Three essays on the welfare system.

This dissertation examines the effectiveness of the welfare system, while taking into account the behavioral changes which the system may induce in welfare recipients. The analysis focuses on the major welfare program, Aid to Families with Dependent Children (AFDC). Using data from the Panel Study of Income Dynamics (PSID), this dissertation provides several significant empirical findings. The first essay examines the effect of welfare participation on women's wages. The hypothesis is that welfare participation depreciates recipients' human capital due to their withdrawal from the labor market. Regression results from a wage change model suggest that AFDC participation reduces women's wage rates by 2.2 to 3.2 percent per year. Preference transformations in welfare recipients are the central concern of the second essay. These transformations, including reductions in the transaction costs and the stigma associated with program participation, lead to a higher probability of welfare receipt among those who have welfare experience. Using 2SLS and a bivariate probit model, my estimations indicate that previous welfare participants are 20 percent more likely than previous non-participants to be on AFDC in a given year, suggesting preference changes during welfare participation. The third essays explores the welfare system as consumption insurance. As marital dissolution is often a reason for women and their children to slip into poverty, public transfer programs to single-parent households provide the benefits of allowing for consumption smoothing after divorce. This essay measures the consumption smoothing benefits and examines one factor that undermines these benefits: the crowding out effect of public transfers on divorced mothers' private income. My analyses show that public transfers play an important role in mitigating the consumption drop after divorce for women and their children. An increase in AFDC income and Food Stamps combined by $100 helps divorced mothers mitigate the consumption decrease by \$60 in food and rents. I also find evidence that AFDC crowds out several sources of private income. In particular, savings and women's labor supply before divorce, ex-spouse's transfers, and the incidence of relatives' financial aid are negatively associated with state AFDC generosity.Ph.D.EconomicsIndividual and family studiesSocial SciencesWomen's studiesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/131261/2/9840588.pd