7 2 -2 2 ,1 8 7

APPEL, Gary L ou is, 1938EFFECTS OF A FINANCIAL INCENTIVE ON AFDC
EMPLOYMENT—MICHIGAN’S EXPERIENCE BETWEEN
JULY 1969 AND JULY 1970.
M ichigan S ta te U n iv e r sity , P h .D ., 1972
Economics, gen eral

University Microfilms, A XEROXC om pany, Ann Arbor, M ichigan

<S>

C o p y r i g h t by
Gary Louis Appel

1972

EFFECTS OF A FINANCIAL INCENTIVE
ON AFDC EMPLOYMENT—MICHIGAN'S
EXPERIENCE BETWEEN JULY 1969
AND JULY 1970

By

Gary Louis Appel

A THESIS

S u b m it te d t o
Michigan S t a t e U n i v e r s i t y
p a r t i a l f u l f i l l m e n t o f th e requirements
f o r the degree of

DOCTOR OF PHILOSOPHY

Department o f Economics

PLEASE NOTE:

Some p age s may have
in d istin c t print.
Filmed a s r e c e i v e d .

U n i v e r s i t y M i c r o f i l m s , A Xerox Education Company

ABSTRACT
EFFECTS OF A FINANCIAL INCENTIVE
ON AFDC EMPLOYMENT—MICHIGAN'S
EXPERIENCE BETWEEN JULY, 1969
AND JULY, 1970
By
Gary Louis Appel

In 196 7, t h e S o c i a l S e c u r i t y Act was amended t o i n c l u d e a f i n a n c i a l
work i n c e n t i v e f o r AFDC r e c i p i e n t s .

The o s t e n s i b l e goal o f t h e i n c e n t i v e

i s t o e n c o u r a g e employment, b u t employment i s a means, n o t n e c e s s a r i l y an
end i n i t s e l f .

T h e r e f o r e , i n t h i s s t u d y , we examine t h e work i n c e n t i v e i n

terms o f t h e f o l l o w i n g o b j e c t i v e s o f employing t h o s e on w e l f a r e :

(1) t o

d e c r e a s e t h e w e l f a r e c a s e l o a d , (2) t o d e c r e a s e t h e w e l f a r e c o s t p e r employ­
ed c a s e , (3) t o d e c r e a s e t o t a l w e l f a r e c o s t s , and (4) t o r a i s e t h e incomes
o f employed AFDC f a m i l i e s a t a low t a x p a y e r c o s t p e r w e l f a r e f a m i l y .
The c o n c e p t u a l a n a l y s i s i n t h i s s t u d y s u g g e s t s t h a t t h e work i n c e n ­
t i v e w i l l t e n d t o i n c r e a s e employment b u t t h a t t h e employment i s c o n s i s ­
t e n t w i t h o n l y t h e l a s t o f t h e s e o b j e c t i v e s - - t o r a i s e AFDC f a m i l y incomes.
F u r t h e r , i n c r e a s e d employment and h i g h e r incomes may be a c c o m p li sh e d o n l y
a t t h e ex p e n s e o f t h e o t h e r o b j e c t i v e s .
Through s p e c i f i c n um eri cal examples from t h e Michigan AFDC pr ogram,
t h i s s t u d y shows e x a c t l y how much more a t t r a c t i v e w e l f a r e becomes un d e r
t h e work i n c e n t i v e .

I t i s a l s o shown t h a t , a s a conseq uen ce o f t h i s , high

earnings a re e s s e n t i a l in o rd e r to achieve th e o b je c tiv e s o f reducing
b ot h t h e a v e r a g e and t h e t o t a l w e l f a r e e x p e n d i t u r e s on AFDC f a m i l i e s .
The examples show t h a t i f AFDC employment i s e n c o u r a g e d , and t h e e a r n i n g s
o f t h o s e who r e s p on d a r e n o t above c e r t a i n s p e c i f i c l e v e l s , t h e a v e r a g e
and t o t a l AFDC c o s t s w i l l i n c r e a s e r a t h e r t h a n d e c l i n e .

These examples

Gary Louis Appel
p r e p a r e us f o r t h e e m p i r i c a l a n a l y s i s which o c c u p i e s t h e r e m a i n d e r o f t h e
study.
The e m p i r i c a l s t u d y c o n c e n t r a t e s on t h e Michigan AFDC p r o g r a m ' s
f i r s t y e a r u n d e r t h e work i n c e n t i v e from J u l y , 1969 t o J u l y , 1970.

The

p r i n c i p a l d a t a s o u r c e was t h e c e n t r a l AFDC p a y r o l l r e c o r d s o f t h e M ic h i­
gan Department o f S o c i a l S e r v i c e s .

Cross s e c t i o n samples o f 4 , 6 6 0 f e m a l e ­

headed f a m i l i e s were drawn f o r J u l y , 1969 i n o r d e r t o o b t a i n employment
d a t a i m m e d i a te l y p r i o r t o t h e i n c e n t i v e ; s i m i l a r samples o f 7, 6 5 6 f a m i l i e s
were drawn f o r J u l y , 1970 i n o r d e r t o o b t a i n d a t a f o r a d a t e one y e a r
later.

A l o n g i t u d i n a l sample o f 4 , 5 8 8 f e m a l e - h e a d e d f a m i l i e s was a l s o

drawn.

The samples were s t r a t i f i e d by t h i r t e e n g e o g r a p h i c r e g i o n s o f t h e

s t a t e - - i n c l u d i n g h i g h l y u r b a n , r u r a l , and i n t e r m e d i a t e a r e a s .

Samples

were drawn from c o u n t i e s r e p r e s e n t i n g a b o u t 90 p e r c e n t o f t h e t o t a l AFDC
c a s e l o a d i n Michigan.
In t h e e m p i r i c a l c h a p t e r s , employment and e a r n i n g s d a t a a r e e v a l u ­
a t e d i n o r d e r t o ju d g e t h e e f f e c t i v e n e s s o f t h e work i n c e n t i v e i n a c h i e v ­
ing i n c r e a s e d employment, i n c r e a s e d e a r n i n g s , and red uc e d s h o r t - r u n w e l f a r e
costs.

The employment d a t a i n d i c a t e t h a t t h e AFDC employment r a t e i n ­

c r e a s e d s i g n i f i c a n t l y i n a l l t h i r t e e n sample a r e a s between J u l y , 1969 and
J u l y , 1970, w i t h i n c r e a s e s o f from 3 . 3 t o 9 . 9 p e r c e n t a g e p o i n t s .
c i a l q u e s t i o n , however, i s :

The c r u ­

Did t h e work i n c e n t i v e ca u s e t h i s i n c r e a s e ?

To answer t h i s q u e s t i o n , i t i s n e c e s s a r y t o i s o l a t e t h e e f f e c t s o f o t h e r
v a r i a b l e s (such as changes i n l a b o r m a rk e t c o n d i t i o n s ) which c o u l d have
cau se d t h e i n c r e a s e .

Our e x a m in a t io n i n d i c a t e s t h a t t h e i n c e n t i v e d i d

c a u s e a s i g n i f i c a n t p a r t o f t h e o b s e r v e d i n c r e a s e i n AFDC employment.
In c o n t r a s t , t h e work i n c e n t i v e d i d n o t a p p e a r t o c a u s e an i n c r e a s e
i n a v e r a g e AFDC e a r n e d income.

Although t h e e a r n i n g s d a t a show a s l i g h t

Gary Louis Appel
i n c r e a s e i n a v e r a g e AFDC e a r n i n g s , o u r t h e o r e t i c a l a n a l y s i s does n o t s u p ­
p o r t t h e c o n t e n t i o n t h a t t h e work i n c e n t i v e c au s ed t h i s i n c r e a s e .
The e f f e c t o f t h e i n c e n t i v e on i n c r e a s e d c a s e l o a d s and c o s t s was
e s t i m a t e d u s in g t h e e a r n i n g s d a t a .

P a r t o f t h e i n c e n t i v e ' s ten de nc y t o

r a i s e t h e AFDC c a s e l o a d was i s o l a t e d by showing who would have been r e ­
moved from AFDC b e c a u s e o f e x c e s s i v e l y high e a r n i n g s had t h e r e n o t been
a work i n c e n t i v e .

By i n d i c a t i n g how low AFDC e a r n i n g s a c t u a l l y w er e, i t

was f u r t h e r shown t h a t t h e n e t s h o r t - r u n c o s t s t o t h e t a x p a y e r s i n c r e a s e d
f o r employed AFDC mot hers who r e c e i v e d c h i l d c a r e s u b s i d i e s .

But in t h i s

c a s e , t h e i r n e t incomes were r a i s e d c o n s i d e r a b l y more t h a n t h e added t a x ­
payer c o s ts .

There was a c o s t s a v i n g , however, d e r i v e d from employing

mot hers who d i d n o t r e c e i v e c h i l d c a r e payments.

For a l l employed mot hers

g e n e r a l l y , n e t s h o r t - r u n c o s t s were s l i g h t l y lo w e r th a n t h e y would have
been had no r e c i p i e n t s worked a t a l l .

However, t h e s e s l i g h t c o s t d e c r e a s e s

do n o t a p p e a r t o be l a r g e enough t o o f f s e t t h e p r o b a b l e c o s t i n c r e a s e s
r e s u l t i n g from t h e c a s e l o a d e x p a n s i o n ca u se d by t h e work i n c e n t i v e . T h e r e ­
f o r e , o u r o v e r a l l c o n c l u s i o n on w e l f a r e c o s t s i s t h a t t h e y p r o b a b l y i n ­
c r e a s e d as a r e s u l t o f t h e work i n c e n t i v e .
T h e r e f o r e , in terms o f t h e f o u r o b j e c t i v e s o f t h e work i n c e n t i v e
we have u s e d , t h i s a n a l y s i s s u g g e s t s t h a t t h e i n c e n t i v e has a c h i e v e d ,
th r o u g h s t i m u l a t i n g employment, t h e f i r s t - - i n c r e a s i n g AFDC i n c o m e s - - b u t
n o t t h e l a s t t h r e e - - d e c r e a s i n g t h e AFDC c a s e l o a d , c o s t s p e r c a s e , and
to ta l costs.

TABLE OF CONTENTS

Page
LIST OF TABLES...........................................................................................................

vii

LIST OF F I G U R E S ......................................................................................................

ix

Chapter
1.

PUBLIC WELFARE POLICY AND THE DEVELOPMENT OF THE
WORK INCENTIVE PROGRAM .................................................................

1

INTRODUCTION ........................................................................................

1

A BRIEF HISTORY OF WELFARE POLICY

. .................................

3

S t a t e and F ed er al W e l f a r e A t t i t u d e s P r i o r
t o G r a n ts i n A i d ......................................................................

5

S t a t e and Fede ral W e l f a r e A t t i t u d e s A f t e r
F e d e r a l Gr ant s i n A i d ........................................................

7

R ece nt Michigan P o l i c i e s Toward ADC
E m p l o y m e n t ..........................................................................

8

F ed er al Change Toward P o s i t i v e Encouragement
o f E m p l o y m e n t ...........................................................................

9

E v o l u t i o n o f t h e Contemporary Work I n c e n t i v e
P r o v i s i o n ......................................r ...........................................

12

REVIEW OF THE LITERATURE.............................................................

14

P r o p o s a l s f o r Work I n c e n t i v e s

..........................................

15

Work I n c e n t i v e D e m o ns tr at io n P r o j e c t ............................

16

P r e v i o u s Study o f a Form o f Work I n c e n t i v e . . . .

17

AFDC Employment Wi tho ut Work I n c e n t i v e s

18

...................

S t u d i e s o f t h e Employment o f M a r r ie d Women
i n t h e Labor F o r c e ..............................................

19

T h e o r e t i c a l Work on W el f ar e and Employment . . . .

20

ii

Chapter

2.

Page

S t u d i e s o f High Tax Rat es on W o r k .....................................

21

ANALYSIS OF THE FINANCIAL IMPLICATIONS OF THE
WORK I N C E N T I V E ....................................................................................

27

THE PRIMARY EMPLOYMENT EFFECT OF THE INCENTIVE

28

THE SECONDARY EMPLOYMENT EFFECT OF THE
INCENTIVE.............................................................................................

30

A n a l y s i s o f AFDC Mothers F i n a n c i a l Gain
from W o r k ........................................................................................

30

Maximum Gross E a r n i n g s C o i n c i d e n t w i t h
Co nt in u ed AFDC E l i g i b i l i t y
..............................................

32

E s t i m a t i o n o f AFDC work ex p en se s

3.

. . .

.................................

33

C a l c u l a t i o n s o f maximum e a r n i n g s p o s s i b l e
w h i l e e l i g i b l e f o r AFDC ...................................................

36

The F i n a n c i a l Cost o f Leaving A F D C .................................

38

I n c e n t i v e t o E n t e r t h e AFDC P r o g r a m .................................

41

S u m m a r y ............................................................

45

THE EXPECTED EARNINGS EFFECT OF THE INCENTIVE . . . .

46

AN ANALYSIS OF THE EXPECTED BENEFITS OR COSTS OF
THE INCENTIVE TO THE TAXPAYERS..........................................

47

SUMMARY......................................................................................................

50

WILL THE WORK INCENTIVE STIMULATE AFDC
EMPLOYMENT?.........................................
APPLICATION OF THE ECONOMIC THEORY TO SIMPLIFIED
VERSIONS OF PUBLIC ASSISTANCE PROGRAMS ........................
Brehm-Saving

54
54

....................................................................................

54

G r e e n ......................................................................................................

57

Bos k i n .................................................................................................

61

S u m m a r y ...........................

