Labor force and welfare program participation: the effects of welfare - includes related article on public welfare systems

American Journal of Economics and Sociology, The,  April, 1997  by Howard J. Gensler,  W. David Walls

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III

Empirical Method

Irrespective of the validity of the theoretical model and the sophistication of the econometric estimation technique, empirical studies depend first and foremost upon an appropriate data set of sufficient size with adequate variation to support statistical inferences. For this study of the effect of welfare program parameters upon the joint decision process to seek work or welfare, we select a sample of the chief beneficiary class of welfare in America, single female household heads. Although other groups receive welfare, the amounts are either small or trivial. Accordingly, a sample of low income, non-military, non-farm households was selected whose total income was limited to twice the official poverty level. Since this is a study of the effect of welfare on the decision process to work or to seek welfare, households with higher incomes would not provide additional variation. The household heads were limited to range in age from 18 to 65. To be included in the sample, the single female had to have at least one dependent child under the age of 18 and no adult male present in the household. Alaska and Hawaii were excluded due to significantly higher local price levels, and the unique geographic separation. The sample was derived from the U.S. Census Bureau (March) Current Population Survey (CPS) for the years 1980-91. Since the economic information in these files concerns the previous year, data for the years 1979-90 were obtained. The CPS is a cross-sectional, nationally-representative survey randomly collected and unassociated with any enforcement program. There is therefore no incentive for survey respondents to systematically misstate information. The CPS data are regularly utilized to support government analyses and economic forecasts.

The twelve years of cross-sectional annual data were pooled, and nominal dollar values are expressed in terms of constant 1986-87 dollars. The final sample included 20,281 single female heads-of-households, of which 56% received some amount of welfare. Given that a household received welfare, on average it received $4,448 for the year. 60% of the sample worked some amount, and given that a household head worked, she averaged $6,989 for the year. Unearned income averaged $2,537 per year. The average age of the household head was 31.5 years with an average of 11.1 years of education. The sample was 33% black. The average number of children was 1.98, and only 10% of the sample had more than three children.

Table 1

Labor Force and Welfare Program Participation

                  Welfare Program Participation

                         No       Yes      Total

                No      1,829    6,390     8,219
Labor Force              (9%)   (31.5%)
Participation   Yes     7,084    4,978    12,062
                        (35%)   (24.5%)
                Total   8,913   11,368    20,821

There is wide variation in labor force and welfare program participation. The work and welfare outcomes are displayed in Table 1. About one-fourth of the sample both worked and received welfare payments, while nine percent neither worked nor received welfare payments. The remaining two-thirds of the sample were roughly split between participation in either the work force or the welfare system, but not both.