Welfare Reform and Children’s Short-Run Attainments – A Structural Approach

In this paper, we develop a dynamic structural model of single mothers ’ work and welfare participation decisions while their children are young. This model is used to measure the effects of mothers ’ decisions on short run attainments of the children of NLSY 79. Using PIAT Math test score as a measure of attainment, we find that both single mothers ’ work and welfare use in the first five years of their children’s lives have a positive effect on children’s outcomes, but this effect declines with initial ability. The higher the initial ability of a child, the lower the positive impact work and welfare have. In fact, in the case of welfare the effect is negative if a child has more than median initial ability. Furthermore, we find that the work requirement reduces a single mother’s use of welfare. However, the net effect of the work requirement on a child’s test score depends on whether the mother’s work brings in enough labor income to compensate for the loss of welfare benefits. We also look at the implications of the welfare eligibility time limit and maternal leave policies on children’s outcomes