63

BUDGET CONSTRAINTS FOR MOTHERS BEFORE AND AFTER
THE WORK I N C E N T I V E .....................................................................

iii

63

Chapter

Page

TRADITIONAL ECONOMIC ANALYSIS APPLIED TO THE
MICHIGAN AFDC PROGRAM...............................................................................
General A n a l y s i s

4.

5.

70

........................................................................................

70

The Work I n c e n t i v e ' s E f f e c t on P ers on s
Not on AFDC
...............................................................................

70

The Work I n c e n t i v e ' s E f f e c t on P ersons
on AFDC...........................................................................................................

73

S u m m a r y ...............................................................................................................

74

THE EMPIRICAL ISSUES AND DATA SELECTION...............................................

77

VARIABLES AFFECTING MARKET WORK .............................................................

77

NARROWING THE EMPIRICAL PROBLEM THROUGH
SAMPLE SELECTION ........................................................................................

81

DESCRIPTION OF THE DATA...............................................................................

85

DATA PROBLEMS......................................................................................................

87

EMPLOYMENT EFFECT OF THE WORK INCENTIVE..............................................

90

INTRODUCTION

......................................................................................................

90

EMPLOYMENT AND EARNINGS CHANGES FOR THE
TOTAL AFDC CASELOAD....................................................................................

91

FEMALE AFDC EMPLOYMENT RATES IN JULY, 1969
AND 1970 BY GEOGRAPHIC AREA.................................................................

94

CHANGES IN AFDC EMPLOYMENT AND THE
LABOR MARKETS.................................................................................................

98

Unemployment Rat es as a Measure o f
Labor Market C o n d i t i o n s ......................................................................

99

For a l l AFDC e m p l o y m e n t ......................................................................

99

For f u l l - t i m e AFDC employment ........................................................

102

Female Employment i n S e l e c t e d O ccu pa ti on s as a
Measure o f Labor Market C o n d i t i o n s
...............................................

103

For a l l AFDC e m p l o y m e n t ................................................................................ 103
For f u l l - t i m e AFDC e m p l o y m e n t .................................................................. 106

iv

Page

Chapter

WORK ATTITUDES TOWARD WELFARE AND
AFDC EMPLOYMENT...................................................................................................108
TURNOVER IN THE AFDC CASELOAD AND
AFDC EMPLOYMENT...................................................................................................109
F a m i l i e s E n t e r i n g W e l f a r e and AFDC
Employment Ra te s
....................................................................................

109

New w e l f a r e f a m i l i e s and AFDC employment
rates (state-w ide figures)
........................................................

109

Employment r a t e s o f new AFDC mothers
(by g e o g r a p h i c a r e a )
......................................................................

Ill

The employment e f f e c t o f new f a m i l i e s —e v i d e n c e
from a l o n g i t u d i n a l sample ........................................................

113

F a m i l i e s Leaving W e l f a r e and AFDC
Employment Ra te s
....................................................................................

115

I s o l a t i n g t h e employment e f f e c t o f a
r e d u c t i o n i n c l o s i n g s ......................................................................

119

AFDC GRANT CHANGE AND AFDC EMPLOYMENT ...............................................

122

THE WIN TRAINING PROGRAM AND AFDC EMPLOYMENT.................................. 123
REASONS WHY THE MEASURED EFFECT OF THE WORK
INCENTIVE IS A POSSIBLE UNDERSTATEMENT ......................................
H e a l t h - M e d i c a i d and AFDC E m p l o y m e n t ................................

125
125

Day C a r e ................................................................................................................ 126
Knowledge o f t h e Work I n c e n t i v e and
AFDC E m p l o y m e n t .............................................................................................. 126
CONCLUDING REMARKS ABOUT THE EMPLOYMENT
EFFECT OF THE WORK IN C E N T I V E .................................................................. 129
6.

EARNINGS EFFECT OF THE WORK INCENTIVE.........................................................132
EMPIRICAL PROBLEMS

........................................................................................

132

EARNINGS— CROSS SECTION SAMPLES.................................................................. 133
Average E a r n i n g s

........................................................................................

Earning D i s t r i b u t i o n

...............................................................................

F u rth er A nalysis o f Earning D i s t r i b u t i o n
v

.................................

133
133
137

Chapter

Page

EARNINGS OF THE LONGITUDINAL SAMPLE ...............................................

140

CONCLUDING COMMENTS ABOUT CHANGES IN
AFDC EARNINGS.................................................................................................. 143
BENEFITS AND COSTS OF AFDC EMPLOYMENT TO
RECIPIENTS AND TAXPAYERS .................................................................
Average AFDC G r a n t Redu ct ion

........................................................

144
145

B e n e f i t s and C o s t s — For F a m i l i e s R e c e iv in g
C h il d C a r e .................................................................................................. 145
B e n e f i t s and C o s t s — F a m i l i e s With and Without
C h il d Care C o m p a r e d ................................................................................ 147
Concluding Remarks About B e n e f i t s and Costs o f
AFDC E m p l o y m e n t ......................................................................................... 152
7.

SUCCESS OF THE WORK INCENTIVE PROGRAM
AND CONCLUDING COMMENTS ...........................................................................
DETERMINING WHETHER THE INCENTIVE IS A SUCCESS

...................

155
155

O b j e c t i v e o f Reducing t h e AFDC C a s e l o a d ...................................... 155
O b j e c t i v e o f Reducing t h e P e r Case
W el f ar e Costs
...........................................................

157

O b j e c t i v e o f a Reduced Tot al
W el f ar e C o s t ..............................................................................................158
O b j e c t i v e o f R a i s i n g AFDC Income a t
Low Taxpayer C o s t s ................................................................................158
CONCLUDING COMMENTS ....................................................................................
BIBLIOGRAPHY

.........................................................................................................................

159
161

APPENDIX A— SAMPLE SIZES AND PORTION OF THE STATEWIDE
AFDC CASELOAD FOUND IN EACH GEOGRAPHIC AREA.................................................... 165
APPENDIX B— SAMPLE FRACTION AND SAMPLE SIZES FOR
EACH GEOGRAPHIC A R E A ....................................................................................................... 166
APPENDIX C— ESTIMATION PROCEDURES USED TO DETERMINE
CHANGES IN THE NUMBER OF PERSONS EMPLOYED IN JOBS LIKELY
TO BE FILLED BY AFDCMOTHERS.......................................................................................167
APPENDIX D— DESCRIPTION OF THE DATA AVAILABLE FOR
EACH AFDC CASE IN THES A M P L E ....................................................................................... 173

vi

LIST OF TABLES
T a b le

2.1

Page

AFDC R e c i p i e n t s F i n a n c i a l Gain From Employment
( w it h t h e Work I n c e n t i v e ) ......................................................................

31

2.2

Work Expenses as a P e r c e n t o f Gross E a r n i n g s

.............................

35

2.3

Maximum Gross E a r n i n g s P o s s i b l e While on
AFDC, For t h e 69-70 F i s c a l Y e a r ........................................................

37

Gross Ea r n i n g s N e c e s s a r y Be fo re an AFDC Mother
Can Leave AFDC Wi tho ut F i n a n c i a l Loss ..........................................

40

2.5

F i n a n c i a l I n c e n t i v e t o E n t e r t h e AFDC Program ..............................

43

2.6

Non-Welfare Taxpa yer Gain From AFDC Employment
(Monthly F i g u r e s ) ........................................................................................

49

P e r c e n t o f t h e Ca s el oa d Employed i n J u l y 1969
and J u l y 1970 by Ge ographic A r e a ...................................................

97

Unemployment R a t e s and AFDC Employment Ra te by
Ge ographic Area .............................................................................................

100

Unemployment Ra te s and E s t i m a t e d F ul l- T im e
AFDC Employment: By G eog rap hic Area ..........................................

104

E s t i m a t e d Changes i n Female Employment i n Jobs
P e r t i n e n t t o AFDC Mothers and t h e Change i n
P e r c e n t o f AFDC Employment from 1969 t o 1970

106

2.4

5.1

5.2

5.3
5.4

5.5

5.6

5.7
5.8

E s t i m a t e d Changes i n Female Employment i n Jobs
P e r t i n e n t t o AFDC Mothers and t h e Change in
t h e P e r c e n t o f t h e Casel oad Ea rn in g $200 o r
More P er Month Between J u l y , 1969 and J u l y , 1970

. . . .

108

P e r c e n t o f t h e Michigan AFDC C as el oad Employed:
By Length o f Time on W e l f a r e .............................................................

Ill

AFDC Employment Rat es f o r a l l A c t i v e and f o r
Newly Opened C a s e s , J u l y 1970 .............................................................

113

Comparison o f t h e Employment Ra te s o f t h e
J u l y 1969 Sample With t h e Same Cases i n
J u l y 1970 and a New Cross S e c t i o n Sample
o f A c t i v e Cases i n J u l y 1970

115

vi i

T a b le

5.9

6.1

6.2

6.3

Page

P o r t i o n o f t h e AFDC C ase lo ad Which Was Employed
i n J u l y 1969 and J u l y 1970 (1970 F ig u r e s
A d j u s t e d t o Account f o r P o s s i b l e Ne g at iv e
..........................................
E f f e c t s o f t h e Work I n c e n t i v e ) . . . .

121

Average E a r n i n g s o f a Cross S e c t i o n Sample
o f Female-Headed AFDC Cases by Geographic
Area i n J u l y 1969 and J u l y 1970

134

P o r t i o n o f t h e Employed i n D i f f e r e n t Gross
E ar n in g s I n t e r v a l s o f Each Ge ographic Area
f o r J u l y 1969 and J u l y 1970

135

Number o f AFDC Cases in Our J u l y , 1970 Cross
S e c t i o n Sample Which Would Have Been I n e l i g i b l e
f o r AFDC w i t h o u t t h e Work I n c e n t i v e ...............................................

139

6.4

P o r t i o n o f t h e Employed AFDC Cases i n Our
J u l y 1970 Cross S e c t i o n Sample Which Would
Have Been I n e l i g i b l e f o r AFDC w i t h o u t t h e Work
I n c e n t i v e ................................................................................................................ 139

6.5

E a r n i n g s o f t h e Female-Headed AFDC F a m i li e s on
W el f ar e i n Both J u l y , 1969 and J u l y , 1970

142

E a r n i n g s , G ra nt Re du ct io n s and Tax payer Gain o r
Loss: Averages by Area f o r t h e Month o f
J u l y 1970

146

AFDC Employment Costs and B e n e f i t s f o r Those
R e c e iv in g C h il d Care S u b s i d i e s .............................................................

148

AFDC Employment Costs and B e n e f i t s f o r Those
Without C hi ld Care S u b s i d i e s
.............................................................

149

6.6

6.7
6.8

A .l

Sample S i z e s and P o r t i o n o f t h e S t a t e w i d e AFDC
Casel oad Found i n Each Ge ographic A r e a ................................................165

B .l

Sample F r a c t i o n and Sample S i z e s f o r
Each Ge og ra p hi c A r e a ......................................................................................... 166

C.l

E s t i m a t e d R a t i o s o f Females Employed i n C l e r i c a l , S a l e s
O p e r a t i v e , and S e r v i c e Job s Compared t o T o t a l
Employment by I n d u s t r y ...............................................................................

168

T o t a l Number o f P er s on s Employed i n C e r t a i n I n d u s t r i e s
i n June 1969 and June 1970 f o r S p e c i f i c SMSAs . . . . . .

169

C.2

C.3

D i f f e r e n c e o f 1969 and 1970 E s t i m a t e s o f t h e Female
Employed i n t h e Job C l e r i c a l , O p e r a t i v e , S a l e s , and
S e r v i c e s ...............................................................................................................
vi i i

^

LIST OF FIGURES
F ig u r e

Page

3.1

Brehm-Saving A n a l y s i s .....................................................................................

55

3.2

Green's A nalysis

..............................................................................................

58

3.3

Budget C o n s t r a i n t f o r an AFDC and non-AFDC
Family Befo re t h e Work I n c e n t i v e ...................................................

65

Budget C o n s t r a i n t s f o r an AFDC and non-AFDC
Family Under t h e Work I n c e n t i v e ........................................................

66

3.5

P r e s e n t a t i o n o f S i m p l i f i e d Budget C o n s t r a i n t s .............................

71

4.1

L o c a t i o n s o f t h e 13 G eog rap hic Sample Areas ..................................

86

5.1

Number o f AFDC Cases w i t h Ea r n i n g s August 1969
t o J u l y 1970

92

P e r c e n t o f t h e Tot al Michigan AFDC C as el oa d w i t h
Earned Income f o r t h e Time P e r i o d August 1969
t o J u l y 1970

93

Average Monthly Gross E ar n i n g s For Employed AFDC
Cases Between August 1969 and J u l y 1970 .....................................

95

Number o f AFDC Cases Employed i n 1969 and 1970:
A L o n g i t u d i n a l Sample ...............................................................................

117

Michigan AFDC Case Openings and C l o s i n g s Between
J u l y 1968 and J u l y 1970 ..........................................................................

118

3.4

5.2

5.3

5.4
5.5

ix

Chapter 1
P u b l i c W el f ar e P o l i c y and t h e Development o f
t h e Work I n c e n t i v e Program
Introduction
The c u r r e n t d e b a t e o v e r w e l f a r e p o l i c i e s i n t h e U nit ed S t a t e s may
g i v e t h e i m p r e s s i o n t h a t t h e s t r u g g l e o v e r t h e s e i s s u e s i s so me th ing new.
I t i s not.

There a r e q u e s t i o n s which a r e common t o both B r i t i s h and

American h i s t o r y .

In G r e a t B r i t a i n , t h e s e q u e s t i o n s have been d e b a t e d

f o r a t l e a s t 500 y e a r s ; and i n t h e U n ite d S t a t e s , from t h e c o l o n i a l
period.

