Determinants of AFDC Caseload Growth. 3. Average Monthly Benefits

07/01/1997

Due to data constraints the AMB simulations (bottom section of Exhibit 6.1) are for a slightly different period than the caseload simulations -- 1980.4 to 1993.3 instead of 1979.4 to 1994.3. The first of the three subperiods examined differs from the corresponding subperiod for the caseload simulations -- the first year of the four-year period used in the latter is omitted in the former -- and the last one-year subperiod is omitted for lack of data.

1980.4 - 1983.3 Subperiod

This period includes the implementation of OBRA81. The model predicts that implementation of the various provisions of OBRA81 increased AMB substantially; the average annual percentage point increase in this period due to the AFDC benefit variables is 1.1 percent. Yet actual AMB declined, at an average annual rate of 3.3 percent. The labor market and other variables in the model predict small declines, but the model obviously misses the major source of the decline. According to the estimates, changes in the AFDC benefit variables increased, rather than decreased, AMB over the period. These variables, however, do not include the effects of OBRA81 that are captured by the year dummies. The dummy coefficient for 1981 is -.048 (4.8 percent) after adjusting for seasonality. The adjusted coefficient for the previous year, however, is even larger in magnitude (-.063) suggesting that the changes not captured by the model that account for the AMB decline during this period occurred in advance of OBRA81. These could be changes external to the program that affect the composition of the caseload or the benefits they receive, or program changes that are not picked up by the model (e.g., tightening of rules concerning disregards.)

1983.4 - 1989.3 Subperiod

Actual AMB fell slightly during this period, while the model predicts growth of 0.5 percent per year. The source of the predicted growth is primarily the vital statistics variables.

1989.4 - 1993.3 Subperiod

AMB also fell at a rapid rate during this period -- -4.1 percent per year. While the model predicts some decline, the size of the predicted decline (1.7 percent per year) is substantially smaller. The factor driving the model's predictions is changes in the AFDC benefit variables.

Full Period

Average monthly benefits declined substantially over the full period, at an average annual rate of 2.0 percent. This decline is not predicted by the state-level variables in the model, however; instead, they predict no change.

One intriguing finding is that the average annual percent decline in AMB that is not accounted for by the state-level variables is approximately equal to the average annual percent increase in the caseload that is not accounted for by the same variables.(4) The implication of this finding is that the model accounts for essentially all of the long-term growth in total expenditures (i.e., in the product of the caseload and AMB). An analogous finding applies to the subperiod from 1989.4 to 1993.3, but not in other subperiods. While the finding is intriguing, we know of no reason to think that it is other than fortuitous.