Welfare Dynamics Under Time Limits

Jeffrey GroggerCharles Michalopoulos

By: Tien Ho

Introduction

Prior to 1996: AFDC PWRORA of 1996: TANF replaced AFDC Eligible families had child younger than 18 Time Limits imposed:

-Federal: 5 years

-State: varied

Introduction

The Controversy Over Time Limits Pro: direct route of getting people off welfare;

people who need to preserve welfare look for jobs

Cons: kids lose benefits when parents do; low-income job or short-term joblessness

Lang (2007)

Main Issue

How did time limits affect a family’s decision to stay on welfare?

Did time limits reduce welfare use?

Why is this interesting?

Are time limits an effective measure?

Why do they succeed? Why do they fail?

Time limits: cruel policy or “tough love”?

Previous Studies Council of Economic Advisers. Technical Report: explaining the

decline of welfare receipt, 1993-1996. Washington: Council Econ. Advisers, May 1997.

--mentioned time limits as a possible factor in reduction of caseloads

Swann, CA. “Welfare reform when agents are forward-looking.” Manuscript. Charlottesville: Univ. Virginia, December 1998.

--suggested that time limits motivate people to preserve their benefits

Moffitt, RA. Incentive effects of the U.S. Welfare System: a review. J Econ. Literature 30 (March 1992):1-61.

--aggregate state-level caseload analysis

Improvements

Consider the age-dependence issue-claimed this is essential to

understanding time limits

Used a random, “natural” experiment

In depth analysis of data from Florida program

Florida Family Transition Program

Location: Escambia County in May 1994 under waiver Randomized into two groups: experimental (time limit)

or AFDC (no time limit)

-new families: randomized when entering

-previous families: randomized at renewal

Followed families for 2 years after random assignment

Data collected from administrative records and survey

Key Assumptions

The effects of individual reforms are additive The effects of the financial work incentives

and enhanced services are age-invariant Time limits have no effect on parents with

children above threshold age Parents with younger children are forward-

looking, expected-utility-max consumers Prediction: parents with younger children

should reduce welfare consumption more than parents with older children

+0.25%

-8.3%

+17.5%

+27.5%

-27.75%

-35.8%

-10%

Are financial incentives and enhanced services truly age-invariant?

There are a lot more mothers with younger children on welfare versus mothers with older children which suggests there are differences between them.

Limitations

Support uses tables with different age groups Control and treatment are not the same Mothers with younger children may be affected

differently by financial incentives and enhanced services than mothers with older children

Large differences in age groups (no justification for why they chose that grouping)

Regression Estimates

Variable Definition

i=1,…,n n is number of persons in sample

t= 1,…,24 Time measured in month

Ajit =1 If youngest child in ith family at time of random assignment falls into age group j; j=0,1,2,3,4; otherwise Ajit =0

Ei =1 if in experimental; =0 if in AFDC

Xit Exogenous regressors: mother’s age @ t; # of children in family, mother’s years of schooling, # of months of welfare receipt prior to randomization; # of quarters of employment prior; vector of year dummies; dummy for black (1) or not (0); dummy for 3y time limit (1) or 2y limit (0)

Joint effect of financial work incentives and enhanced services

“Linear Interaction” Model

What is the effect of prior welfare use?

Follow-up results and additional tests

Linear Regression

Only takes into account observable characteristics

Experimenter bias; didn’t consider other factors-subsidized daycare, etc.

Other unobservable factors not accounted for-individual heterogeneity

Implications

Families with younger children appear to be affected by time limits (16% reduction overall)

Imposing time limits may encourage people to find a job => leading to reductions in welfare payments

Could have adverse results on younger children (education, parental care)

The Bad Too many assumptions (age-invariance, forward-looking

consumer, etc.) People knew they were in a study (may not have actually

believed their benefits would stop) Florida Data very unreliable and not generalizable; social

workers had smaller caseloads and could be more proactive

Subsidized daycare for children 12 years and younger may have had a greater effect on mothers with younger children

Does not tell us how time limits would effect entry into welfare

Time limit of the FTP program different from other time limits

Lang (2007); Fang and Keane (2004)

The Good Offered age-dependent analysis of time limits Significant results from data analysis Accounted for many factors (age, race, etc.) Defended assumptions with data from other

studies Data from two nationwide surveys similar to data

here (Grogger 2002, 2004)-relative to states without limits, welfare

participation rates dropped more rapidly among households with younger children than in homes with older children

Discussion

Do you think time limits actually work (in an ultimately beneficial way)?

If time limits work, should the federal government require all states to impose them?

What problems/critiques do you have with this study? Any ideas for a better one?