One o f t h e most i m p o r t a n t o f t h e s e i s t h e q u e s t i o n o f work.

T r a d i t i o n a l l y , B r i t i s h and American t h i n k i n g have p l a c e d a s t r o n g emphasis
on work and have shown a deep c o n c e r n o v e r t h e n e g a t i v e e f f e c t s which
w e l f a r e was e x p e c t e d t o have on employment.

These a t t i t u d e s , however,

have gone th r o u g h d i s t i n c t and even c o n t r a r y c h a n g e s .

At t i m e s , unemploy­

ment was n o t c o n s i d e r e d t o be t h e f a u l t o f t h e i n d i v i d u a l , and w e l f a r e
was b ase d upon need a l o n e .

At o t h e r t i m e s , unemployment was c o n s i d e r e d

t h e r e s u l t o f u n d e s i r a b l e moral c h a r a c t e r an d, u n d er c e r t a i n c o n d i t i o n s ,
was a crime

p u n i s h a b l e by im p r is o n m e n t .

Then a g a i n , f o r t h e f i r s t

t h i r t y y e a r s o f t h e n i n e t e e n t h c e n t u r y , a g u a r a n t e e d wage p o l i c y ( t h e
Speenhamland D o c t r i n e ) was a d o p t e d i n G r e a t B r i t a i n .

In r e t r o s p e c t ,

t h i s program l o ok s a s modern as t h e w e l f a r e re f o r m p r o p o s a l s o f t h e
1970's.
D e s p i t e changes in a t t i t u d e s a b o u t why t h e po or were po or and
what w e l f a r e s h o u ld do a b o u t i t , t h e i d e a o f a "worthy p o o r , " b as ed on
a b i l i t y t o work, was always a c o n s i d e r a t i o n i n d e t e r m i n i n g who was t o

receive a ssista n c e .

The ag e d , th e d i s a b l e d , t h e s i c k , widows and o r p ha n s

were c o n s i d e r e d "worthy" b e c a u s e i t was f e l t t h a t t h e y were u n a b l e t o
work.

I t i s n o t s u r p r i s i n g t h e n t h a t w e l f a r e l e g i s l a t i o n i n t h e U n ite d

S t a t e s , f i r s t a t t h e s t a t e and th e n a t t h e f e d e r a l l e v e l , s i n g l e d o u t
t h e s e same gr ou ps f o r p u b l i c a s s i s t a n c e .

Even w i t h i n t h i s "worthy" g r o u p ,

however, f em a le heads o f ho u s e h o ld s were n o t o n l y e x p e c t e d t o work b u t
a t t i m e s f o r c e d t o work un de r p e n a l t y o f l o s i n g t h e i r w e l f a r e payments.
For ex am p le, i n t h e 1 9 2 0 ' s , w e l f a r e payments t o f em al e heads o f ho us e­
h o ld s and t h e i r f a m i l i e s were c u t i n some s t a t e s

(such a s Michigan) d u r ­

in g t h e f a l l cr o p h a r v e s t — t h e p res u m p t io n b e i n g t h a t work was a v a i l ­
a b l e and t h a t t h e f a m i l y members s h o u ld be f o r c e d t o t a k e t h e a g r i c u l ­
tu ral jobs.
The b e l i e f t h a t w e l f a r e mothers s h o u ld be employed has c o n t i n u e d ;
d e s p i t e t h i s , however, r e c e n t programs i n t h e U n ite d S t a t e s , d e s i g n e d
t o g i v e them f i n a n c i a l r e l i e f , have made work r e l a t i v e l y l e s s a t t r a c t i v e
f o r them.

W e l f a r e g r a n t s f o r i n d i v i d u a l f e m a l e - h e a d e d f a m i l i e s i n such

s t a t e s as C a l i f o r n i a , New York, M a s s a c h u s e t t s , and Michigan i n c r e a s e d
more r a p i d l y t h a n t h e e a r n i n g power o f t h e m o t h e r s .

T h i s made them l e s s

a b l e t o e a r n enough t o l e a v e w e l f a r e w i t h o u t a f i n a n c i a l c o s t J

At t h e

same t i m e , u n d e r t h e t r a d i t i o n a l w e l f a r e p o l i c i e s , w e l f a r e g r a n t s were
re d u c e d as e a r n i n g s i n c r e a s e d on a d o l l a r - f o r - d o l l a r b a s i s ; so t h e r e was
no n e t f i n a n c i a l r e t u r n f o r working w h i l e on w e l f a r e .
I n c r e a s i n g w e l f a r e r o l l s and c o s t s i n t h e po s t- W o rl d War I I p e r i o d ,
a l o n g w i t h a t r e n d toward more fem a le employment i n g e n e r a l , i n c r e a s e d
p u b l i c demands t h a t w e l f a r e r e c i p i e n t s s h o u ld be employed.

S im i la r de­

mands have been made d u r i n g t h e p a s t 400 y e a r s , and t h e s e have r e p e a t e d l y
l e d t o a t t e m p t s t o f o r c e p e o p l e t o l e a v e w e l f a r e r o l l s and f i n d employment.

3

The work p r o v i s i o n s i n c l u d e d i n t h e 1967 S o c i a l S e c u r i t y Amendments a r e
an example o f t h i s .

An a t t e m p t was made t o f o r c e some o f t h e mot hers

on t h e Aid t o F a m i l i e s w i t h Dependent C h i l d r e n
t r a i n i n g o r work.

program (AFDC) i n t o j o b

But t h e 1967 Amendments d i d more.

A change i n f e d e r a l

l e g i s l a t i o n a l lo w e d e v e r y AFDC m o t h e r , f o r t h e f i r s t t i m e , t o keep p a r t
of her earnings.

Th is i n e f f e c t a l lo w e d t h e w e l f a r e r e c i p i e n t s t o

s up pl em en t t h e i r r e l i e f payments t h r o u g h e a r n i n g s .

I t was hoped, by

t h o s e who formed t h e l e g i s l a t i o n , t h a t t h e f i n a n c i a l work i n c e n t i v e
would i n c r e a s e t h e d e s i r e o f AFDC m ot her s t o work w h i l e on w e l f a r e .
Once employed, i t was hoped t h a t t h e i r e a r n i n g s would i n c r e a s e u n t i l
they could leave w e lfa re .

2

T h i s s t u d y i s co n ce rn ed w i t h t h o s e changes i n employment and e a r n ­
in g s o f AFDC mo thers which may be c a u s e d by t h e 1967 Amendments.

In

t h e r e m a i n d e r o f t h i s c h a p t e r , however, we w i l l t a k e up t h e b r o a d e r
i s s u e s o f p u b l i c p o l i c y , work, and t h e r e a s o n s f o r t h e work i n c e n t i v e
i n t h e 1967 S o c i a l S e c u r i t y Act Amendments; and we w i l l p u t them i n t o
h is to ric a l perspective.

A B rie f H istory o f Welfare P olicy
Much o f t h e e a r l y t h i n k i n g a b o u t w e l f a r e payments i n t h e U nit ed
O
S t a t e s can be t r a c e d t o a t t i t u d e s and e x p e r i e n c e s i n G r e a t B r i t a i n .
P r i o r t o t h e m i d - f o u r t e e n t h c e n t u r y , w e l f a r e had a s t r o n g r e l i ­
g io u s o v e r t o n e and was c o n s i d e r e d a r i g h t o f t h e p o o r and an o b l i g a t i o n
of the ric h .

The poor were n o t c o n s i d e r e d t o be n e c e s s a r i l y r e s p o n ­

s i b l e f o r t h e i r economic p l i g h t .

Unemployment w i t h o u t an a p p a r e n t

r e a s o n — such as a g e , s i c k n e s s , o r dependency ( a s i n t h e c a s e o f a
widow o r an o r p h a n ) - - was looked upon w i t h d i s f a v o r , b u t t h i s d i d n o t
n e c e s s a rily preclude the giving of a s s is ta n c e .

B u t , between t h e

m i d - f o u r t e e n t h c e n t u r y and t h e l a t e s i x t e e n t h c e n t u r y , t h e a t t i t u d e s
toward t h e unemployed changed d r a s t i c a l l y .

Vagrancy was lo o k e d upon

as a c r i m i n a l a c t , and a s s i s t a n c e t o t h e a b l e - b o d i e d po o r was s e v e r e l y
sanctioned.
The e s t a b l i s h m e n t o f t h e E l i z a b e t h a n Poor Law

(1597-1602)

e s t a b l i s h e d t h e d o c t r i n e o f p r o v i d i n g r e l i e f th r o u g h t h e s e c u l a r g o v e r n ­
ment r a t h e r t h a n t h e church and a g a i n r e - e s t a b l i s h e d t h e n o t i o n t h a t ,
f o r w e l f a r e p u r p o s e s , p e r s o n s c o u l d be unemployed f o r r e a s o n s beyond
th e ir control.

The po or were d i v i d e d i n t o t h r e e g r o u p s :

vagrants or

v o l u n t a r i l y unemployed were h a r a s s e d and even i m p r i s o n e d ; t h e i n v o l u n ­
t a r i l y unemployed were p r o v i d e d g ov er n m e n t- s p o n so r e d work, o f t e n i n
alms h o u s e s ; t h o s e who were u n a b l e t o work were gi v e n r e l i e f w i t h o u t
being i n s t i t u t i o n a l i z e d .
From t h e b e g i n n i n g o f t h e s i x t e e n t h th r o u g h t h e e i g h t e e n t h
c e n t u r i e s , w e a l t h o r p o v e r t y was c o n s i d e r e d a r e f l e c t i o n o f p e r s o n a l
character.

The C a l v i n i s t b e l i e f t h a t t h e po or d e s e r v e d t o be po o r

was one o f t h e m a j o r r e a s o n s f o r once a g a i n p l a c i n g t h e blame f o r un­
employment on t h e i n d i v i d u a l .

Work houses became a p l a c e t o p u n is h

t h e unemployed r a t h e r th a n a p l a c e t o s u p p ly j o b s .

Work was i n s i s t e d

upon f o r any wage, and r e l i e f was g iv e n o n l y when t h e r e were no j o b s
available.
During t h e b r i e f p e r i o d o f t h e Speenhamland D o c t r i n e ( 1 7 9 5 - 1 8 3 0 ) ,
w e l f a r e p o l i c i e s i n G r e a t B r i t a i n were made more l i b e r a l by s u p p o r t i n g
wages th r o u g h a g u a r a n t e e d weekly income which loo ks s u r p r i s i n g l y modern.
The Speenhamland D o c t r i n e , which p r o v i d e d minimum incomes f o r t h e p o o r,
was e s t a b l i s h e d i n 1795 by t h e j u s t i c e s o f B e r k s h i r e i n Speenhamland,
England, d u r i n g a p e r i o d o f g r e a t economic s t r e s s .

The Speenhamland

5

s u p p o r t was t i e d d i r e c t l y t o e a r n i n g s , f a m i l y s i z e , and t h e p r i c e l e v e l .
As d e s c r i b e d by P o l a n y i , t h e p r i n c i p l e was:
. . . When t h e g a l l o n l o a f o f b r e a d o f d e f i n i t e q u a l i t y " s h a l l c o s t
1 s h i l l i n g , th e n e v e r y po or and i n d u s t r i o u s p e r s o n s h a l l have f o r
h i s s u p p o r t 3 s h i l l i n g s w e e k l y , e i t h e r p r o c u r e d by h i s own o r h i s
f a m i l y ' s l a b o r , o r an a l l o w a n c e from t h e po or r a t e s , and f o r t h e
s u p p o r t o f h i s w i f e and e v e r y o t h e r o f h i s f a m i l y , 1 s h i l l i n g , 6
p e n c e ; when t h e g a l l o n l o a f s h a l l c o s t 1 / 6 , t h e n 4 s h i l l i n g s w e e k ly ,
p l u s 1 / 1 0 ; on e v e r y pence which t h e b r e a d p r i c e r a i s e s above 1
s h i l l i n g he s h a l l have 3 pence f o r h i m s e l f and 1 pence f o r t h e
others."4
S u p p o r t below t h e s p e c i f i e d minimum was g iv e n w h e t h e r t h e p e r s o n worked
or not.

R e l i e f was r e du ce d on a d o l l a r - f o r - d o l l a r b a s i s w i t h e a r n i n g s ,

and t h e g r a n t s i z e f l u c t u a t e d w i t h t h e p r i c e l e v e l .
A large increase

i n pa up er is m c o i n c i d e d w i t h

t h e Speenhamland

i f s u p p l y i n g a i d in s u p p o r t

o f wages had l e d to

more economic s u f f e r i n g

r a t h e r th a n l e s s .

r e a c tio n , in the

form o f t h e Poor Law o f

1834, a p p e a r s t o have been an a t t e m p t t o s e v e r e l y

Doctrine.

I t looke d as

A severe

l i m i t a l l r e l i e f o u t s i d e o f t h e work h o u s e s , and t h e work houses them­
s e l v e s became p l a c e s o f p u n is h m e n t, n o t h e l p .
S t a t e and f e d e r a l w e l f a r e a t t i t u d e s
p r io r to federal grants in aid
A t t i t u d e s , a t a b o u t t h i s same ti m e i n t h e U n ite d S t a t e s , emphasized
t h e v a l u e o f work and t h e h a z a r d s o f w e l f a r e .

