Welfare Dynamics under Time Limits. Jeffrey Grogger Charles Michalopoulos Evrim Aydin-Saher. PRWORA (1996) AFDC TANF → Time Limits Prediction:
AFDC TANF → Time Limits
Incentive to conserve welfare benefits for future use should be stronger, younger the youngest child in the family.
Longer the horizon, higher the value of retaining eligibility for such insurance.
Eligible for welfare as long as youngest child < 18 years old.
Families with youngest children have longest eligibility horizons
Fang & Keane (2004) : “option value”
Use welfare if benefit exceeds earnings at least by the
option value of preserving a month of eligibility.
Exception : poor families → 36 months (48% of sample)
Sample families could not exhaust benefits within
the 24-month follow up period.
Financial incentives (FI)
Enhanced employment & training services (ES)
enhanced employment & training services
I. Step Function specification
II. Linear Interaction specification
1. Controlling for personal characteristics
2. Reducing variance of error term – covariates
3. Alternative functional forms for Age-FTP
16 for 24-month time-limit
15 for 36-month time-limit
unable to identify effects on Group 0
welfare use → G2 used less
DD1 = FTP1 – FTP4 = - 0.085
DD2 = FTP2 – FTP4 = - 0.117
DD3 = FTP3 – FTP4 = - 0.031
yit = α+α0A0it+α1A1it+α2A2it+α3A3it+
Ajit = 1 if youngest child in ith family falls in group j at time t
Ei= 1 if family i is in FTP group
Xit : exogenous regressors;
( mother’s age, black/white, 2/3 year time limit, number of children in family, mother’s years of schooling, pre-sample welfare use, quarters of employment pre-assignment etc.)
yit = α+α0A0it+α1Ait+ τ0A0itEi+τTL1A′itEi+τEi+Xitβ+μi+εit
[Ait − threshold age] if 3 ≤ Ait < threshold age
→ OLS std errors downward biased
Huber-White Covariance Matrix Estimator
( Heteroskedasticity-Robust Standard Errors )
G1 7.4 %-pt (TYCS, vocational training)
non-price barriers to child care
preschool families cannot fully
respond to time-limits
All groups receive child care subsidies.
+1 year age 0.7 %-pts
“reduction in likelihood of
families with young children.
reducing welfare use well before they could have
exhausted their benefits.
• 12 months use & 24 months use – focus most dependent group
2. Shorter follow-up period - 12 months
• urban/rural - job market differences
• post-TANF & FTP-TANF – behavioural changes - Oct 1996
• out-of-county mobility – no differential mobility between groups
• FI & age-invariance
• ES & age-invariance
(reductions weighted by age distributions).
(Duncan et al. 1998)
relative to threshold families, ‘3 years old’ families
welfare use 6.6 %-pts, employment 3.4 %-pts
time-limits reduce welfare use by 6−7 %
welfare participation rate 23%-pts
time-limits 11% of this decrease.