Regional Welfare Programs and Labor Force Participation

Sonya Kostova Huffman, Maureen Kilkenny
May 2003  [02-WP 296] (Revised)

Welfare program dependency and expenditures rise during recessions, while income tax revenues from working people fall. Thus, now that states are responsible for their own welfare programs, they need to know how responsive their citizens are to workplace and safety net opportunities. This paper investigates household welfare program and labor force participation behavior. A choice-theoretic model is developed and estimated for each of the four census regions (Northeast, Midwest, South, and West) using cross-sectional data on households, labor markets, and policies. We show that household responses to welfare program parameters do differ regionally. But we find that labor supply does not depend on welfare program participation or program payoffs. Furthermore, unlike under the previous welfare program, participation in Temporary Assistance for Needy Families (TANF) does not significantly reduce household labor supply. The finding of significant differences across regions justifies the efficiency rationale for the devolution of authority to the states. We also discuss how states may be able to contain expenditures on welfare programs.

Keywords: labor force participation, regional welfare program participation, state welfare policies, TANF, Temporary Assistance for Needy Families.

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