In 182 7, t h e Gu ard ian s

o f t h e Poor o f P h i l a d e l p h i a , r e f l e c t i n g t h e p u r i t a n e t h i c , s t a t e d what
c o u l d be c o n s i d e r e d t h e dominant p u b l i c p o s i t i o n a b o u t " o u t d o o r r e l i e f "
(o u tsid e o f poorhouses):
C a l c u l a t e d i n an e s p e c i a l manner t o b l u n t and u l t i m a t e l y d e s t r o y th e
n o b l e p r i d e o f In d e p e n d e n c e , t h e b i r t h r i g h t o f e v e r y American
C i t i z e n on which t h e very p i l l a r s o f o u r R e p u b l i c , have t h e i r
B a s i s - - a s i t s conseque nc es a r e t o c r e a t e a dependence on t h e boun ty
o f o t h e r s , r a t h e r th a n e x c i t e t h e l a u d a b l e a m b i t i o n o f c r e a t i n g
r e s o u r c e s o f o u r own, i t c u t s t h e sinews o f I n d u s t r y and o f
consequ enc e promotes i d l e n e s s and n o t i n f r e q u e n t l y Cr imes, i t s
hav in g become common has made i t f a s h i o n a b l e . . .
.5

6

Because t h e r e e x i s t e d such a dim view o f w e l f a r e , e s p e c i a l l y
o u t d o o r r e l i e f , i t i s n o t s u r p r i s i n g t h a t i t was n o t u n t i l 1909 t h a t
t h e f e d e r a l government e x p r e s s e d an i n t e r e s t in p r o v i d i n g economic
a i d e n a b l i n g po or f e m a le - h e a d e d f a m i l i e s t o remain t o g e t h e r , r a t h e r
t h a n have t h e c h i l d r e n p u t in i n s t i t u t i o n s .

In t h a t y e a r , t h e f i r s t

White House Confe ren ce on C h i l d r e n r e f l e c t e d t h e i n c r e a s i n g conc er n
f o r t h e c h i l d r e n o f br ok en f a m i l i e s .
Home l i f e i s t h e h i g h e s t and f i n e s t p r o d u c t o f c i v i l i z a t i o n .
It
i s t h e g r e a t molding f o r c e o f mind and c h a r a c t e r .
C h i l d r e n s h o u ld
n o t be d e p r i v e d o f i t e x c e p t f o r u r g e n t and c o m p e l l i n g r e a s o n s .
E xc e pt i n unu sual c i r c u m s t a n c e s , t h e home s h o u l d n o t be br oken up
fo r reasons o f p o v erty .6
Thi s con ce rn f o r t h e c h i l d r e n was n o t e x p r e s s e d i n f e d e r a l l e g i s l a t i o n
u n t i l t h e Aid t o Dependent C h i l d r e n program (ADC) was e s t a b l i s h e d
th r o u g h t h e 1935 S o c i a l S e c u r i t y Act which p r o v i d e d some g r a n t s i n a i d
t o s t a t e s f o r w e l f a r e prog ram s.

P r i o r t o t h a t t i m e , however, some s t a t e s

such as New York, M a s s a c h u s e t t s , and Michigan — d e v e l o p e d t h e i r own
l i m i t e d programs f o r d e p e n d e n t c h i l d r e n .
In M ic h i g a n , t h e f i r s t program t o p r o v i d e o u t d o o r r e l i e f t o
d e p e n d e n t c h i l d r e n (where t h e mot her i s t h e head o f t h e h o u s e h o l d ) was
t h e M o t h e r ' s Pe ns io n e s t a b l i s h e d as a 1913 Amendment t o t h e J u v e n i l e
Cou rts A ct o f 1907.

Thi s a c t d i d n o t p r o v i d e s t a t e fund s f o r d ep en d e n t

c h i l d r e n b u t m e re ly e n c ou r a g ed t h e c o u n t i e s t o make payments o f up t o
t h r e e d o l l a r s p e r week p e r c h i l d t o t h e mo th er - - p r o v i d e d t h a t s h e was
u n m a r r i e d , widowed, d i v o r c e d , o r d e s e r t e d .
Under t h e M o t h e r ' s P e n s i o n , some c h i l d r e n were c o n s i d e r e d "worthy"
o f w e l f a r e o n ly i f t h e i r f a t h e r s c o u l d n o t s u p p o r t them f o r "good
reasons."

In M ic h i g a n , i t took u n t i l 1924 b e f o r e w e l f a r e e l i g i b i l i t y

r e q u i r e m e n t s were b r o ad en e d t o c o v e r t h e f a m i l i e s o f f a t h e r s who were

.

i m p r i s o n e d , o r who were i n s t a t e h o s p i t a l s f o r t h e b l i n d , e p i l e p t i c ,
p a ra ly tic , insane, or tubercular.

But f a m i l i e s co u l d n o t r e c e i v e

f i n a n c i a l a i d i f t h e f a t h e r was a t home w it h t h e s e same a i l m e n t s o r
in a p r i v a t e h o s p i t a l .
The p r o v i s i o n s o f t h e 1913 and 1924 Michigan laws d e m o n s t r a t e
th e r e s t r i c t i v e n e s s o f t h e e l i g i b i l i t y r e q u i r e m e n t s and t h e f a c t t h a t
th e f i n a n c i a l a i d was d i r e c t e d o n l y t o c h i l d r e n o f t h e f a m i l y .
mother was s p e c i f i c a l l y e x c l u d e d .
was f e l t t h a t s h e co u ld work.

The

She was n o t "worthy" b e c a u s e i t

There a p p e a r s t o have been a s t r o n g

r e l u c t a n c e i n Michigan t o p r o v i d e g e n e r a l r e l i e f t o t h e poor e x c e p t
under t h e most s e v e r e economic d e p r i v a t i o n , and even t h e n , t h e r e was
no a t t e m p t t o p r o v i d e a n y t h i n g b u t a b a r e s u b s i s t e n c e a l l o w a n c e .
Presumably t h i s was done t o e n c o u r a g e a s h o r t s t a y on w e l f a r e .
The M o t h e r ' s P en s io n p l a c e d a c o n t i n u a l s t r e s s i n Michigan on
family s e l f - h e l p .
o f income.

W el f ar e was n o t t o be c o n s i d e r e d a permanent s o u r c e

Many c o u n t i e s i n M ic h ig an , f o r example, a r b i t r a r i l y c u t

w e l f a r e payments d u r i n g t h e b e r r y - p i c k i n g s ea s o n in t h e 1 9 2 0 ' s , s i n c e
a l l f a m i l i e s were assumed t o be a b l e t o supplement t h e i r income by
picking b e r r i e s .

A p p a r e n t l y no c o n s i d e r a t i o n was g i v e n t o a f a m i l y

t h a t c o u l d n o t work.

F a m i l i e s w i t h o u t male heads were n o t m e r e ly e n c o u r

aged t o s upp lem ent t h e i r incomes i n t h i s way; th e y w ere f o r c e d by t h e
t h r e a t o f removal from t h e w e l f a r e r o l l s .

S t a t e and f e d e r a l w e l f a r e a t t i t u d e s a f t e r
federal grants in aid
The f e d e r a l government f i r s t p r o v i d e d f i n a n c i a l a i d t o d e p e n d e n t
c h i l d r e n through T i t l e IV o f t h e S o c i a l S e c u r i t y Act pa ss ed i n 1935.
Under t h i s p r o v i s i o n , t h e s t a t e s were encou ra ged to e s t a b l i s h

8

semi-autonomous ADC programs w i t h g r a n t s - i n - a i d from t h e f e d e r a l g o v e r n ­
ment.

S i n c e 1935, t h e t r e n d i n s t a t e s such as M ic hi g an , Oh io, New York,

and C a l i f o r n i a has been t o make more f a m i l i e s e l i g i b l e f o r w e l f a r e pay­
ments and f o r i n c r e a s e d ADC b e n e f i t s .

Th is i s p a r t i c u l a r l y e v i d e n t i n

t h e n o r t h e r n and w e s t e r n i n d u s t r i a l i z e d s t a t e s .

There has a l s o been a

t r e n d , s t i m u l a t e d by f e d e r a l l e g i s l a t i o n , toward e n c o u r a g i n g r a t h e r th a n
f o r c i n g ADC mothers t o work.
Rece nt Michigan p o l i c i e s toward ADC employment
I n i t i a l l y , Michigan a d m i n i s t r a t o r s o f t h e ADC program d i d n o t
em phasize employment b u t r a t h e r f a m i l y s t a b i l i t y .
Through c o n t r i b u t i n g t o o r s u p p l y i n g t h e f a m i l y ' s economic s u p p o r t ,
a i d t o d ep en d e n t c h i l d r e n s h o u l d , f o r ex am p le, make i t p o s s i b l e
f o r a mother t o choose between s t a y i n g a t home t o c a r e f o r h e r
c h i l d r e n and t a k i n g a j o b away from home. She has l i t t l e o r no
c h o i c e , however, u n l e s s t h e a i d a v a i l a b l e t o h e r i s enough t o meet
t h e f a m i l y ' s m a in te n a nc e needs and u n l e s s t h a t a i d i s r e g u l a r and
c o n t i n u o u s so t h a t s he can r e l y on i t . '
D e s p i t e t h e s e s t a t e m e n t s , c o n c e r n remained o v e r ADC employment.
A f t e r World War I I and t h e l a r g e i n c r e a s e i n f em a le employment, t h e
emphasis on work f o r w e l f a r e mothers was i n c r e a s e d even more a t t h e
s ta te level.

In 1948, t h e employment p o l i c y o f t h e Michigan ADC program

was changed i n r e s p o n s e t o t h i s c o n c e r n .

The w e l f a r e g r a n t was red uc e d

i n an amount equal t o t h e e a r n i n g s t h e mother would make i n any j o b
o f f e r e d t o h e r - - w h e th e r o r n o t t h e employment was a c c e p t e d .
p o l i c y , however, was s u b j e c t t o t h e s e q u a l i f i c a t i o n s :

Thi s

t h e mother

had t o have t h e p r e r e q u i s i t e s f o r t h e j o b ; s u i t a b l e c h i l d c a r e had to be
p r o v i d e d ; and t h e y o u n g e s t c h i l d c o u l d n o t be u n d e r two y e a r s o f

a g e.

In 1953, p r e s s u r e on w e l f a r e m ot her s t o f i n d employment was i n c r e a s e d
O

by t h e p o l i c y o f s t a t e AFDC.

A f t e r t h a t t i m e , w e l f a r e m ot her s had t o

f i n d employment o r make s u b s t a n t i a l e f f o r t s t o s e c u r e a j o b i n o r d e r

t o rema in on w e l f a r e .

I f the incidence o f u n f i l l e d job s in d icate d

t h a t s u i t a b l e employment d i d e x i s t , i t was assumed t h a t t h e a p p l i c a n t
had n o t made a " s u b s t a n t i a l e f f o r t , " and s he was r e f u s e d w e l f a r e on
that basis.

F ede ral change toward p o s i t i v e encourqement
o f employment
The 1962 Amendments t o t h e f e d e r a l S o c i a l S e c u r i t y Act p r o v id ed
t h e f i r s t f e d e r a l a t t e m p t t o p r o v i d e more th a n s i m p l e income m a i n t e n ­
ance f o r AFDC f a m i l i e s .

Welfare was viewed - - a t t h e f e d e r a l l e v e l —

as a te m p o ra r y c o n d i t i o n w h ic h , h o p e f u l l y , c o u l d be s h o r t e n e d throug h
r e h a b i l i t a t i v e s e r v i c e s and t r a i n i n g r a t h e r t h a n by f o r c i n g employment.
Work, i t a p p e a r e d , f o r t h e f i r s t ti m e i n h i s t o r y , was t o be enc ouraged
by more th a n j u s t t h r e a t s and p r e s s u r e .
P r e s i d e n t Jo hnson h e r a l d e d t h e new d i r e c t i o n i n p u b l i c w e l f a r e
when he s a i d :
T h i s m e asur e embodies a new ap pr oac h - - s t r e s s i n g s e r v i c e s i n a d d i ­
t i o n t o s u p p o r t , r e h a b i l i t a t i o n i n s t e a d o f r e l i e f , and t r a i n i n g
f o r u s e f u l work i n s t e a d o f p r o l o n g e d dependency. T h i s i m p o r t a n t
l e g i s l a t i o n w i l l a s s i s t o u r s t a t e and l o c a l p u b l i c w e l f a r e age n­
c i e s t o r e d i r e c t t h e i n c e n t i v e s and s e r v i c e s th e y o f f e r t o needy
f a m i l i e s and c h i l d r e n and t o aged and d i s a b l e d p e o p l e . Our o b j e c ­
t i v e i s t o p r e v e n t o r r ed u ce dependency and t o e n c o u r a g e s e l f - c a r e
and s e l f - s u p p o r t — t o m a i n t a i n f a m i l y l i f e where i t i s a d e q u a te
and t o r e s t o r e i t where i t i s d e f i c i e n t . 9
The change from f o r c i n g mothers t o work t o e n c o u r a g i n g them t o work
was r e f l e c t e d a t t h e s t a t e l e v e l as w e l l .

In 1966, Michigan abandoned

t h e e a r l i e r p o l i c y o f r e f u s i n g a i d t o q u a l i f i e d mo thers s i m p l y b ec a u se
j o b s were a v a i l a b l e .

A f t e r t h a t t i m e , r e c i p i e n t s who w ere c o n s i d e r e d

e l i g i b l e f o r work were r e f e r r e d t o t h e S t a t e Employment S e c u r i t y Com­
m i s s i o n f o r j o b c o u n s e l i n g and a s s i s t a n c e .
A s h o r t ti m e l a t e r , however, f e d e r a l l e g i s l a t o r s d e c i d e d t h a t

t r a i n i n g and s e r v i c e s were n o t a d e q u a t e t o s o l v e t h e problem o f
increased w elfare c o s ts .

