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Welfare Dynamics Under Time Limits. Jeffrey Grogger Charles Michalopoulos By: Tien Ho. Introduction. Prior to 1996: AFDC PWRORA of 1996: TANF replaced AFDC Eligible families had child younger than 18 Time Limits imposed: -Federal: 5 years -State: varied. Introduction.
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Welfare Dynamics Under Time Limits Jeffrey Grogger Charles Michalopoulos By: Tien Ho
Introduction • Prior to 1996: AFDC • PWRORA of 1996: TANF replaced AFDC • Eligible families had child younger than 18 • Time Limits imposed: -Federal: 5 years -State: varied
Introduction The Controversy Over Time Limits • Pro: direct route of getting people off welfare; people who need to preserve welfare look for jobs • Cons: kids lose benefits when parents do; low-income job or short-term joblessness Lang (2007)
Main Issue • How did time limits affect a family’s decision to stay on welfare? • Did time limits reduce welfare use?
Why is this interesting? • Are time limits an effective measure? • Why do they succeed? Why do they fail? • Time limits: cruel policy or “tough love”?
Previous Studies • Council of Economic Advisers. Technical Report: explaining the decline of welfare receipt, 1993-1996. Washington: Council Econ. Advisers, May 1997. --mentioned time limits as a possible factor in reduction of caseloads • Swann, CA. “Welfare reform when agents are forward-looking.” Manuscript. Charlottesville: Univ. Virginia, December 1998. --suggested that time limits motivate people to preserve their benefits • Moffitt, RA. Incentive effects of the U.S. Welfare System: a review. J Econ. Literature 30 (March 1992):1-61. --aggregate state-level caseload analysis
Improvements • Consider the age-dependence issue -claimed this is essential to understanding time limits • Used a random, “natural” experiment • In depth analysis of data from Florida program
Florida Family Transition Program • Location: Escambia County in May 1994 under waiver • Randomized into two groups: experimental (time limit) or AFDC (no time limit) -new families: randomized when entering -previous families: randomized at renewal • Followed families for 2 years after random assignment • Data collected from administrative records and survey
Key Assumptions • The effects of individual reforms are additive • The effects of the financial work incentives and enhanced services are age-invariant • Time limits have no effect on parents with children above threshold age • Parents with younger children are forward-looking, expected-utility-max consumers • Prediction: parents with younger children should reduce welfare consumption more than parents with older children
+0.25% -27.75% -8.3% -35.8% +17.5% -10% +27.5%
Are financial incentives and enhanced services truly age-invariant?
There are a lot more mothers with younger children on welfare versus mothers with older children which suggests there are differences between them.
Limitations • Support uses tables with different age groups • Control and treatment are not the same • Mothers with younger children may be affected differently by financial incentives and enhanced services than mothers with older children • Large differences in age groups (no justification for why they chose that grouping)
Linear Regression • Only takes into account observable characteristics • Experimenter bias; didn’t consider other factors-subsidized daycare, etc. • Other unobservable factors not accounted for-individual heterogeneity
Implications • Families with younger children appear to be affected by time limits (16% reduction overall) • Imposing time limits may encourage people to find a job => leading to reductions in welfare payments • Could have adverse results on younger children (education, parental care)
The Bad • Too many assumptions (age-invariance, forward-looking consumer, etc.) • People knew they were in a study (may not have actually believed their benefits would stop) • Florida Data very unreliable and not generalizable; social workers had smaller caseloads and could be more proactive • Subsidized daycare for children 12 years and younger may have had a greater effect on mothers with younger children • Does not tell us how time limits would effect entry into welfare • Time limit of the FTP program different from other time limits Lang (2007); Fang and Keane (2004)
The Good • Offered age-dependent analysis of time limits • Significant results from data analysis • Accounted for many factors (age, race, etc.) • Defended assumptions with data from other studies • Data from two nationwide surveys similar to data here (Grogger 2002, 2004) -relative to states without limits, welfare participation rates dropped more rapidly among households with younger children than in homes with older children
Discussion • Do you think time limits actually work (in an ultimately beneficial way)? • If time limits work, should the federal government require all states to impose them? • What problems/critiques do you have with this study? Any ideas for a better one?