Studies of Welfare Populations: Data Collection and Research Issues. Models of Turnover

06/01/2002

Given our interest in understanding why women with different labor market potential come to have different participation profiles, it is helpful to consider some alternative, stylized models of welfare turnover to fix ideas and establish intuition. One simple economic model presumes that the main reason for movement on and off welfare is fluctuation in job opportunities, as proxied by the level of earnings one can obtain off welfare. Because different women have different levels of labor market skill, they will have different quasi-permanent, mean earnings levels. Hence the existence of earnings fluctuations around each individual mean will lead to more movements on and off the rolls for those with mean earnings close to the cutoff point for leaving or entering the rolls than for those with mean earnings farther away from that cutoff, assuming that the variance of the fluctuations is the same for all. This simple model would lead to the presumption that short-termers have the highest labor market skill, with mean earnings sufficiently high that only significant negative earnings declines result in participation; long-termers have the lowest labor market skill, with mean earnings sufficiently low that only significantly positive earnings increases lead to an exit from welfare; and cyclers have labor market skill in between, with mean earnings closest to the margin so that many modest fluctuations in earnings lead to entry or exit from the welfare rolls. This is the framework mentioned in the Introduction.(8)

A variant on this model, popular in some of the economics literature, holds that more time on welfare reduces the mean level of skill because women historically have not worked while on welfare, for the most part, and their labor market skills deteriorate.(9) The key issue for present purposes is whether it is time spent in the current spell, or in total over all past spells, that causes skills to deteriorate. If only total-time-on causes such deterioration, we should find that labor market skill--even though it is partly a result, not a cause, of welfare participation--should be negatively related to an individual's amount of total-time-on but not to turnover or spell lengths, holding total-time-on fixed.

A different model is one in which different individuals experience different degrees of fluctuation in earnings (i.e., different variances). In this case, it is possible that individuals with the same quasi-permanent, mean earnings will have different turnover rates, spell lengths, and total-time-on depending on the variance of their earnings. High-variance individuals will have the greatest turnover rates, for example. In this extreme model, one may find no differences in labor market skill among those with different amounts of turnover, unlike the first model we described.

One may ask why different individuals would have different variances of earnings. One possibility is that some individuals search harder for jobs because they have a stronger desire to leave welfare, but because their permanent skill levels are not very high, they can never succeed in achieving more than a temporary period of employment off the rolls. Another possibility is that some recipients have more turbulent personal lives (possibly including domestic violence or substance abuse, for example), have worse physical or mental health conditions that are episodic in their severity, or have other types of experiences that create instability and hence an inability to sustain a fixed status either on or off welfare.

A third model is one in which individuals differ both in their mean earnings and in their degrees of earnings instability, and the two are either positively or negatively correlated. Although a positive correlation is possible, it seems equally possible that they could be negatively correlated. That is, it is possible that those with the lowest labor market skills have the greatest degrees of instability as well.(10) Perhaps those with the lowest labor market skills are from the most disadvantaged family and neighborhood backgrounds where instability is high. Indeed, high levels of instability could lead to lack of investment in education and poor labor market experience and skills later. The implications of a negative correlation for how labor market skill is related to turnover are unclear, for high earnings instability should lead to high welfare turnover but low labor market skill leads to the opposite. Therefore, it is ambiguous in this model whether those with high welfare turnover will be revealed, on average, to have higher or lower labor market skill than those with low turnover.

A fourth and final model is one in which noneconomic considerations play a larger role in welfare turnover, unlike the models so far that tie welfare participation decisions closely to earnings levels. Noneconomic events like marriage, divorce, childbearing, and changes in personal situation, all can affect welfare turnover rates. Turnover also can be directly affected by welfare administration, through a process known as "administrative churning," which refers to frequent starts and stops in benefit payments because of temporary denials of eligibility, errors or delays in processing, or skipped payments for some other reason. Whatever the noneconomic cause of welfare turnover, the issue at hand is how each cause is related to labor market skill and mean earnings off welfare. This cannot be predicted in general, and hence leads to another source of possible ambiguity.

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