In 1967, Congressman Byrnes o f W i s c o n s i n ,

who has worked on s o c i a l s e c u r i t y l e g i s l a t i o n f o r y e a r s , e x p l i c i t l y
s t a t e d t h a t s e r v i c e s and t r a i n i n g were n o t s u f f i c i e n t t o m o t i v a t e
members o f AFDC f a m i l i e s t o f i n d work.

He s a i d :

We t h o u g h t t h e w e l f a r e l e g i s l a t i o n we e n a c t e d i n 1962 would p r o ­
v i d e t h e b a s i s f o r g e t t i n g t h e s e p e o p l e on t h e i r f e e t and o f f t h e
re lief rolls.
We were shocked t o s e e wh at l i t t l e e f f e c t t h a t
l e g i s l a t i o n a c t u a l l y h a d . 10
In 1967, P r e s i d e n t Jo hnson pr o pos ed changes i n t h e S o c i a l Se cu ­
r i t y Act which would p r o v i d e , f o r t h e

f i r s t time

inh i s t o r y , a f i n a n c i a l

i n c e n t i v e f o r AFDC mot hers t o w o r k . ^

Thi s work

i n c e n t i v e was i n t e n d e d

t o complement t h e s e r v i c e s and t r a i n i n g p r o v i d e d by t h e AFDC program.
P r i o r l e g i s l a t i o n had exempted t h e income
f a r e t a x b u t had t a x e d t h e mo thers a t

o f c h i l d r e n from a w e l ­

a 100 p e r c e n t r a t e .

President

J o h n s o n ' s new p r o p o s a l would have a l lo w ed mothers t o keep t h e f i r s t f i f t y
dollars of th e ir earnings.

All e a r n i n g s above t h a t amount would s t i l l

be t a x e d a t a 100 p e r c e n t r a t e .
The House Ways and Means Committee o f t h e U ni te d S t a t e s Congress
s t r e n g t h e n e d t h e p ro po s ed work i n c e n t i v e p r o v i s i o n by r a i s i n g t h e l e v e l
o f t h e m o t h e r ' s e a r n i n g s exempted from a w e l f a r e t a x ( i . e . , t h e r e d u c ­
t i o n i n w e l f a r e g r a n t caus ed by i n c r e a s e d e a r n i n g s ) t o t h i r t y d o l l a r s
p e r month

p l u s o n e - t h i r d t h e r em a in in g e a r n i n g s .

This plan also

exempted from w e l f a r e t a x a t i o n a l l e a r n i n g s o f a l l c h i l d r e n aged s i x ­
t e e n and younger, as w e ll as a l l e a r n i n g s o f c h i l d r e n between s e v e n t e e n
and tw e n t y - o n e who were i n sc ho ol f u l l t i m e , o r i n scho ol p a r t t i m e and
n o t employed f u l l t i m e .

(The f u l l i m p l i c a t i o n s o f t h e s e i n c e n t i v e p r o ­

v isio n s are d iscu ssed in Chapter 2 o f t h i s t h e s i s . )
But t h e p r o p o s ed 1967 Amendments n o t o nl y i n c l u d e d a work

11

i n c e n t i v e b u t a l s o i n c o r p o r a t e d a p r o v i s i o n d e s i g n e d t o f o r c e AFDC
mot her s t o s e e k t r a i n i n g o r employment.

This was viewed by some l e g ­

i s l a t o r s as a d i s t o r t i o n of th e i n i t i a l

i n t e n t o f t h e AFDC program —

t o en co u r a g e AFDC m ot her s t o remain home w i t h t h e i r c h i l d r e n .

Thus,

l e g i s l a t i v e d e b a t e o v e r t h e employment i s s u e d i d n o t c e n t e r on th e work
i n c e n t i v e b u t r a t h e r on t h e p r o v i s i o n which f o r c e d q u a l i f i e d AFDC
m o th er s t o be r e f e r r e d t o s t a t e employment a g e n c i e s u n d e r p e n a l t y o f
removal from AFDC.

T h i s p r o v i s i o n had t h e e f f e c t o f f o r c i n g w e l f a r e

m ot her s t o e i t h e r s e e k a j o b o r t r a i n i n g .

12

Joh n A. Volpe, t h e n th e

Governor o f M a s s a c h u s e t t s , summarized t h e o p p o s i t i o n t o t h i s p r o v i s i o n
o f t h e b i l l t h i s way:
The o r i g i n a l c o n c e p t o f AFDC was t o keep f a m i l i e s t o g e t h e r . S e c t i o n
201, by r e q u i r i n g t h a t mot hers e n t e r t h e l a b o r f o r c e , would n e g a t e
th is original c o n c e p tJ3
P o s s i b l y as a r e s u l t o f t h e s e d i f f e r e n c e s i n o p i n i o n , t h e 1967
Amendments t o t h e S o c i a l S e c u r i t y Act i n c l u d e d b ot h t h e p r o v i s i o n r e q u i r ­
i n g q u a l i f i e d m ot he r s t o seek t r a i n i n g o r employment and a l s o a work i n ­
c e n t i v e p r o v i s i o n a l m o s t i d e n t i c a l t o t h a t p r op os ed by t h e House Ways
and Means Committee.
Why t h e work i n c e n t i v e was p a s s e d i n t o law i s n o t c l e a r .

The

h i s t o r i c a l t r e n d had been t o f o r c e , r a t h e r th a n e n c o u r a g e , w e l f a r e r e ­
c i p i e n t s t o work.

I t i s n o t known w h e t h e r t h e i n c e n t i v e was due t o a

more " e n l i g h t e n e d " l e g i s l a t u r e o r was s im p l y a means o f p l a c a t i n g
t h o s e who s t r o n g l y opposed t h e p r o v i s i o n s o f a b i l l which a p p e a r e d t o
once a g a i n force.AFDC mot hers t o work.

N e v e r t h e l e s s , t h e 1967 Amendments

c o n t a i n e d a p o s i t i v e work i n c e n t i v e p r o v i s i o n f o r t h e f i r s t time i n
history.

The e f f e c t s o f t h i s p r o v i s i o n on t h e work and e a r n i n g s of

w e l f a r e mothers a r e p a r t i c u l a r l y i m p o r t a n t f o r t h i s s t u d y .

12

E v o l u t i o n o f t h e co n te m p or ar y work
in cen tiv e provision
The 1967 Amendments d e c r e a s e d both t h e m a rg i n al and a v e r a g e
w e l f a r e t a x r a t e s by exempting a lump sum p l u s a c o n s t a n t p o r t i o n o f
e a r n i n g s from t h e w e l f a r e t a x .

The e x a c t method o f c a l c u l a t i n g t h e

amount o f e a r n i n g s t o be exempted was d e v e l o p e d by a c o m b in a ti o n o f
l e g a l and a d m i n i s t r a t i v e i n t e r p r e t a t i o n .
I t i s d i f f i c u l t t o d e t e r m i n e why t h e i n c e n t i v e p r o v i s i o n o f
t h i r t y d o l l a r s p l u s o n e - t h i r d o f e a r n i n g s was chos en i n p r e f e r e n c e to
certain other figures.

The S e n a t e v e r s i o n o f t h e pr o po s ed 1967 S o c i a l

S e c u r i t y Amendments p r o v i d e d f o r an i n c e n t i v e o f f i f t y d o l l a r s p e r
month p l u s o n e - h a l f o f f u r t h e r e a r n i n g s . ^

The House v e r s i o n c a l l e d

f o r an i n c e n t i v e o f t h i r t y d o l l a r s p e r month p l u s o n e - t h i r d o f f u r t h e r
earnings.

However, t h e Confe ren ce Committee d e c i d e d upon t h e House

v e r s i o n w i t h o u t s i g n i f i c a n t change.

The b e l i e f t h a t t h e House v e r s i o n

was t o o small was e x p r e s s e d by S e n a t o r Ro be rt Kennedy; i n r e a c t i o n t o
t h e C o nf er en c e Committee r e p o r t , he s t a t e d :
The p r o v i s i o n which t h e c o n f e r e n c e a g r e e d t o - - $30 a month p l u s
o n e - t h i r d o f t h e r e s t o f t h e e a r n i n g s - - i s so smal l t h a t i t may
n o t prov e t o be a meaningful t e s t o f t h e t h e o r y t h a t a w e l f a r e
r e c i p i e n t w i l l go t o work i f he has some chan ce o f k e ep i ng a
s i g n i f i c a n t p o r t i o n o f what he o r s he e a r n s .15
Kennedy's r e a c t i o n was c o u n t e r e d by W il b ur M i l l s o f A r k a n s a s ,
Chairman o f t h e House Ways and Means Committee, who s a i d :

"We b e l i e v e

t h i s p r o v i s i o n w i l l f u r n i s h ample i n c e n t i v e t o AFDC r e c i p i e n t s t o t a k e
employment and i n c r e a s e t h e i r e a r n i n g s t o t h e p o i n t where t h e y become
self-supporting."^

However, when asked how t h e t h i r t y d o l l a r s p lu s

o n e - t h i r d i n c e n t i v e was d e c i d e d upon, John M. M a r t i n , t h e C h i e f Counsel
o f t h e Committee, res p on de d on J u n e 19, 1970:

13
Be fo re r e a c h i n g i t s d e c i s i o n on t h i s p r o v i s i o n , t h e Committee on
Ways and Means c o n s i d e r e d numerous a l t e r n a t i v e s w i t h v a r y i n g d o l l a r
amounts and p e r c e n t a g e s o f e a r n i n g s t o be d i s r e g a r d e d . The Commit­
t e e de c i d e d upon t h e p r o v i s i o n s t h a t were a d op t ed i n an a t t e m p t t o
a c h i e v e a b a l a n c e between t h e amount o f work i n c e n t i v e t h a t s h o u l d
be p r o v i d e d t o w e l f a r e r e c i p i e n t s and t h e r e a s o n a b l e n e s s o f t h e i n ­
come ( i n c l u d i n g w e l f a r e g r a n t and e a r n i n g s ) which t h e r e c i p i e n t s
c o u l d a c h i e v e . *7
According t o M a r t i n , t h e r e f o r e , t h e Committee was aware t h a t t h e i n c e n t i v e
would a l lo w t h e AFDC mot hers t o s u p pl em en t t h e i r w e l f a r e income, b u t as
a c o n s eq u en c e, t h e y co u ld o b t a i n much h i g h e r g r o s s e a r n i n g s and s t i l l
remain on w e l f a r e .

At t h e same ti m e t h a t t h e i n c e n t i v e was i n t e n d e d t o

i n c r e a s e work, i t was r e c o g n i z e d t h a t i t would a l s o en co u ra g e AFDC mot hers
t o s t a y on w e l f a r e .

The t h i r t y d o l l a r s p l u s o n e - t h i r d o f t h e r e m a in in g

e a r n i n g s p r o v i s i o n a p p e a r s t o have been a compromise between p r o v i d i n g
a work i n c e n t i v e and kee p in g t h e maximum e a r n i n g s o f p e r s o n s s t i l l

on w e l ­

f a r e t o an a c c e p t a b l e l e v e l .
The i n c e n t i v e p r o v i s i o n s o f t h e 1967 Amendments t o t h e S o c i a l
S e c u r i t y Act were ambiguous on one p o i n t :
ex pe ns es ?

what s h o u ld be done a b o u t work

P r i o r t o t h e 1967 Amendments, a working mother c o u l d keep an

amount o f e a r n i n g s equal t o h e r e x pe ns es o f employment.
The i n c e n t i v e p r o v i s i o n s o f t h e 1967 Amendments were i n i t i a l l y i n t e r p r e t e d by t h e U nit ed S t a t e s Department o f H e a l t h , E d u c a ti o n and W el f ar e
to mean t h a t t h e amount o f exempted income (no w e l f a r e t a x a p p l i e d ) was to
be d e t e r m in e d by s u b t r a c t i n g a l l work exp ens es from e a r n i n g s and a p p l y i n g
t h e t h i r t y d o l l a r s and o n e - t h i r d f or m u l a t o t h e a d j u s t e d g r o s s income.
This meant t h a t t h e t o t a l income t h e employed mothers have a v a i l a b l e f o r
work exp enses and t h e m s e lv e s i s equa l t o t h e f i r s t t h i r t y d o l l a r s p e r
month p l u s , o n e - t h i r d o f t h e r em a in in g e a r n i n g s p l u s , t w o - t h i r d s o f t h e work
expenses.

(See

F o o tn o te 2 0 . )

In a l a t e r p o l i c y s t a t e m e n t from t h e Department o f H e a l t h ,

18

14

E d u c a t i o n and W e l f a r e , d a t e d J a n u a r y 2 9 , 1969, t h e i n t e r p r e t a t i o n o f t h e
work i n c e n t i v e to ok a new form:
In a r r i v i n g a t t h e amount o f e a r n e d income t o be a p p l i e d a g a i n s t t h e
a s s i s t a n c e b u d g e t t h e amount t o be d i s r e g a r d e d i s t o be ded u ct ed
from g r o s s income, r a t h e r th a n from n e t income. N e x t , t h e amount
a l lo w e d f o r work exp ens es i s t o be d e d u c t e d . The r e m a in in g amount
i s th e n a p p l i e d a g a i n s t t h e a s s i s t a n c e b u d g e t J 9
In o t h e r wor ds, u n d e r t h e f i n a l i n t e r p r e t a t i o n , t h e t o t a l income o f t h e
employed mot her a v a i l a b l e t o keep o r spend on work ex p e n s e s i s equa l t o
t h e f i r s t t h i r t y d o l l a r s p e r month, p l u s o n e - t h i r d o f t h e r e m a in in g e a r n ­
i n g s , p l u s a l l work e x p e n s e s .

The m o t h e r i s b e t t e r o f f due t o t h i s f i n a l

i n t e r p r e t a t i o n by an amount eq u al t o o n e - t h i r d o f h e r work e x p e n s e s .

