Welfare, work, and dependence: Analyzing the potential effects of work-related welfare reform.

This dissertation explores the impact of one welfare program, Aid to Families with Dependent Children (AFDC), on (1) young women's work and training decisions, referred to as investments in human capital, and (2) their wages, known as returns to human capital. As such, it holds implications for the potential success of work-related welfare reforms. Unobservable differences between women, like attitudes, may both reduce work effort and increase welfare use. The presence of such an unobservable fixed effect, as it is called, could induce an overestimate of welfare's negative impact on work. By using panel data from the National Longitudinal Survey of Youth (NLSY), I can detect such fixed effect and obtain unbiased estimates. In the presence of a fixed effect, the Least Squares Dummy Variable (LSDV) technique generates unbiased estimates because it exploits changes in women's behavior over time and ignores the variation between women. However, if the unobserved differences between women are random--not correlated with both work and welfare decisions--then they do not induce a bias, and a Generalized Least Squares (GLS) technique, which exploits both sources of variation, provides more precise estimates. If the true effect is random, then the LSDV and GLS estimators should yield similar results, and GLS should be used. If the two estimates differ, then a fixed effect is probably present and the LSDV technique is preferred. The Hausman Specification test formally makes this comparison. I cannot reject the random effects model--the coefficients are remarkably similar--and hence use the GLS technique. Using several different specifications and using both predicted and actual measures of AFDC use, I find that historical AFDC receipt has small, negative impact on women's work decisions. I also find that women who received AFDC enjoy substantially less wage growth over time than women who avoided the dole. However, this appears to be caused by lower levels of investment rather than lower rates of return on such investments. AFDC recipients experience slower wage growth because they acquire less experience, education, and training than other women. I conclude that since AFDC recipients can benefit from investments in human capital and the program seems to inhibit investments, work-related welfare reforms could reduce dependence on government aid. But the effects are likely to be quite small.PhDSocial Work and EconomicsUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/103084/1/9034367.pdfDescription of 9034367.pdf : Restricted to UM users only