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Instrumental Variable Estimates of the Labor Market Spillover Effects of Welfare Reform

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Abstract

By increasing the labor supply of welfare recipients, welfare reform may reduce wages and increase unemployment among other less-educated groups. These "spillover effects" are difficult to estimate because welfare caseloads decrease in response to improvements in the economy, which leads caseload reductions to be associated with improvements in labor market outcomes. This paper corrects for the endogeneity of caseloads by using instruments that reflect policy. The estimates suggest that welfare reform has significant spillover effects: welfare reform reduces employment of male high school dropouts, and reduces wages of single mothers and male high school dropouts.

Suggested Citation

  • Timothy J. Bartik, 2002. "Instrumental Variable Estimates of the Labor Market Spillover Effects of Welfare Reform," Upjohn Working Papers and Journal Articles 02-78, W.E. Upjohn Institute for Employment Research.
  • Handle: RePEc:upj:weupjo:02-78
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    1. Robert A. Moffitt, 2003. "The Temporary Assistance for Needy Families Program," NBER Chapters,in: Means-Tested Transfer Programs in the United States, pages 291-364 National Bureau of Economic Research, Inc.
    2. Darren Lubotsky, 2004. "The Labor Market Effects of Welfare Reform," ILR Review, Cornell University, ILR School, vol. 57(2), pages 249-266, January.
    3. Lawrence F. Katz, 1996. "Wage Subsidies for the Disadvantaged," NBER Working Papers 5679, National Bureau of Economic Research, Inc.
    4. H. J. Holzer, "undated". "Employer Demand, AFDC Recipients, and Labor Market Policy," Institute for Research on Poverty Discussion Papers 1115-96, University of Wisconsin Institute for Research on Poverty.
    5. Timothy J. Bartik & Randall W. Eberts, 199. "Examining the Effect of Industry Trends and Structure on Welfare Caseloads," Book chapters authored by Upjohn Institute researchers,in: Sheldon H. Danziger (ed.), Economic Conditions and Welfare Reform, chapter 5, pages 119-157 W.E. Upjohn Institute for Employment Research.
    6. Timothy J. Bartik, 1991. "Who Benefits from State and Local Economic Development Policies?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number wbsle, November.
    7. George J. Borjas & Richard B. Friedman & Lawrence F. Katz, 1997. "How Much Do Immigration and Trade Affect Labor Market Outcomes?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1), pages 1-90.
    8. Rebecca M. Blank, 2001. "What Causes Public Assistance Caseloads to Grow?," Journal of Human Resources, University of Wisconsin Press, vol. 36(1), pages 85-118.
    9. Timothy J. Bartik, 1998. "The Labor Supply Effects of Welfare Reform," Upjohn Working Papers and Journal Articles 98-53, W.E. Upjohn Institute for Employment Research.
    10. Davidson, Russell & MacKinnon, James G., 1993. "Estimation and Inference in Econometrics," OUP Catalogue, Oxford University Press, number 9780195060119.
    11. Jacob Alex Klerman & Steven J. Haider, 2004. "A Stock-Flow Analysis of the Welfare Caseload," Journal of Human Resources, University of Wisconsin Press, vol. 39(4).
    12. Timothy J. Bartik, 2001. "Jobs for the Poor: Can Labor Demand Policies Help?," Books from Upjohn Press, W.E. Upjohn Institute for Employment Research, number tjb2001, November.
    13. John M. Abowd & Richard B. Freeman, 1991. "Immigration, Trade, and the Labor Market," NBER Books, National Bureau of Economic Research, Inc, number abow91-1.
    14. 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.
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    Cited by:

    1. Hal W. Snarr, 2013. "Was it the economy or reform that precipitated the steep decline in the US welfare caseload?," Applied Economics, Taylor & Francis Journals, vol. 45(4), pages 525-540, February.
    2. Lincoln H. Groves, 2016. "Welfare Reform and Labor Force Exit by Young, Low-Skilled Single Males," Demography, Springer;Population Association of America (PAA), vol. 53(2), pages 393-418, April.
    3. Häkkinen Skans, Iida & Carlsson, Mikael & Nordström Skans, Oskar, 2017. "Wage Flexibility in a Unionized Economy with Stable Wage Dispersion," Working Papers 149, National Institute of Economic Research.
    4. Brian C. Hill & Matthew N. Murray, 2008. "Interactions Between Welfare Caseloads And Local Labor Markets," Contemporary Economic Policy, Western Economic Association International, vol. 26(4), pages 539-554, October.

    More about this item

    Keywords

    welfare; reform; spillover; effects; wages; employment; Bartik; Upjohn;

    JEL classification:

    • J68 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Public Policy
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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