The Role of Access to Childcare in the Successful Transitions from Welfare to Work

In August 1996, Congress passed the Personal Responsibility Work Opportunities Reconciliation Act (PRWORA). This act eliminated Aid to Families with Dependent Children (AFDC), the largest source of cash assistance available to needy families, and replaced it with Temporary Assistance to Needy Families (TANF), a time-limited program with stringent work requirements. Because one of the elements vital to the success of welfare reform is the ability of mothers to transition from the welfare rolls into the labor market, states are investing a great deal of money in childcare. In this paper, we find that the decision to participate in covered-sector jobs of former welfare recipients is responsive to both the cost of childcare as well as the density of available childcare. The elasticity with respect to density is around 0.5, whereas the elasticity with respect to the price paid is about -0.4. There is no statistically significant impact of childcare variables on the decision to participate in jobs that are not covered by unemployment insurance (UI). Since jobs not covered by UI are likely to be lower paid and less durable than jobs in the covered sector, our results suggest that both the price and availability of childcare are important determinant of transitions from welfare to stable employment.