90

In summary, t h e r e has been a long h i s t o r y o f c o n c e r n i n B r i t a i n
and America o v e r t h e employment o f w e l f a r e r e c i p i e n t s .

The 1967 Amend­

ments t o t h e S o c i a l S e c u r i t y A c t , however, were th e f i r s t a t t e m p t t o p o s i ­
t i v e l y en co u ra ge employment r a t h e r t h a n f o r c e i t th r o u g h n e g a t i v e s a n c t i o n s .
The w e l f a r e mot her was o f f e r e d an i n c e n t i v e o f t h e f i r s t t h i r t y d o l l a r s
o f e a r n i n g s p l u s o n e - t h i r d t h e re m a in in g e a r n i n g s r e g a r d l e s s o f t h e amount
s he p a i d f o r work e x p e n s e s .

21

The e f f e c t s o f t h i s f i n a n c i a l i n c e n t i v e

on e a r n i n g s and employment a r e t h e s u b j e c t o f t h i s t h e s i s .
Review o f t h e L i t e r a t u r e
Because t h e f i n a n c i a l i n c e n t i v e e s t a b l i s h e d by t h e 1967 Amendments
t o t h e S o c i a l S e c u r i t y Act i s such a r e c e n t o c c u r r e n c e , t h e r e have been
no com plete d s t u d i e s , t o d a t e , on i t s e f f e c t s .

However, t h e i d e a o f a

work i n c e n t i v e f o r w e l f a r e r e c i p i e n t s i s n o t new.

I t has been mention ed

r e p e a t e d l y i n income m a in te n a n c e p r o p o s a l s made o v e r t h e l a s t t e n y e a r s ,
such as n e g a t i v e t a x p l a n s .

There a r e o n l y two p r e v i o u s s t u d i e s o f w e l ­

f a r e employment u n d e r a work i n c e n t i v e p l a n .

In n e i t h e r c a s e was t h e i n ­

c e n t i v e e x a c t l y l i k e t h a t o f t h e 1967 S o c ia l S e c u r i t y Act Amendments.

15
T her e a r e , however, a number o f r e l a t e d s t u d i e s :

a demonstration

p r o j e c t on work i n c e n t i v e s done i n Denver i n t h e e a r l y 1 9 6 0 1s ; one s t u d y
on t h e e f f e c t s o f a form o f work i n c e n t i v e which e x i s t e d i n c e r t a i n
s t a t e s b e c a u s e o f p e c u l i a r i t i e s i n t h e i r w e l f a r e p o l i c i e s ; a l i m i t e d num­
b e r o f s t u d i e s o f AFDC employment p r i o r t o a work i n c e n t i v e pr ogram;
e m p i r i c a l s t u d i e s on t h e employment o f m a r r i e d women who a r e n o t on w e l ­
f a r e ; some t h e o r e t i c a l work on t h e employment e f f e c t s o f v a r i o u s w e l f a r e
pr ogr am s; s t u d i e s o f t h e e f f e c t s o f high r a t e s o f t a x a t i o n on work.

A

d i s c u s s i o n o f t h e s e s t u d i e s , i n term s o f t h e i r i m p l i c a t i o n s f o r t h i s
study, follows.

P r o p o s a l s f o r work i n c e n t i v e s
F i n a n c i a l work i n c e n t i v e s f o r w e l f a r e r e c i p i e n t s were pr o po s ed
y e a r s b e f o r e t h e y became a r e a l i t y .

These p r o p o s a l s were made i n con­

j u n c t i o n w i t h s u g g e s t i o n s f o r n e g a t i v e income t a x and o t h e r income main­
tenance p lans.

The work i n c e n t i v e p l a n s o f t h e l e a d i n g p r o p o s a l s f o r a

new form o f income m a in te n a n c e have two i m p o r t a n t t h i n g s i n common:
1) t h e i n c e n t i v e s a r e g e n e r a l l y equal t o a t l e a s t 50 p e r c e n t o f income;
2) t h e 50 p e r c e n t f i g u r e i s o f f e r e d w i t h no e m p i r i c a l o r t h e o r e t i c a l
s u p p o r t , and t h e q u e s t i o n o f how much a d i f f e r e n t s i z e o f i n c e n t i v e would
a f f e c t work i s i g n o r e d f o r t h e most p a r t .
One o f t h e f i r s t and most p r o m i n e n t ec o n o m is ts t o s u g g e s t a neg a­
t i v e income t a x p l a n , i n c l u d i n g a f i n a n c i a l work i n c e n t i v e , was M il t o n
Friedman.

22

Friedman d i d n o t d i s c u s s i m p l i c a t i o n s o f d i f f e r e n t s i z e d

i n c e n t i v e s , b u t he d i d use 50 p e r c e n t o f a d j u s t e d g r o s s e a r n i n g s as an
example o f such an i n c e n t i v e .

James Tobin used a l t e r n a t i v e work i n c e n ­

t i v e s o f 50 p e r c e n t and 6 6 - 2 / 3 p e r c e n t i n a n e g a t i v e income t a x p l a n
d e s c r i b e d i n d e t a i l i n 1967.

23

An i n c e n t i v e o f 50 p e r c e n t o f income was

16

a l s o s u g g e s t e d i n model l e g i s l a t i o n p r op os ed by t h e P r e s i d e n t ' s Comm i s s i o n on Income Ma intenance Programs i n 1970.

24

Ro be rt Lampman,

an o th e r le ad in g proponent o f n e g ativ e ta x p la n s , su g g ests in c e n tiv e
r a t e s o f a b o u t 50 p e r c e n t o r more.

25

So t h e most p r e s t i g i o u s p r o p o n e n t s o f new income m a in te n a n c e
programs a p p e a r t o have s u g g e s t e d a h i g h e r i n c e n t i v e t h a n t h e a p p r o x ­
i m a t e l y 3 3 - 1 / 3 p e r c e n t e s t a b l i s h e d by t h e 1967 S o c ia l S e c u r i t y A c t.

B u t,

as p o i n t e d o u t i n t h e f o l l o w i n g c h a p t e r , t h e l i b e r a l t r e a t m e n t o f work
exp en s es un d e r t h e AFDC work i n c e n t i v e p l a n makes t h e 3 3 - 1 / 3 p e r c e n t o f
income i n c e n t i v e a much h i g h e r i n c e n t i v e t h a n i t may a p p e a r .

The t r e a t ­

ment o f work ex p en se s makes t h e i n c e n t i v e s p r op os ed i n t h e n e g a t i v e t a x
p l a n s n e a r l y comparable t o t h e AFDC i n c e n t i v e i n terms o f income n e t o f
exp en se s o f employment.

This s i m i l a r i t y between p r op os ed and a c t u a l

i n c e n t i v e s s u g g e s t s t h a t t h e a c t u a l i n c e n t i v e s may p r o v i d e a r e a s o n a b l e
t e s t f o r t h e i n c e n t i v e p r o p o s i t i o n s r a i s e d i n t h e income m a in te n a n c e
plans.

The work i n c e n t i v e s have been p r o p o s ed b e c a u s e o f t h e b e l i e f

t h a t p e o p l e w i l l be more l i k e l y t o work ( f o r wages) when t h e y g a i n f i n a n ­
cially.

But no s u b s t a n t i a l t h e o r e t i c a l o r e m p i r i c a l e v i d e n c e o f t h e

e f f e c t i v e n e s s o f f i n a n c i a l i n c e n t i v e s was p r e s e n t e d i n any o f t h e p r o ­
posed n e g a t i v e t a x p l a n s .

The above p r o p o s a l s a r e t h e r e f o r e o f l i m i t e d

v a l u e t o us i n ou r a t t e m p t t o e m p i r i c a l l y d e t e r m i n e w h e t h e r t h e i n c e n ­
t i v e d i d a f f e c t e a r n i n g s and employment o f w e l f a r e r e c i p i e n t s .

Work i n c e n t i v e d e m o n s t r a t i o n p r o j e c t
The e f f e c t s o f a f i n a n c i a l work i n c e n t i v e program, which al lo w ed
AFDC mothers t o keep t h e f i r s t t w e n t y - f i v e d o l l a r s p l u s 25 p e r c e n t o f
t h e re m a in in g monthly e a r n i n g s , were s t u d i e d by t h e Denver Department
o f P u b l i c W e l fa re between J u l y , 1959 and J u l y , 1961.

The i n c e n t i v e ' s

17
e f f e c t s were measured f o r t h r e e s t u d y g r o u p s .

The l a r g e s t (and most

comp ara ble t o t h a t used i n t h i s s t u d y ) was co m pri sed o f c o n t r o l and
e x p e r i m e n t a l groups o f one th o u s a n d m ot her s e a c h , s e l e c t e d from t h e
g e n e r a l AFDC p o p u l a t i o n .

For t h i s l a r g e gr ou p o f m o t h e r s , t h e r a t e o f

f a m i l i e s l e a v i n g AFDC due t o employment r e a s o n s was a l m o s t t h e
same f o r t h e e x p e r i m e n t a l gr ou p w i t h t h e i n c e n t i v e and t h e c o n t r o l
group w i t h o u t i t ( 3 4 . 0 p e r c e n t v e r s u s 3 3 . 2 p e r c e n t ) .

But t h e e a r n i n g s

o f t h e mot hers i n t h e work i n c e n t i v e group were 15 p e r c e n t h i g h e r th a n
those w ithout the in c e n tiv e .

The employment r a t e s were 13.4 p e r c e n t

f o r t h o s e w i t h i n c e n t i v e and 1 1 . 4 p e r c e n t f o r t h o s e w i t h o u t .

However,

a chi s q u a r e t e s t d e t e r m i n e d t h a t t h i s d i f f e r e n c e was q u i t e l i k e l y t o
have o c c u r r e d by cha nc e.

N e v e r t h e l e s s , t h e s t u d y g i v e s some e a r l y

ev i d e n c e t h a t w e l f a r e employment and e a r n i n g s may i n c r e a s e i n r e s p o n s e
to in cen tiv es.
P r e v i o u s s t u d y o f a form o f work
i n c e n t i ve
Some s t a t e s s e t what th e y c o n s i d e r t o be an a c c e p t a b l e minimum
income f o r w e l f a r e r e c i p i e n t s above t h e s i z e o f t h e w e l f a r e g r a n t th e y
a c tu a lly provide.

T h i s means t h a t AFDC m o th er s i n t h e s e s t a t e s can

e a r n up t o an amount equal t o t h e d i f f e r e n c e between t h e w e l f a r e g r a n t
and t h e minimum a c c e p t a b l e income w i t h o u t t h e g r a n t b e i n g r e d u c e d ;
i . e . , w i t h o u t payi ng any w e l f a r e t a x .

In 1968, I r e n e Cox s t u d i e d

t h e e f f e c t s o f t h i s f i n a n c i a l i n c e n t i v e t o work; h e r s t u d y was based on
1961 s u r v e y d a t a o b t a i n e d th r o u g h D epartment o f H e a l t h , E d u c a ti o n and
W e l f a r e s u r v e y s made i n a l l s t a t e s .

27

Cox compared t h e r a t e s o f employ­

ment o f AFDC mot hers i n t h o s e s t a t e s ( m o s t l y s o u t h e r n and w e s t e r n )
which s e t w e l f a r e g r a n t s below t h e i r minimum e s t a b l i s h e d need t o

18

employment r a t e s i n t h e tw ent y s t a t e s which p a i d 100 p e r c e n t o f t h e
e s t a b l i s h e d need .

The r e s u l t s o f t h e s t u d y showed t h a t " . . .

the

median p r o p o r t i o n o f f a m i l i e s w i t h an employed mother was a l m o s t f o u r
ti m es g r e a t e r i n s t a t e s w i t h e a r n i n g s e x em p ti on s th a n i n s t a t e s w i t h out."

28

Median e a r n i n g s o f AFDC mothers i n t h e s t a t e s w i t h a gap

between a s s i s t a n c e and g r a n t , however, were lo w er th a n i n t h o s e w i t h o u t
such a gap.
Cox's work was o n l y p r e l i m i n a r y and can be s u b j e c t e d t o q u e s ­
t i o n s such as t h e f o l l o w i n g .

Can d i f f e r e n c e s among s t a t e s i n l a b o r ma r­

k e t c o n d i t i o n s , work a t t i t u d e s , e t c . a c c o u n t f o r t h e d i f f e r e n c e s i n
AFDC employment r a t h e r t h a n t h e e x i s t e n c e o f work i n c e n t i v e s ?

Did t h e

e a r n i n g s d a t a which were used r e f l e c t o n l y t h e m o t h e r ' s income o r t h a t
o f any o t h e r member o f t h e f a m i l y ?

(Our a n a l y s e s o f e x i s t i n g w e l f a r e

d a t a show t h a t t h i s may have h a p p e n e d .)

N e v e rth e le ss, th e study provides

some e v i d e n c e t h a t AFDC m ot her s do work more b e c a u s e o f f i n a n c i a l g a i n s
from work.

AFDC employment w i t h o u t work i n c e n t i v e s
Leonard Hausman u se d 1960 e a r n i n g s d a t a , t o g e t h e r w it h Department
o f H e a l t h , E d u c a ti o n and W e l f a r e AFDC o c c u p a t i o n a l i n f o r m a t i o n , t o s t u d y
t h e p o t e n t i a l o f AFDC m ot her s (as well as AFDC-UP, o r unemployed, f a t h e r s )
t o s u p p o r t t h e i r f a m i l i e s w i t h e a r n i n g s t h a t w ere equal t o t h e l e v e l s o f
the welfare g ran t.

