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Local Labor Markets and Welfare Spells: Do Demand Conditions Matter?

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  • Hilary Williamson Hoynes

Abstract

This paper examines the role of local labor markets in determining how long families receive benefits from the Aid to Families with Dependent Children (AFDC) program. Given the current policy emphasis on devolution and reducing the AFDC caseload through employment, understanding the role of local labor demand is important. The study uses a unique data set based on administrative data which has detailed information on welfare spells for over 100,000 AFDC cases. The empirical work is based on estimates of a duration model where the hazard rate is a function of demographic characteristics, local labor market variables, neighborhood characteristics, county fixed effects and time effects Several alternative measures of local labor market conditions are used and the results show that higher unemployment rates, lower employment growth, lower employment to population ratios, and lower wage growth are associated with longer welfare spells. On average, a typical employment fluctuation over the business cycle, if permanent, would lead to an 8-10 percent reduction in AFDC caseload. Typical changes in real quarterly earnings generate somewhat smaller effects. The combined effect of these two changes,if permanent, would lead to sizeable reductions in the caseload, on the order of 15 percent. The estimated labor market effects are robust to including county level fixed effects and time effects. AFDC-UP participants, blacks, and residents of urban areas are more sensitive to changes in economic conditions while teen parents and refugee groups are found to be much less sensitive to changes in local labor market conditions.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5643.

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Date of creation: Jun 1996
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Publication status: published as Hoynes, Hilary Williamson. "Welfare Transfers In Two-Parent Families: Labor Supply And Welfare Participation Under AFDC-UP," Econometrica, 1996, v64(2,Mar), 295-332. Also: Hilary Williamson Hoynes. "Local Labor Markets And Welfare Spells: Do Demand Conditions Matter?," The Review of Economics and Statistics, MIT Press, vol. 82(3), pages 351-368, August 2000.
Handle: RePEc:nbr:nberwo:5643

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  1. Manski, Charles F, 1993. "Identification of Endogenous Social Effects: The Reflection Problem," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(3), pages 531-42, July.
  2. O'Neill, June A & Bassi, Laurie J & Wolf, Douglas A, 1987. "The Duration of Welfare Spells," The Review of Economics and Statistics, MIT Press, vol. 69(2), pages 241-48, May.
  3. Bruce D. Meyer, 1988. "Unemployment Insurance And Unemployment Spells," NBER Working Papers 2546, National Bureau of Economic Research, Inc.
  4. David T. Ellwood, 1986. "Targeting "Would-Be" Long-Term Recipients of AFDC," Mathematica Policy Research Reports, Mathematica Policy Research 652, Mathematica Policy Research.
  5. John Bound & Harry J. Holzer, 1991. "Industrial Shifts, Skills Levels, and the Labor Market for White and Black Males," NBER Working Papers 3715, National Bureau of Economic Research, Inc.
  6. Hilary Hoynes, 1993. "Welfare Transfers in Two-Parent Families: Labor Supply and Welfare Participation Under AFDC-UP," NBER Working Papers 4407, National Bureau of Economic Research, Inc.
  7. Harry J. Holzer, 1989. "Employment, Unemployment and Demand Shifts in Local Labor Markets," NBER Working Papers 2858, National Bureau of Economic Research, Inc.
  8. John M. Fitzgerald, 1995. "Local labor markets and local area effects on welfare duration," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 14(1), pages 43-67.
  9. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  10. Moffitt, Robert, 1992. "Incentive Effects of the U.S. Welfare System: A Review," Journal of Economic Literature, American Economic Association, vol. 30(1), pages 1-61, March.
  11. Moffitt, Robert, 1983. "An Economic Model of Welfare Stigma," American Economic Review, American Economic Association, American Economic Association, vol. 73(5), pages 1023-35, December.
  12. Greg Duncan & Saul Hoffman, 1990. "Welfare benefits, economic opportunities, and out-of-wedlock births among black teenage girls," Demography, Springer, Springer, vol. 27(4), pages 519-535, November.
  13. Blank, Rebecca M., 1989. "Analyzing the length of welfare spells," Journal of Public Economics, Elsevier, Elsevier, vol. 39(3), pages 245-273, August.
  14. Rebecca M. Blank & Patricia Ruggles, 1993. "When Do Women Use AFDC & Food Stamps? The Dynamics of Eligibility vs. Participation," NBER Working Papers 4429, National Bureau of Economic Research, Inc.
  15. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, W.E. Upjohn Institute for Employment Research, number wbsle.
  16. J. Fitzgerald, . "A hazard model for welfare durations with unobserved location-specific effects," Institute for Research on Poverty Discussion Papers, University of Wisconsin Institute for Research on Poverty 1046-94, University of Wisconsin Institute for Research on Poverty.
  17. Hoynes, Hilary & MaCurdy, Thomas, 1994. "Has the Decline in Benefits Shortened Welfare Spells?," American Economic Review, American Economic Association, American Economic Association, vol. 84(2), pages 43-48, May.
  18. Timothy J. Bartik, 2003. "Local Economic Development Policies," Upjohn Working Papers and Journal Articles, W.E. Upjohn Institute for Employment Research 03-91, W.E. Upjohn Institute for Employment Research.
  19. Heckman, James J. & Singer, Burton, 1984. "Econometric duration analysis," Journal of Econometrics, Elsevier, Elsevier, vol. 24(1-2), pages 63-132.
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