workers in the 1980s. We present results which only partly support the claim that internal migrants and immigrants are substitutes for native workers. On the one hand, we find that migration (flow) was not a major factor associated with the increased joblessness and decreased wages experienced by some native groups during the 1980s, particularly among blue-collar workers. On the other hand, we do find that changes in the foreign-born composition of an industrial sector (a measure of immigrant stock) were associated with increased joblessness of native workers and decreased joblessness of immigrant workers.

Explaining Welfare Reform: Public Choice and the Labor Market
Robert A. Moffitt

Full Text: DP 1195-99

This paper seeks to identify factors that could plausibly have led to the contractionary welfare reform initiatives begun at the state and federal levels in the United States in the 1990s, initiatives concentrated on the Aid to Families with Dependent Children (AFDC) program. A review of aggregate time-series evidence, cross-sectional regression research, and studies of attitudes toward welfare spending and toward welfare recipients suggests a role for three types of factors. First, a major expansion of the U.S. welfare system in the late 1980s in terms of expenditures and caseloads may have led voters to want to retrench by cutting back on the AFDC program, even though that program was not primarily responsible for the expansion. Second, declines in the relative and absolute levels of household income, wages, and employment rates among the disadvantaged population may have driven up caseloads and costs, increased the social distance of voters from the poor, heightened concern with work incentives, and led, more generally, to a decrease in the perceived "deservingness" of the poor. Third, a surge of births to unmarried mothers in the 1980s is suggested, by cross-sectional and attitudinal evidence, to have led to a reduction in voter support for the AFDC program.

The Earned Income Tax Credit and the Labor Supply of Married Couples
Nada Eissa and Hilary Williamson Hoynes

Full Text: DP 1194-99

Over 18 million taxpayers are projected to receive the Earned Income Tax Credit (EITC) in tax year 1997, at a total cost to the federal government of about 25 billion dollars. The EITC is refundable, so any amount of the credit exceeding the family's tax liability is returned in the form of a cash refund. Advocates of the credit argue that this redistribution occurs with much less distortion to labor supply than that caused by other elements of the welfare system.

This popular view that the credit "encourages work effort" is unlikely to hold among married couples. Theory suggests that primary earners (typically men) would increase labor force participation, but secondary earners would reduce their labor supply in response to an EITC.

We study the labor supply response of married couples to several EITC expansions between 1984 and 1996. Although our primary interest is the response to changes in the budget set induced by the EITC, our estimation strategy takes account of budget set changes caused by federal tax policy, and by cross-sectional variation in wages, income, and family size. We use both quasi-experimental and reduced-form labor supply models to estimate the impact of EITC-induced tax changes.

The results suggest that EITC expansions between 1984 and 1996 increased married men's labor force participation only slightly but reduced married women's labor force participation by over a full percentage point. Overall, the evidence suggests that family labor supply and pre-tax family earnings fell among married couples. Our results imply that the EITC is effectively subsidizing married mothers to stay at home, and therefore have implications for the design of the program.

Barriers to the Employment of Welfare Recipients
Sandra Danziger, Mary Corcoran, Sheldon Danziger, Colleen Heflin, Ariel Kalil, Judith Levine, Daniel Rosen, Kristin Seefeldt, Kristine Siefert, and Richard Tolman

Full Text: DP 1193-99

Dramatic reductions in welfare caseloads since passage of the Personal Responsibility and WorkOpportunity Reconciliation Act of 1996 have not allayed policy concerns about the employability of recipients remaining on the rolls. Analysis of potential barriers to employment can address whether current recipients have problems that either singly or in combination make it difficult for them to comply with the new requirements for getting and keeping jobs. In this paper, we explore the prevalence and work effects of 14 potential barriers in a new survey of a representative sample of 753 urban single-mother recipients. We report the prevalence of the barriers and how their number predicts employment rates, controlling for demographic characteristics. We also analyze which individual barriers are associated with employment and how a model inclusive of a comprehensive array of barriers improves upon a traditional human capital model of the work effects of education and work and welfare history. Single mothers who received welfare in 1997 had higher rates of personal health and mental health problems, domestic violence, and children's health problems than do women in national samples, but they were no more likely than the general population to be drug or alcohol dependent. Only 15 percent of respondents had none of the barriers and almost two-thirds had two or more barriers. The numbers of multiple barriers were strongly and negatively associated with working, and among the individual barriers, low education, lack of access to transportation, poor health, having drug dependence or a major depressive disorder, and several experiences of workplace discrimination reduced employment. Welfare-to-work programs need to be more finely targeted with respect to exemptions and service provision, and states should consider providing longer-term and enhanced supports for those who face low prospects of leaving welfare for employment.

