An empirical analysis of joint decisions on labour supply and welfare participation

Abstract

Economic and welfare programme factors affect the wellbeing of low-income families and their labour supply decisions. This study uses recent data from the US Survey of Income and Programme Participation. A nested logit model is estimated to explain the joint decisions to participate in Temporary Assistance for Needy Families (TANF) and the labour market for the population of families potentially eligible for TANF. The empirical findings indicate that higher wages increase labour and decrease welfare programme participation; an increase in non-labour income decreases both labour market and welfare participation.

Acknowledgements

This research was conducted while Gi Choon Kang was visiting Iowa State University. We acknowledge helpful comments and suggestions from Peter Orazem. The Economic Research Service, United States Department of Agriculture provided partial funding support for the research.

Notes

 Maddala (1983) presents an extensive discussion of limited-dependent and qualitative-variable models in econometrics.

 B _lt is the maximum TANF grant per month, BRR is the benefit reduction rate, the rate at which additional dollars of earned income reduce the TANF benefit.

 The empirical specification of the human-capital based wage equation is: ln(W) =  β₀ + β₁ O′ + ϵ _w , where O' is a vector of exogenous variables including education, marital status, gender, race, and metro/non-metro location of family head, local unemployment rate, experience, and an interaction term between experience and education, and ϵ _w is a normal random error. The wage equation is corrected for potential selection bias. The results from the estimation are available from the authors.