Welfare and Family Stability: Do Benefits Affect When Children Leave the Nest?

The welfare system has long been criticized for its incentives against marriage. This paper examines one way in which welfare actually may keep families together: the fact that benefits increase with family size may encourage teenagers to stay in welfare-recipient households. Welfare benefit incentives affecting coresidence are twofold: (1) a parent loses benefits if a child leaves the household and (2) a child may receive additional benefits if s/he leaves the parental household. At a theoretical level, these incentives are shown to have an ambiguous effect on the coresidence decision. Empirically, I find that children are more likely to leave their parents the smaller the benefit loss that the parent suffers. This result illustrates a potential side-effect of welfare time limits, which effectively make children less "valuable" to welfare parents who reach the time limit. When children no longer increase the benefits available to low-income parents, more children may leave the parental household before age 18. Welfare's effects on living arrangements are estimated to be considerably stronger than most previously estimated effects on childbearing or female headship.