EITC, AFDC, and the Female Headship Decision
Stacy Dickert-Conlin and Scott Houser

Full Text: DP 1192-99

Concerns about the incentives for female headship for low-income families have focused on Aid to Families with Dependent Children (AFDC); however, the expansion of the Earned Income Tax Credit (EITC) has brought more low-income households into the tax system, subjecting them to additional marriage nonneutralities. Theoretical predictions about the correlations between the EITC and female headship are ambiguous. This paper is the first to provide empirical evidence that the EITC is correlated with female headship decisions. Using data from the Survey of Income and Program Participation, we find no significant correlations between AFDC and female headship. However, the ambiguous effect of the EITC on female headship is evident in our empirical analysis. After controlling for individual effects, we find that higher EITCs are associated with increased female headship for white women, but with decreased female headship for black women. For a sample of white women, we find that a $100 increase in the EITC would increase the probability of female headship by 0.1 percent. For a sample of black women, we find that a $100 increase in the EITC would decrease the probability of female headship by 1.4 percent, although this result is not robust.

Job Change and Job Stability among Less-Skilled Young Workers
Harry J. Holzer and Robert J. LaLonde

Full Text: DP 1191-99

In this paper we review evidence from previous studies of job and employment instability among less-educated young workers, and we provide new evidence from the National Longitudinal Survey of Youth. We find that early employment instability contributes somewhat to the low levels of employment observed among high school dropouts, especially females. Important determinants of job stability include the cognitive skills of the workers themselves (as measured by math test scores), current or previous experience and job tenure, and a variety of job characteristics including starting wages, occupation, and industry. Job instability among female dropouts seems to be strongly related to fertility history and marital status. Some implications for policy, especially welfare reform, are discussed as well.

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

Full Text: DP 1190-99

In this paper, we track the level of economic well-being of the population of men who began receiving Social Security Disability Insurance (SSDI) benefits in 1980-81 from the time just after they became beneficiaries (in 1982) to 1991, nearly a decade later. We present measures of the economic well-being of disabled individuals and their nondisabled peers as indicators of the relative economic position of these two groups. These measures also provide an intertemporal comparison of well-being and hardship as disabled persons and their nondisabled peers age and retire. We first show several economic well-being indicators for this group of new male recipients of disability benefits in 1982 and 1991. Then, we compare their economic position to that of a matched group of nondisabled males with sufficient work histories to have been disability-insured, that is, eligible for SSDI benefits had they been unable to engage in substantial gainful employment. Because labor market changes over this decade have led to a relative deterioration in the position of younger and less-educated workers, we compare men with disabilities to those without disabilities and distinguish different age and educational levels within the groups. In studying these comparative trends in well-being, we focus on the prevalence of poverty and its correlates. We conclude by assessing the antipoverty effectiveness of Social Security income support for both younger and older men who became SSDI recipients in 1980-81.

Within Cities and Suburbs: Racial Residential Concentration and the Spatial Distribution of Employment Opportunities across Submetropolitan Areas
Michael A. Stoll, Harry J. Holzer, and Keith R. Ihlanfeldt

Full Text: DP 1189-99

In this paper, we examine and compare the spatial distributions of jobs and people across submetropolitan areas using data on firms from the Multi-City Study of Urban Inequality and data on people from the U.S. Bureau of the Census. The results indicate that less-educated people and those on public assistance mostly reside in areas with high minority populations. Low-skill jobs are quite scarce in these areas, while the availability of such jobs relative to less-educated people in heavily white suburban areas is high. Large fractions of the low-skill jobs in these metropolitan areas are not accessible by public transit. Furthermore, there is significant variation within both central cities and suburbs in the ethnic composition of residents and in the availability of low-skill jobs. The ability of various minority groups to gain employment in each area depends heavily on the ethnic composition of the particular area.

