Welfare, Work, and Choices: Expanding Notions of Policy Incentives

Judith A. Levine

IPR working papers from Institute for Policy Resarch at Northwestern University

Abstract: Sociologists and economists have different disciplinary tendencies when analyzing the labor supply of welfare recipients. Sociologists often argue that recipients have no choice about working: they are unemployed because they can find neither jobs nor child care services. Economists assume recipients have choices, but often focus exclusively on the financial incentives established by law, particularly tax rates on recipients' earnings, costs of health insurance, and costs of child care. In this paper, I argue that a synthesis of the two approaches would further our understanding of the welfare-to-work transition.

Based on my semistructured interviews with current and recent AFDC recipients, I suggest that we expand standard economic models in three ways. First, policy designed to give AFDC recipients financial incentives to work will only be effective if recipients believe promised benefits will accrue in practice, which they often do not. Thus we need to include estimates of recipients' actual expectations, not just their legal entitlements, when predicting behavior. Second, analysts must make more systematic attempts to incorporate nonmonetary work incentives, such as negative interaction with case workers and the psychic benefits of employment, and work disincentives, such as oppressive supervision in jobs and anxieties about children's well-being. Third, the costs of both work and welfare receipt depend on the resources provided by recipients' social networks. Shared income may decrease financial incentives to work, while network-provided child care is likely to increase work incentives. Social networks that provide job information and contacts lower both the financial and psychological costs of job search, easing the transition to work.

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