Determinants of AFDC Caseload Growth. 4. Labor Market Variables


Unemployment Rate


A one percent increase in the unemployment rate, other things constant, reduces the AMB by an estimated 0.03 percent after 14 months. Equivalently, an increase in the unemployment rate from five to six percent reduces the AMB by 0.6. It seems likely that increases in unemployment, if anything, increase benefits among existing AFDC cases. The negative estimated effect presumably is the result of new cases that receive lower than average benefits -- due to fewer children and/or greater income from other sources.

Trade Employment per Capita

The long-run elasticity of AMB with respect to trade-employment is estimated to be -0.41. Presumably increases in trade employment reduce benefits for families that stay in the caseload, if they have any effect at all. Some families leave the caseload, however, and they may be receiving above or below average benefits. The negative long-run unemployment elasticity, discussed above, suggests that marginal families receive lower than average benefits, but the negative long-run elasticity for trade employment suggests the opposite.