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Unemployment and Welfare Participation in a Structural VAR: Rethinking the 1990S in the United States

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Author Info
Corrado Andini () (Department of Public Economics University of Rome ‘La Sapienza’)
Abstract

A 1997 report by the Council of Economic Advisers started a large research effort about the effects of the unemployment rate on the welfare participation rate and vice-versa, with special regard to the 1990s in the United States. In this paper the relationship between the US unemployment rate and the welfare participation rate is examined in a structural VAR. It is found that the unemployment rate does not Granger-cause the welfare participation rate, while the converse is true. Moreover, a negative shock to the welfare participation rate predicts a reduction in the unemployment rate. The conclusion is that the decline in the welfare participation rate in the 1990s should be attributed to restrictive welfare reforms, not to the fall in the unemployment rate. Further, the political choice to reduce the welfare participation rate may have inflated the reduction in the unemployment rate, by increasing the number of people willing to accept peripheral jobs, for instance in the Eating and drinking place.

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Publisher Info
Paper provided by CELPE (Centre of Labour Economics and Economic Policy), University of Salerno, Italy in its series CELPE Discussion Papers with number 80.

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Date of creation: May 2004
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Handle: RePEc:sal:celpdp:80

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Related research
Keywords: Welfare; Unemployment; Structural VAR;

Find related papers by JEL classification:
J2 - Labor and Demographic Economics - - Demand and Supply of Labor
I3 - Health, Education, and Welfare - - Welfare and Poverty

This paper has been announced in the following NEP Reports:

References listed on IDEAS
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  1. J. P. Ziliak & D. N. Figlio & E. E. Davis & L. S. Connolly, . "Accounting for the Decline in AFDC Caseloads: Welfare Reform or Economic Growth?," Institute for Research on Poverty Discussion Papers 1151-97, University of Wisconsin Institute for Research on Poverty. [Downloadable!]
  2. Timothy J. Bartik & Randall W. Eberts, 1999. "Examining the Effect of Industry Trends and Structure on Welfare Caseloads," Staff Working Papers 99-54, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
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  3. Rebecca M. Blank, David Card and Philip K. Robins, 1999. "Financial Incentives for Increasing Work and Income Among Low-Income Families," Economics Working Papers E99-264, University of California at Berkeley. [Downloadable!]
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  4. Schoeni, R.F. & Blank, R.M., 2000. "What Has Welfare Reform Accomplished? Impacts on Welfare Participation, Employment, Income, Poverty, and Family Structure," Papers 00-02, RAND - Labor and Population Program.
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  5. Blanchard, Olivier Jean & Quah, Danny, 1989. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," American Economic Review, American Economic Association, vol. 79(4), pages 655-73, September. [Downloadable!] (restricted)
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  6. Jeff Grogger, 2000. "Time Limits and Welfare Use," NBER Working Papers 7709, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January. [Downloadable!] (restricted)
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  8. Bruce D. Meyer & Dan T. Rosenbaum, 2000. "Making Single Mothers Work: Recent Tax and Welfare Policy and its Effects," NBER Working Papers 7491, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Robert A. Moffitt, 1999. "The Effect of Pre-PRWORA Waivers on AFDC Caseloads and Female Earnings, Income, and Labor Force Behavior," JCPR Working Papers 89, Northwestern University/University of Chicago Joint Center for Poverty Research.
  10. Rebecca M. Blank, 1997. "What Causes Public Assistance Caseloads to Grow?," NBER Working Papers 6343, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  11. Timothy J. Bartik, 1998. "The Labor Supply Effects of Welfare Reform," Staff Working Papers 98-53, W.E. Upjohn Institute for Employment Research. [Downloadable!] (restricted)
  12. Jacob A. Klerman & Steven J. Haider, 2001. "A Stock-Flow Analysis of the Welfare Caseload: Insights from California Economic Conditions," Working Papers 01-02, RAND Corporation Publications Department. [Downloadable!]
  13. David N. Figlio & James P. Ziliak, 1999. "Welfare Reform, the Business Cycle, and the Decline in AFDC Caseloads," JCPR Working Papers 77, Northwestern University/University of Chicago Joint Center for Poverty Research.
  14. Christiano, Lawrence J & Eichenbaum, Martin & Evans, Charles, 1996. "The Effects of Monetary Policy Shocks: Evidence from the Flow of Funds," The Review of Economics and Statistics, MIT Press, vol. 78(1), pages 16-34, February. [Downloadable!] (restricted)
    Other versions:
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