The selection of variables for the final average monthly benefit (AMB) equation was largely determined by the findings from the Basic and UP participation models (Exhibit 5.5). We began by including all of the variables that are included in either the final Basic or the final UP participation equations plus dummy variables for the existence and type of UP program (six-month, 12-month, and whether introduced as the result of requirements in FSA88). Except in the case of some program parameters, we then dropped all variables that had coefficients with t-statistics less than one in absolute value.
In interpreting the findings, it is important to keep the following in mind:
- The AMB variable is average monthly benefits for all cases in both the Basic and UP programs;
- The effects of explanatory variables on AMB may be of two types: effects on benefits received by existing AFDC families, and effects that work through changes in the composition of the AFDC caseload;
- The maximum monthly benefit variable in the AMB equation does not include the value of Food Stamps, whereas the same variable in the participation equations does. The reason for this is that the AMB equation itself refers to the AFDC benefits received only; and
- The sample period for this equation does not include the first two and the last four quarters of the period used to estimate the participation equations.