Using Matched Border Counties for Policy Analysis: The Effects of Entitlement Programs on Female-Headed Households and Female Labor-Force Participation

The literature on the impact of welfare programs consistently shows that the incentives implied by these programs have effects on potential recipients. This paper supports that conclusion by showing that an increase in the generosity of Aid to Families with Dependent Children (AFDC) increased the incidence of female-headed households and reduced female labor-force participation in 1990, but the magnitude of the estimates here are smaller than is generally found in the literature. The elasticity estimates of the employment rate with respect to the income guarantee ranges from -0.7 to -0.76, while the elasticity of hours worked with respect to the income guarantee ranges from -0.9 to -1.11. Although elasticity estimates are not directly comparable across studies where the dependent variable differs, these elasticity estimates do indicate that the income guarantee increases the incidence of female-headed households and also increases female labor force non-participation, which is consistent with the observations made by Danziger, Haveman and Plotnick (1981), but with magnitudes of -0.3 to -0.04.