29

Hausman e s t i m a t e d i n h i s s t u d y t h a t " . . .

nearly

t w o - t h i r d s o f t h e AFDC m ot he rs and o n e - t h i r d o f t h e AFDC-UP f a t h e r s c o u l d
n o t have s u p p o r t e d t h e i r f a m i l i e s a t t h e l e v e l s o f income th e y co u ld
a t t a i n on w e l f a r e i n 1965 . . . . "

30

D e s p i t e con ce rn which Hausman

r a i s e s a b o u t h i s d a t a problems and h i s a s s u m p t i o n s n e c e s s a r y f o r t h e
e s t i m a t i o n s made i n h i s s t u d y , t h e e v i d e n c e does lend s u p p o r t t o t h e

19

c o n t e n t i o n we r a i s e i n C h a p t e r 2 t h a t i t i s v i r t u a l l y i m p o s s i b l e f o r
AFDC mot hers — un d er t h e work i n c e n t i v e program — t o e a r n enough t o
l e a v e AFDC w i t h o u t s u f f e r i n g a f i n a n c i a l l o s s .
An oth er s t u d y which i s an e x c e l l e n t a i d i n a n a l y z i n g some o f
t h e c o n c e p t u a l i s s u e s s u r r o u n d i n g AFDC employment i s t h e work done by
E l i z a b e t h D ur bin .

31

While s h e does n o t a t t e m p t t o e m p i r i c a l l y t e s t f o r

t h e e f f e c t s o f a f i n a n c i a l work i n c e n t i v e , t h e s t u d y i s ve r y u s e f u l .
In h e r s t u d y o f w e l f a r e i n New York C i t y between 1957 and 1967, s he
d ev el o p ed an economic framework,which i n c l u d e s t h e f a m i l y u n i t ( r a t h e r
t h a n t h e i n d i v i d u a l ) , as t h e d e c i s i o n - m a k e r and a l s o an a n a l y s i s o f t h e
e f f e c t s o f w e l f a r e payments on t h e d e c i s i o n o f w e l f a r e mot hers t o work.
She a l s o d i s c u s s e s some o f t h e i n s t i t u t i o n a l q u e s t i o n s o f how v a r i o u s
w e l f a r e p o l i c i e s a f f e c t t h e d e c i s i o n t o work.

D u r b i n ' s i d e a s i n such

m a t t e r s as t h e " o p p o r t u n i t y c o s t s " f a c i n g w e l f a r e c l i e n t s were h e l p f u l
i n d e v e l o p i n g a framework ( C h a p t e r 4 o f t h i s s t u d y ) f o r a n a l y z i n g t h e
f i n a n c i a l i m p l i c a t i o n s o f t h e work i n c e n t i v e .

S t u d i e s o f t h e employment o f m a r r i e d
women i n t h e l a b o r f o r c e
S t u d i e s have been made by Ja co b M in c e r ,
Glenn Cai n,

34

32

Marvin K o s t e r s ,

33

, and

among o t h e r s , on t h e s u b j e c t o f t h e p a r t i c i p a t i o n r a t e s

o f m a r r i e d women i n t h e l a b o r f o r c e .

The m a jo r i s s u e o f t h e s e s t u d i e s

c e n t e r s around t h e e f f e c t s o f c e r t a i n v a r i a b l e s - - such as h u s b a n d ' s
income, r a c e , e d u c a t i o n , and t h e p r e s e n c e o f c h i l d r e n — on t h e r a t e
o f l a b o r f o r c e p a r t i c i p a t i o n o f women.

The r e s u l t s o f t h e s e s t u d i e s

would be p a r t i c u l a r l y r e l e v a n t f o r a s t u d y which a t t e m p t e d t o d e t e r m i n e
why some AFDC mothers work and o t h e r s do n o t .

Bu t, b e c a u s e t h i s s t u d y

c o n s i d e r s AFDC employment r a t e s and e a r n i n g s f o r t h e w e l f a r e c a s e l o a d

2°
g e n e r a l l y , i n f o r m a t i o n on demographic v a r i a b l e s and employment o f
m a r r i e d women who a r e n o t on w e l f a r e i s n o t d i r e c t l y r e l e v a n t .

The

e f f e c t o f dem ographic v a r i a b l e s on AFDC employment g e n e r a l l y i s ac c o u n te d
f o r i n t h i s s t u d y w i t h o u t r e q u i r i n g knowledge o f t h e employment e f f e c t
o f each.

T h e o r e t i c a l work on wel f a r e and
emp!oyment
In 1964, Brehm and Saving

35

made a s t u d y o f t h e demand f o r funds

from a p a r t i c u l a r w e l f a r e program c a l l e d " g e n e r a l a s s i s t a n c e . "

The

s t u d y d i d n o t c o v e r work o f w e l f a r e mot hers no r even t h e AFDC program
b u t r a t h e r c o ve re d a b r o a d e r w e l f a r e program i n c l u d i n g a l l t y p e s o f
p e r s o n s and f a m i l i e s .

For t h e s e r e a s o n s , t h e e m p i r i c a l r e s u l t s on t h e

demand f o r w e l f a r e payments a r e n o t p a r t i c u l a r l y r e l e v a n t t o t h i s t h e s i s .
The s t u d y i s me nt io ne d h e r e b e c a u s e i t s t h e o r e t i c a l a n a l y s i s i s used as
a usual s t a r t i n g p o i n t f o r work a p p l y i n g economic t h e o r y t o t h e s u b j e c t
o f w e l f a r e and employment;

i t w i l l be d i s c u s s e d f u r t h e r i n C h a p t e r 3.

The t h e o r e t i c a l a n a l y s i s i n t h e Brehm-Saving p a p e r uses i n d i f ­
f e r e n c e c u r v e s un d e r normal a s s u m p t i o n s .

The c o n c l u s i o n s o b t a i n e d as

a r e s u l t o f t h e a n a l y s i s a r e n o t as i m p o r t a n t t o t h i s s t u d y as i s t h e
i n f o r m a t i o n g a i n e d from lo o k i n g a t t h e mechanics o f t h e a n a l y s i s i t s e l f .
S p e c i f i c a l l y , t h e e f f e c t o f w e l f a r e payments and i n d i v i d u a l p r e f e r e n c e s
on t h e s h a p e o f t h e r e l e v a n t b u d g e t l i n e s can be viewed as t h e c r i t i c a l
v a r i a b l e i n t h e t h e o r e t i c a l a n a l y s i s o f w e l f a r e programs and work.
OC

C h r i s t o p h e r Green

07

and Michael Boskin

developed the a n a ly s i s

f u r t h e r by showing how w e l f a r e t a x e s a f f e c t t h e b u d g e t l i n e s and how,
a c c o r d i n g t o economic t h e o r y , t h i s a f f e c t s t h e i n d i v i d u a l ' s employment
decisions.

G r e e n ' s a n a l y s i s e x p l i c i t l y s t a t e s how, th r o u g h t h e

21
t h e o r e t i c a l i d e a s o f income and s u b s t i t u t i o n e f f e c t s , changes i n t h e
s i z e o f w e l f a r e g r a n t s and t h e w e l f a r e t a x r a t e s a f f e c t d e c i s i o n s on
how much time w i l l be s p e n t on work.
from G r e e n ' s work

The most i m p o r t a n t i n s i g h t s drawn

f o r pu rp o s es o f t h i s t h e s i s

a re t h a t increases

i n t h e s i z e o f t h e w e l f a r e g r a n t le d t o an income e f f e c t w h ic h , un de r
normal t h e o r e t i c a l a s s u m p t i o n s , means l e s s work

and t h a t chang in g

t h e w e l f a r e t a x (which t h e work i n c e n t i v e d oe s ) p r o du ce s o pp os in g
income and s u b s t i t u t i o n e f f e c t s l e a d i n g t o an ambiguous n e t e f f e c t on
work.

Both o f t h e s e i d e a s a r e d ev el o pe d f u r t h e r i n C h a p t e r 3 o f t h i s

t h e s i s and a r e u se d i n e x p l a i n i n g t h e e x p e c t e d e f f e c t s o f t h e i n c e n t i v e .
B o s k i n ' s work was s i m i l a r t o G r e e n ' s b u t e x p l a i n e d why i n c r e a s ­
i n g w e l f a r e g r a n t s may, c o n t r a r y t o t h e o r y , a c t u a l l y i n c r e a s e t h e amount
o f work done.

More money, Boskin p o i n t s o u t , may l e a d t o b e t t e r d i e t s

and b e t t e r h e a l t h ; t h i s l o n g - r u n i n v e s t m e n t i n c h i l d r e n may e v e n t u a l l y
l e a d t o t h e i n c r e a s e d work e f f o r t o f w e l f a r e r e c i p i e n t s .

Of t h e s e

f a c t o r s , h e a l t h i s t h e o n ly one which we w i l l e x p l i c i t l y d i s c u s s i n t h i s
th e s i s ( r e f e r to Chapter 5).

The o t h e r s a r e n o t l i k e l y t o be o f m a jo r

i m p o r ta n c e f o r t h e s h o r t - r u n p e r i o d c o v e r e d by t h i s s t u d y .

S t u d i e s o f high t a x r a t e s on work
S t u d i e s such as t h o s e by Break

38

have o b s e r v e d t h e e f f e c t o f high

t a x r a t e s on t h e employment o f p r o f e s s i o n a l males who a r e n o t on w e l f a r e .
B reak's conclusion i s t h a t fo r those s t u d i e s , th e re is l i t t l e evidence
t h a t h ig h t a x r a t e s c a u s e a d i s i n c e n t i v e t o work.

39

C o n v e r s e ly t h e n ,

t h e r e s h o u ld be l i t t l e e f f e c t from r e d u c i n g a high t a x r a t e .

However,

Break does n o t go t o t h e extre me o f s t a t i n g t h a t t h e r e would be no d i s ­
i n c e n t i v e a t a 100 p e r c e n t t a x , which i s what w e l f a r e m ot her s f a c e d
p r i o r t o J u l y , 1969.

T h e r e f o r e , i t does n o t s hed l i g h t on what would

22
happen t o work i f a 100 p e r c e n t t a x were r e d u c e d .

F u r t h e r m o r e , i t does

n o t c o n s i d e r fem a le employment n o r employment where a minimum income i s
g u a r a n t e e d t h r o u g h w e l f a r e payments.

For t h e s e r e a s o n s , t h e s t u d i e s on

hig h t a x r a t e s and employment a r e n o t d i r e c t l y a p p l i c a b l e t o t h i s s t u d y
which c o n s i d e r s t h e e f f e c t s o f work i n c e n t i v e s f o r mot hers who head
w elfare fa m ilie s.

FOOTNOTES

Leonard J . Hausman, "The 100% W e l f a r e Tax Rate:
I t s Incidence
and E f f e c t s " ( u n p u b l i s h e d D o c t o r ' s D i s s e r t a t i o n , U n i v e r s i t y o f
W i s c o n s i n , 196 7). A s t u d y on t h e e a r n i n g s a b i l i t y o f w e l f a r e m ot her s
compared t o w e l f a r e g r a n t s .
2
Congressman Wilbur M i l l s q uo te d i n t h e U.S. C o n g r e s s i o n a l
R e c o r d , 9 0t h C o n g . , 1 s t S e s s . ( 1 9 5 7 ) , C X I I I , No. 1 7 , “ 23054’.
3
H i s t o r i c a l works on t h e complex i n t e r a c t i o n between econ om ic,
r e l i g i o u s and s o c i a l f a c t o r s which l e d t o t h e devel opm ent i n B r i t i s h
and American a t t i t u d e s to w ard work and w e l f a r e i n c l u d e i n p a r t :
G.D.H. C o l e , A S h o r t H i s t o r y o f t h e B r i t i s h Working Cla s s Movement
(New York: The MacMillan C o . , 19 2 7) ; S idn ey J . a n a T T e a t r i c e P . Webb,
E n g l i s h P o or Law H i s t o r y (New York: Longmans, Green and C o . , 1929;
Samuel Mencher, Poor Law t o P o v e r t y Program; Economic S e c u r i t y P o l i c y
i n B r i t a i n and t F e U nit ed S t a t e s ( P i t t s b u r g h : U n i v e r s ' i t y o f P i t t s b u r g h
P r e s s , 1967; a l s o s e e Bl an che D. C o l l , " P e r s p e c t i v e s i n P u b l i c W e l f a r e :
The E n g l i s h H e r i t a g e , " W el f ar e i n Review, No. 3 , 4 (March, 1 9 6 6 ) ,
1 - 1 2 , f o r an e x c e l l e n t summary a r t i c l e .
4
Karl P o l a n y i , The G r e a t T r a n s f o r m a t i o n : The P o l i t i c a l and
Economic O r i g i n s o f Our Time (Boston: Beacon P r e s s , 195T)', pV 79.
5
Bla nche D. C o l l , " P e r s p e c t i v e s i n P u b l i c W e l f a r e :
C o lo n i a l
Times t o 1860: P a r t I I , " W el fa r e in Review, No. 4 , 6 ( J u l y - A u g u s t ,
19 6 8 ), 14.
6U . S . , C o n g re s s , S e n a t e , P r o c e e d i n g s o f t h e Co nf er en c e on t h e
Care o f Dependent C h i l d r e n , 6 0 th C o n g r e s s , 2nd S e s s . , 1 9 0 8 - 1 9 0 9
(Washington: Government P r i n t i n g O f f i c e , 1 9 0 9 ) , p . 9.
^Michigan S o c ia l S e c u r i t y Board, Bureau o f P u b l i c A s s i s t a n c e ,
S t a t e m e n t o f t h e Purp ose o f t h e Aid t o Dependent C h i l d r e n P rog ram ,
S t a t e l e t t e r No. 43 ( L a n s i n g , Michigan:
D epartmen t o f S o c i a l S e r v i c e
L i b r a r y , December 2 , 19 4 4 ) .