An Assessment of the Wealth Holdings of Recent Widows
Cathleen D. Zick and Karen Holden

Full Text: DP 1188-99

While the income disparity between widowed women and similarly aged married couples is well documented, we know far less about widows' wealth holdings and how they compare to those of other households. Data from the Survey of Income and Program Participation are used to investigate the amount and composition of wealth held by four different groups: continuously married women, women who would soon be widowed, recent widows, and long-standing widows. The analyses reveal that about-to- be-widowed women have fewer assets than intact couples. From the data on recent widows we infer a decline in wealth holdings at the time of the husbands' deaths. These wealth findings parallel what we know about income changes that surround the death of a spouse. The estimates also show that, generally, annuitizing wealth changes by very little the income flows and poverty risk among low-income widows.

Macroeconomic Performance and the Poverty Rate: A Return to Normalcy?
Robert Haveman and Jonathan Schwabish

Full Text: DP 1187-99

Since the mid-1980s, several important studies have established the statistical relationship between the poverty rate and overall economic performance. Most of these studies focused on the apparent break in this relationship beginning in the late 1970s or early 1980s. In this paper, we present the results of our study of the relationships reported in these studies, using annual time-series data on macroeconomic variables such as the unemployment rate and per capita GDP growth from 1959 through 1997. Like these earlier studies, we too find that economic performance seems to have had a smaller antipoverty effect during the 1970s and 1980s than it did in earlier years. However, our estimates suggest that the weakened growth-poverty relationship may have been an aberration of this period, and that the "normal" relationship of the 1960s has again been reestablished in the 1990s. This is true even after accounting for changes in earnings inequality over the entire period.

Effects of Nonmaternal Child Care on Inequality in Cognitive Skills
Adam Gamoran, Robert D. Mare, and Lynne Bethke

Full Text: DP 1186-99

As a result of changing welfare policies, large numbers of children of poor, uneducated mothers are likely to receive care from others as their mothers enter the workforce. How will this change affect inequality in cognitive skills among young children? One view suggests that inequality will expand because children from economically advantaged families have access to better child care, and families with well-educated parents are more likely to reinforce the cognitive benefits of care. Another view argues that inequality will diminish because even though child care may be unequal, it may be less unequal than the home environments that are supplanted by nonmaternal care. A third view suggests that because the effects of care are inconsistent, there will be little overall change in inequality. Analysis of the children of mothers in the National Longitudinal Survey of Youth provides tentative evidence in support of the first view, that nonmaternal care tends to magnify inequality. Although ordinary least squares regressions reveal no effects of child care, fixed-effects models that control for differences between families indicate that children of high-income, well-educated mothers benefit from center-based care, but children of low-income, poorly educated mothers suffer a cognitive disadvantage from attending day care centers. Home-based care, however, is not associated with cognitive performance. Results from nonparametric analyses are consistent with the findings from fixed-effects models. The key results rely mainly on a relatively small sample of about 700 children in 300 families that sent their children to different types of care, and they do not pertain to families with only one child, so caution is warranted in generalizing the findings.

Employer Demand for Welfare Recipients and the Business Cycle: Evidence from Recent Employer Surveys
Harry J. Holzer

Full Text: DP 1185-99

In this paper I present evidence on the extent to which labor market tightness, as measured by job vacancy rates and other indicators of hiring difficulty, affect the willingness of establishments to hire welfare recipients. From these estimates, I infer the effects of the business cycle on the labor market demand for welfare recipients. The data are from a new survey of employers in Michigan. The results indicate that labor market tightness has a substantial effect on employer demand for welfare recipients. They also suggest that employer willingness to provide workplace amenities or supports to welfare recipients (such as child care, transportation assistance, training, etc.), along with their receptiveness to policy interventions on behalf of recipients, is influenced by labor market tightness as well.

Statecraft: The Politics of Welfare Reform in Wisconsin
Lawrence M. Mead

Full Text: DP 1184-99

Wisconsin's reform of family welfare is the most radical and, arguably, the most successful in the nation. This is not due to anything special about the welfare problem or public opinion in the state but rather to special features of the state's politics and government. Reform is radical, but at the same time it has been largely bipartisan, with most Democrats joining with Governor Tommy Thompson and other Republicans in seeking to transform the system. Bipartisanship, in turn, reflects the unusual moderation of Republicans in approaching reform and the unusual willingness of Democrats to criticize the old system. Outside groups-such as black leaders, welfare advocates, and academics, who elsewhere block reform-have been moderate or ineffective in their protests, while business has been unusually supportive. Two background conditions have helped shape this political environment-Wisconsin's cohesive society and its masterful government, the product of its Progressive past. In Wisconsin, in contrast to other urban states, both the will to reform welfare and the capacity to do so are strong.