We approach this project from an economic perspective. This perspective emphasizes the role of individuals making choices between various alternatives as key to understanding individual behaviors such as labor force participation, marriage, fertility, and participation in AFDC. It posits that there are many adults for whom modest changes in factors affecting the economic attractiveness of various alternatives will influence their behaviors in these areas, although it also recognizes that the behaviors of many others may be immune from even very large changes in these same factors.
It is important to recognize that an unmarried parent's (usually a mother's) decision to seek AFDC Basic benefits is not necessarily a decision that is made taking other critical aspects of her life as given. Instead, that decision may just be one dimension of a set of "life decisions" concerning fertility, marriage, employment, and many other things. Hence, showing that AFDC Basic participation is positively related to the number of female-headed households containing children under the age of 18 -- as many studies have done--begs the question of what determines the number of such households. To some extent the number of such households and AFDC participation are jointly determined by the same factors.
Because the decision to apply for benefits may be made in conjunction with other life decisions, any factor that influences the relative well-being of the (potential) parents under all of their various "life alternatives" is a potential determinant of AFDC participation. The most obvious economic factor is the strength of the economy. A decline in job opportunities will make AFDC participation relatively more attractive than work to an unmarried mother. It may also, for instance, make family formation less attractive because of reduced job opportunities for both herself and her potential partner.
Declines in job opportunities can also have an impact on fertility, although the direction of the effect depends on the relative strength of competing forces. On the one hand, if one has a child she will need to use a share of her reduced income to provide for the child. On the other hand the "opportunity cost" of time she devotes to having and raising a child is reduced; i.e., when her potential wage rate is lowered, she gives up less when she uses her time to raise children rather than work. An additional incentive in favor of having a child exists if the woman does not have children already: it gives her access to AFDC benefits, which may substantially offset the income losses due to her poorer job prospects.(2)
Changes in programmatic factors, such as the level of benefits and eligibility criteria, also lead to changes in AFDC caseloads. Provisions of the Omnibus Budget Reconciliation Act of 1981 clearly reduced caseload growth. In more recent years, several important changes brought about by Federal legislation may also have had an effect on the AFDC caseload. The 1988 Family Support Act (FSA) created the Job Opportunities and Basic Skills (JOBS) program and mandated that all states operate a UP program. In addition, many states have received Federal waivers that allow them to experiment with various policies, often with the intended effect of moving people from welfare to work or reducing dependence on AFDC in other ways.
As with changes in job opportunities, the influence of changes in programmatic factors on participation may partly work through their impact on marital, fertility, and other decisions. For instance, introduction of the UP program was expected to reduce the number of unmarried mothers because it increased the availability of AFDC benefits to households with two parents. In theory, however, making AFDC benefits more available to two-parent families makes childbearing more attractive.
While there is much disagreement in the literature about the influence of economic factors on various life decisions, there is little doubt that these decisions are influenced by a common set of factors and, to some extent, are jointly made. Hence, it is critical to recognize the potentially joint nature of these decisions in research on AFDC participation.
Changes in other programs that provide benefits to the low-income population can also have an impact on AFDC participation. Perhaps most importantly, past changes in state Medicaid benefits are likely to have had an impact because almost all AFDC recipients have been automatically eligible for Medicaid. Changes in other programs, such as Food Stamps (FS), general assistance (GA), unemployment insurance (UI), workers compensation (WC), and Social Security Disability Insurance (SSDI) and Supplemental Security Income (SSI) can also have an impact. All of these programs are potential sources of benefits to at least some individuals who might be eligible for AFDC, either directly (e.g., SSI provides benefits for low income adults or children with qualifying disabilities) or indirectly (e.g., GA may provide support to members of an AFDC household who are not in the AFDC family unit, or to a relative of the AFDC family unit who lives in another household, including a non-custodial parent).(3)