Work, Welfare, and Family Structure: A Review of the Evidence

Hilary Hoynes

Institute for Research on Poverty Discussion Papers from University of Wisconsin Institute for Research on Poverty

Abstract: Support for reforming the welfare system in the United States is widespread, as evidenced by legislative action by many states and, most recently, the federal government. Although part of the interest in reform is fiscally motivated, interest also exists in making significant changes to address two prominent criticisms of the current system of public assistance in the United States: (1) the system has significant, adverse, work incentives; and (2) the system discourages the formation of two-parent families and is responsible in major part for the high and rising rates of female headship and out-of-wedlock births. This paper uses the available empirical evidence to explore the validity of these criticisms and to evaluate the impact of various reforms. The programs examined include Aid to Families with Dependent Children, Food Stamps, and Medicaid. The paper relies on evidence based on three sources of variation in welfare policy: cross-state variation, over-time variation, and demonstration projects at the state level. The conclusions are that current reforms aimed at reducing female headship and nonmarital births, such as "family caps," eliminating benefits for teens, and equal treatment of one- and two-parent families, are unlikely to generate large effects. Changes in implicit tax rates and benefit formulas may increase work among current recipients, but overall work effort may not be affected. These predictions should be accompanied by a word of caution: many of the proposed changes have never been implemented at the state or federal level and require out-of-sample predictions. Current state experimentation may help fill this gap.

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