Determinants of AFDC Caseload Growth. 4. Wisconsin


Basic Caseload

Wisconsin's Basic caseload at the end of the period was essentially the same as at the beginning, but this masks some sharp changes in the series within the period. According to Tom Corbett, episodes for Wisconsin's caseload differ in timing from the subperiods selected for the simulation analysis (Exhibit 6.9):(9)

  • From 1979 through 1985 Wisconsin experienced severe economic difficulties and also had a very generous welfare system relative to other states. The caseload peak in 1986 was a result of these combined factors;
  • From 1986 through 1991, approximately, and especially from 1987 to 1989, Wisconsin's export-sensitive economy boomed, in part driven by the decline in the value of the dollar, and welfare benefits were "slashed;"
  • After 1991 the decline stalled, as the economy weakened, but then continued as the economy recovered and plethora of programmatic changes were implemented.

The welfare cuts in the middle period were partly in the form of lower maximum monthly benefits, which are captured in the model, and, to a lesser extent, a change in attitude in welfare offices. Cultural change in the welfare system has apparently been a more significant factor recently. Corbett writes that "guarantee levels [i.e., MMB] and benefit reduction rates are being swamped in importance by aggressive client diversion programs and aggressive changes in agency mission and modes of operation."

Exhibit 6.9
Decomposition of Wisconsin Caseload and Average Monthly Benefit Series
  Average Annual Growth Rate Annual Growth Rate Accounted for by:
Program, Period, and Model Actual Accounted for by Model Not Accounted for by Model Population Growth and Aging Vital Statistics Variables Labor Market Variables AFDC Benefits Other Variables
1979.4 - 1983.3 1.1% 0.4% 0.6% 0.9% 0.4% 3.1% -4.2% 0.1%
1983.4 - 1989.3 -0.4% -3.5% 3.1% -0.1% 0.6% -4.0% -0.2% 0.1%
1989.4 - 1993.3 0.2% 0.2% 0.0% 0.0% 0.7% -0.7% 0.0% 0.3%
1993.4 - 1994.3 -3.2% 0.3% -3.5% -0.7% 0.3% -0.4% 1.0% 0.1%
1979.4 - 1994.3 0.0% -1.2% 1.2% 0.2% 0.5% -1.0% -1.1% 0.1%
Unemployed Parent 1                
1979.4 - 1983.3 46.6% 19.4% 27.1% 0.8% n.a. 22.8% -4.2% n.a.
1983.4 - 1989.3 -12.2% -19.3% 7.0% 0.3% n.a. -19.2% -0.4% n.a.
1989.4 - 1993.3 -2.2% 0.6% -2.8% 0.9% n.a. 0.0% -0.3% n.a.
1993.4 - 1994.3 -18.6% -3.7% -14.9% 0.2% n.a. -3.2% -0.7% n.a.
1979.4 - 1994.3 5.7% -2.6% 8.3% 0.6% n.a. -1.8% -1.4% n.a.
Average Monthly Benefit                
1980.4 - 1983.3 -0.6% 2.0% -2.6% n.a. 0.3% -0.7% 2.7% -0.3%
1983.4 - 1989.3 -3.2% -1.2% -2.0% n.a. 0.4% 0.2% -1.9% 0.0%
1989.4 - 1993.3 -1.6% -1.9% 0.3% n.a. 0.3% -0.3% -1.8% 0.0%
1980.4 - 1993.3 -2.1% -0.7% -1.4% n.a. 0.4% -0.2% -0.8% -0.1%
1. The UP caseload model does not include the vital statistic variables and the AMB model does not include a variable for population growth and aging.

