Determinants of AFDC Caseload Growth. E. FURTHER DISCUSSION OF BUSINESS CYCLE ESTIMATES

07/01/1997

In this section we examine the dynamics of the effects of changes in the unemployment rate on the caseload and compare our findings to findings reported by others. All of the findings reported in this section are based on Basic and UP caseload models in which we dropped the trade employment variable (Exhibit 5.6). This was done to simplify the analysis and presentation. The other studies we examine use only the unemployment rate as a business cycle variable, whereas in the models we have reported there are two important business cycle variables. Dropping trade employment increases the magnitude of the unemployment rate coefficients somewhat.

For comparison purposes, we consider the estimated effect of a one percentage point increase in the unemployment rate on the caseload, in percent. In the specification we use, the size of the effect depends on the initial unemployment rate. We assume the increase is from five percent to six percent.