The intergenerational correlation in AFDC participation: Welfare trap or poverty trap?

Several recent studies have shown that daughters whose mothers have participated in the welfare program Aid to Families with Dependent Children (AFDC), are themselves more likely to participate in AFDC when they head their own household. Other studies have shown that the earnings of parents and their children are highly correlated across generations. This suggests that any variable correlated with income such as AFDC participation will also be correlated across generations. This paper uses data from the original and youth cohorts of the National Longitudinal Surveys to investigate the question of whether the link in mother-daughter welfare participation is a causal relationship, or whether it can be explained by the expected intergenerational correlation in earnings. Several reduced-form probit equations are estimated, and attention is directed to the potential endogeneity of key explanatory variables. The empirical findings suggest that much of the observed correlation in AFDC participation across generations can be explained by the intergenerational correlation of income and other family characteristics.