The model simulations largely support Corbett's comments and provide some additional insights. According to the model, the strength of Wisconsin's labor market reduced Basic caseload growth by an average of 4.0 percentage points per year from 1983.4 to 1989.4, whereas the improving national labor market reduced nation growth by only 3.3 percentage points. In the following period, through 1993.3, the economy contributed, on average, -0.7 percentage points per year to Wisconsin's caseload growth, compared to 1.5 percentage points for the nation. In the last year of the sample, however, the recovery of the national economy has had a somewhat larger effect on the nation's caseload than on growth in Wisconsin (-0.8 percentage points for the nation vs. -0.4 percentage points for Wisconsin).(10)

The analysis also finds that changes in program parameters have slowed growth in Wisconsin's caseload relative to that of the rest of the country since 1983.4, but the importance of these changes appears secondary to strong economic performance. From 1983.4 to 1989.3, program parameter changes contributed, on average, -0.2 percentage points per year to Wisconsin's caseload growth compared to positive 0.2 percentage points for the nation. From 1989.4 to 1993.3 the difference was small -- 0.0 percentage points for Wisconsin vs. 0.1 percentage points for the nation. In the last year these made a positive contribution to Wisconsin's caseload growth of 1.0 percentage points, according to the model. As explained previously, this is attributed to the expansion of the EITC, and the estimated effect for the nation is even larger, 1.3 percent.

The effects of welfare reforms in Wisconsin may have been substantially greater than the effects that are captured in the model, however. As Corbett points out, the many changes that have occurred are not captured in the key program parameters. The decline in the caseload in the last year of the sample, which is not explained by the model, is especially noteworthy. The actual caseload declined by 3.2 percent in 1993.4 - 1994.3, while the model predicts an increase of 0.3 percent. Corbett and others have attributed much of the recent decline to Wisconsin's aggressive efforts to encourage employment and discourage long-term dependency (see Mead, 1996, and Wiseman, 1996). Our findings are largely consistent with that interpretation for 1994, but factors in the model account for all of Wisconsin's low caseload growth in the previous four years. In fact, from 1987 to 1993 the predicted caseload series tracks the actual series very well (Exhibit 6.10).

The simulations point to two other factors that have contributed to low caseload growth in Wisconsin relative to the nation. First, population growth and aging have contributed less to caseload growth in Wisconsin than in the nation -- 0.2 percentage points per year on average over the entire sample period, vs. 0.8 percentage points for the country. In the last year of the sample, the contribution of this factor in Wisconsin is estimated at -0.7 percentage points, vs. -0.4 percentage points for the country. Second, IRCA legalizations had a much smaller estimated impact in Wisconsin than in other states. This is reflected in the estimated contribution of "other factors" for the period from 1989.4 to 1993.3; the contribution of these factors in Wisconsin is an average 0.3 percentage points per year during this period, compared to 1.7 percentages points for the nation.

Exhibit 6.10

Actual and Predicted Caseloads for Wisconsin, 1979.4 - 1994.3

{short description of image}

UP Caseload

The Wisconsin UP caseload grew at an average annual rate of 5.7 percent over the full period, slightly lower than the national rate of growth (7.0 percent), but the model predicts an average annual decline of 2.6 percent (Exhibit 6.9, middle section). As is evident from plots of the predicted and actual series (Exhibit 6.10, bottom panel), most of the positive prediction error comes from the 1979.4 - 1983.3 period when actual growth occurred at an average annual rate of 46.6 percent, compared to predicted growth of 19.4 percent. We do not have an explanation for this exceptionally high rate of growth. Like in California, the model predicts a larger caseload decline than actually occurred in the following five-year subperiod. During the next four years the caseload declines by an average of 2.2 percent per year when the model predicts growth of 0.6 percent, and during the final year of the sample the caseload declines by 18.6 percent while the model predicts a decline of only 3.7 percent. While these larger than expected declines may be due to Wisconsin's work-oriented welfare reforms, the size of the prediction errors that occur in the earlier part of the sample period suggest that this conclusion may be premature.

Average Monthly Benefits

The AMB simulation findings for Wisconsin (bottom section of Exhibit 6.9) depart from those for the nation and the three other states in some interesting ways. While the average annual decline for the full period is about the same as for the nation (2.1 percent per year vs. 2.0 percent), much of the decline occurred in the middle four-year period, the period during which the state began to cut its benefits; most of the decline for the nation and the other states occurred in the first and last subperiods. In Wisconsin, benefit changes captured by the model had a substantial positive impact during the first three-year subperiod (2.7 percentage points per year) and substantial negative impacts in the middle and last four-year subperiods (-1.9 and -1.8 percentage points per year, respectively).