Performance Improvement 2004. Welfare transitions in the 1990s: the economy, welfare policy and the EITC


This study examined the reasons for the sharp caseload declines that occurred in the nation from 1986 to 1999. It used data from Survey of Income and Program Participation to develop caseload models. Unlike most studies of this nature which directly model the caseload, this study separately modeled entry and exit rates. It should be noted that the work of Haider and Klerman has shown that models that directly estimate the caseload are misspecified and give biased results. The models used here included economic, demographic and programmatic variables. Programmatic variables included the implementation of TANF and whether the state had been granted waivers. Economic variables included EITC levels, an area not addressed in most studies of the caseload declines of the 1990s. There were declines in caseloads caused by decreases in entry rates and increases in exit rates. Major findings included the following: (1) reductions in entry rates were most significantly affected by the economy, the decline in the real value of cash assistance, and the expansion of the EITC; (2) increases in exit rates were most significantly affected by the economy and federal welfare reform; (3) federal reform had the greatest affect on exit rates for long-term spells of welfare; and (4) welfare reform and the EITC played the greatest role in caseload reduction and the economy played a smaller role.

PIC ID: 7537
Agency Sponsor: ACF-OPRE, Office of Planning, Research and Evaluation
Federal Contact: Sternbach, Leonard, 415-437-7671
Performer: Jeffrey Grogger, Chicago, IL

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