8

The name o f t h e ADC program was changed t o Aid t o F a m i l i e s >
w i t h Dependent C h i l d r e n i n 1949.
^ C a t h e r i n e M. M i l l e r and O li v e B. O t t , " S t a t e A c ti o n on t h e
P u b l i c A s s i s t a n c e P r o v i s i o n s o f t h e 1962 Amendments," W e l f a r e i n
Review, No. 2, I (A ug us t, 19 6 3) , 2- 1 5.
^ C o n g r e s s m a n John Byrnes q u ot e d i n t h e U . S . , C o n g r e s s i o n a l
R e c o r d , 9 0 t h Co ng ., 1 s t S e s s . ( 1 9 6 7 ) , C X I I I , No. 17, 23062.
" U . S . , C o n g r e s s , House, Committee on Ways and Means, P r e s i d e n t ' s
P r o p o s a l s f o r R e v i s i o n i n S o c i a l S e c u r i t y S y s te m , H e a r i n g , 9 0 th C o n g . ,
1 s t S e s s . , (Washington: Government P r i n t i n g O f f i c e ) .
23

24

C la u se 19, S e c t i o n 4 0 2 ( a ) o f t h e 1967 S o c i a l S e c u r i t y A c t ,
f o r c e d t h e mot hers t o e n t e r t h e work i n c e n t i v e t r a i n i n g program.
Because t h a t t r a i n i n g program was to o small f o r t h e number o f p e r s o n s
a s s i g n e d t o t h e program n o t a l l q u a l i f i e d mot hers were f o r c e d i n t o
t h e program.
13

U . S . , C o n g r e s s io n a l Record, 9 0 th Con g. , 1 s t S e s s . ( 1 9 6 7 ) ,
CX II I , No. 17, 2 2 /6 1 .
14U . S . , C o n g r e s s io n a l Record, 9 0t h Co ng ., 1 s t S e s s . ( 1 9 6 7 ) ,
C X II I , No. 24, 32599."
15

S e n a t o r Ro be rt Kennedy q u o t e d i n t h e U . S . , C o n g r e s s i o n a l
R ec o r d, 90th Cong., 1 s t S e s s . ( 1 9 6 7 ) , C X I I I, No. 2 7 , ’ 36785.
1fi

Congressman Wilbur M i ll s q u o t e d i n t h e U . S . , C o n g r e s s i o n a l
R e c o r d , 9 0t h Con g. , 1 s t S e s s . ( 1 9 6 7 ) , C X I I I, No. 17, 23054.
^ B a s e d on p e r s o n a l c o r r e s p o n d e n c e between John M. M a r t i n , J r . ,
C h i e f Counsel o f t h e U.S. House o f R e p r e s e n t a t i v e s Committee on Ways
and Means, and t h e w r i t e r , June 19, 1970.
1f e d e r a l R e g i s t e r (33 F.R. 10230) J u l y 17, 1968.
^ S R S Program R e g u l a t i o n 2 0 - 7 , Department o f H e a l t h E d u c a ti o n
and W e l f a r e , S o c i a l ana R e h a b i l i t a t i o n S e r v i c e s , W as hin gt on , D . C . ,
J a n u a r y 29, 1969.

20

The i n i t i a l i n t e r p r e t a t i o n o f t h e mo th ers g a i n due t o t h e work
i n c e n t i v e can be p r e s e n t e d as $30 + 1 / 3 [(Y-WE)-$30] + WE, o r $20 +
1/3Y + 2/3WE where Y e q u a l s g r o s s e a r n i n g s and WE e q u a l s work e x p e n s e s .
The g a i n un d e r t h e f i n a l i n t e r p r e t a t i o n can be shown as $30 +
l / 3 ( Y - $ 3 0 ) + WE o r 20 + 1/3Y + WE. The g a i n t o t h e m o t h er i s 1 / 3 o f
work e x p e n s e s .
21

Thi s s t a t e m e n t i s s t r i c t l y t r u e as long as t h e g r o s s e a r n i n g s
minus 30 + 1 / 3 e a r n i n g s p l u s work e x p e n s e s e q u a l s o r exc e ed s z e r o .
I f n o t , t h e mot her pays no w e l f a r e t a x b u t e a r n i n g s , l e s s work
e x p e n s e s , exce eds 30 + 1/3 e a r n i n g s .

22

M il t o n Friedman, C a p i t a l i s m and Freedom (C hic ago : U n i v e r s i t y
o f Chicago P r e s s , 1962); a l s o s e e C h r i s t o p h e r Green, N e g a t i v e Taxes
and t h e P o v e r t y Problem (Wash ing to n, D.C.: The Brook ings I n s t i t u t i o n ,
1 9 6 7 ) , f o r t h e h i s t o r i c a l deve lo pm ent o f income m a in te n a n c e p l a n s .
23

James T o bi n, Jo se p h Pechman and P e t e r Mieszk ow sk i, " I s a
N e g a t i v e Income Tax P r a c t i c a l , " The Yale Law J o u r n a l (November, 19 6 7 ),
1-2 7.
24

The P r e s i d e n t ' s Corronission on Income Mainten anc e Pro gr am s,
T e c h n i c a l S t u d i e s (Washinqton, D .C .: U.S. Government P r i n t i n q O f f i c e ,
t m i ;-----------------

25
25

C h r i s t o p h e r Green, N e g a t i v e Taxes and t h e P o v e r t y P r o b le m ,
( Wa sh ing to n, D.C.: The Brookings I n s t i t u t i o n , 11967) pp. 59 -6 0 .

?6

Denver Department o f P u b l i c W e l f a r e , The I n c e n t i v e Bu dg et in g
D em o n s tr at io n P r o j e c t (D enver, December, 1961)"]
’
27

I r e n e Cox, "Working P a p e r on E f f e c t s o f an E a r n i n g s Exemption
on Employment o f ADC M o t h e r s , " D i v i s i o n o f I n t r a m u r a l R e s e a r c h ,
Department o f H e a l t h , E d u c a t i o n , and W e l f a r e . Also s e e , Cuyohoga
County W e l f a r e D e pa r tm en t, Employmen t I n c e n t i v e s and S o c i a l S e r v i c e s :
A D em o n s tr at io n Program i n P u b l i c W e l f a r e ( C l e v e l a n d , Ohio', 1966) f o r
a s im i la r local stuay.
I b i d . , p. 5.
29

Leonard J . Hausman, "The 100% W e l f a r e Tax Rat e:
I t s Incidence
and E f f e c t s " ( u n p u b l i s h e d D o c t o r ' s d i s s e r t a t i o n , U n i v e r s i t y o f W i sc o n s i n ,
1967 ). A s t u d y on t h e e a r n i n g s a b i l i t y o f w e l f a r e mot hers compared
to welfare g ran ts.
30
Leonard Hausman, " P o t e n t i a l f o r F i n a n c i a l S e l f - S u p p o r t Among
AFDC and AFDC-UP R e c i p i e n t s , " S ou th er n Economic J o u r n a l , J u l y , 1969, 63.
31

See E l i z a b e t h F. D u r b in , Welf are Incomes and Employment: An
Economic A n a l y s i s o f Family Choice (New York: F r e d e r i c k A. P r a e g e r ,
P u b l i s h e r s , 19 6 9 ) , pp. 9 6 - 1 0 1 , f o r added a n a l y s i s on t h e e x p e c t e d
e f f e c t s o f work i n c e n t i v e s which were a p p l i e d t o p a r t o f t h e New York
C i t y c a s e l o a d i n l a t e 1967.
32

J aco b M in ce r , "Labor Force P a r t i c i p a t i o n o f M a r r ie d Women,"
A sp e ct s o f Labor Economics, A Co n fe re nc e o f t h e U n i v e r s i t i e s , N a t i o n a l
Bureau Committee f o r Economic Resea rc h ( P r i n c e t o n : P r i n c e t o n U n i v e r ­
s i t y P r e s s , 1 9 6 2 ) , pp. 63-1 05 .
33

Marvin K o s t e r s , "Income and S u b s t i t u t i o n P a r a m e t e r s i n a
Family Labor Supply Model" ( u n p u b l i s h e d D o c t o r ' s d i s s e r t a t i o n ,
U n i v e r s i t y o f Ch icago , 1966).
34

Glen G. C ai n , M arr ied Women i n t h e Labor F o r c e , An Economic
A n a l y s i s (Chic ago : U n i v e r s i t y o f Chicago P r e s s , 1966).
35

C.
T. Brehm and T. R. S a v i n g , "The Demand f o r General A s s i s t a n c e
P aym en ts, " American Economic Review, December, 1964, pp. 1002-1018.
36

C h r i s t o p h e r Gr een , " N e g a ti v e Taxes and Monetary I n c e n t i v e s t o
Work: The S t a t i c T h e o r y , " J o u r n a l o f Human R e s o u r c e s , I I I (Summer,
1 9 6 8 ) , 280-2 88 ; Michael J a y B o s k i n , "The N e g a t i v e Income Tax and t h e
Supply o f Work E f f o r t , " N a t i o n a l Tax J o u r n a l (December, 1967) 353-367.
37
Michael J a y B os k in , "The N e g a t i v e Income Tax and t h e Supply
o f Work E f f o r t , " N a t i o n a l Tax J o u r n a l (December, 1 96 7 ) , 353-367.

26

38

George F. Br eak , "Income Taxes and I n c e n t i v e s t o Work: An
E m p ir ic a l S t u d y , " American Economic Review, XLVII ( S ep te m b er , 19 5 7) ,
529-549.
"
39

For f u r t h e r c i t a t i o n s on s t u d i e s w i t h s i m i l a r r e s u l t s t o th o s e
o f B r e a k ' s s t u d y , t h e i n c e n t i v e e f f e c t s o f h ig h t a x r a t e s , s e e
C h r i s t o p h e r Gre en, N e g a ti v e Taxes and t h e P o v e r t y Problem (Washington,
D.C.: The Brookings I n s t i t u t i o n , 196 7) .

C hapter 2

Analysis o f th e Financial Implica tio n s
o f t h e Work I n c e n t i v e
The work i n c e n t i v e a ll ow s w e l f a r e mot hers t o su pp le m en t t h e i r
w e l f a r e g r a n t s by working f o r wa ges; i . e . , t h e w e l f a r e g r a n t i s no
l o n g e r redu ce d on a one t o one b a s i s as e a r n i n g s i n c r e a s e .

Th is means

t h a t , g iv e n t h e p r o v i s i o n s o f t h e 1967 Amendments t o t h e S o c i a l S e c u r i t y
A c t , t h e e f f e c t i v e wage r a t e ( d e f i n e d h e r e i n terms o f cha nges i n d i s ­
p o s a b l e income) f a c i n g AFDC mot hers went from z e r o t o a b o u t o n e - t h i r d
o f t h e g r o s s wage o v e r t h e r e l e v a n t r a n g e .

The q u e s t i o n o f what e f f e c t

t h e i n c e n t i v e w i l l have on AFDC employment and e a r n i n g s can be viewed
as a problem o f d e t e r m i n i n g t h e e f f e c t which a r i s e i n t h e wage r a t e s
w i l l have on AFDC employment.

And t h e q u e s t i o n o f t h e e x p e c t e d e f f e c t

o f an i n c r e a s e d wage r a t e on work can be a n s w er ed , i n p a r t , by u s i n g
t r a d i t i o n a l economic a n a l y s i s ; b u t

t h e work i n c e n t i v e may a f f e c t AFDC

employment and e a r n i n g s i n an i n d i r e c t ma nne r, n o t c o v er e d by t r a d i t i o n a l
analysis.
As we w i l l s e e i n t h i s c h a p t e r , t h e m o t h e r ' s a b i l i t y t o e a r n
enough t o be f o r c e d o f f w e l f a r e f a l l s d r a s t i c a l l y when t h e work i n c e n ­
tiv e is established.

The work i n c e n t i v e a l s o i n c r e a s e s t h e f i n a n c i a l

c o s t s o f l e a v i n g w e l f a r e an d, c o n s e q u e n t l y , i n c r e a s e s t h e o p p o r t u n i t y
c o s t s t o t h o s e n o t a l r e a d y on w e l f a r e .

T h e r e f o r e t h e work i n c e n t i v e

p r o v i d e s AFDC mot hers a new f i n a n c i a l g a i n from w o r k, which may c a u s e
more employment and h i g h e r e a r n i n g s .

We can c a l l changes i n AFDC

employment, caus ed by t h i s d i r e c t enco ur ag em ent t o work, t h e pr im ar y
27

28

e f f e c t of the incentive.
But t h e work i n c e n t i v e chang es t h e f i n a n c i a l a l t e r n a t i v e s f a c i n g
t h e mo th er i n a way which t e n d s t o d e c r e a s e t h e number o f f a m i l i e s
l e a v i n g AFDC and t o i n c r e a s e t h e number e n t e r i n g AFDC.

The i n c e n t i v e ' s

e f f e c t on t h e flow o f m ot he rs i n t o and o u t o f t h e AFDC program may a l s o
change AFDC employment r a t e s and e a r n i n g s o f t h e c a s e l o a d g e n e r a l l y .
We w i l l c a l l t h e change i n AFDC employment, due t o t h i s a l t e r e d flow
o f mo thers t h r o u g h AFDC, t h e s e c o n d a r y e f f e c t o f t h e i n c e n t i v e .
The p r i m a r y and s e c o n d a r y e f f e c t s o f t h e work i n c e n t i v e a r e t h e
subject of th is chapter.

The p r im a r y e f f e c t s a r e d i s c u s s e d b r i e f l y ,

u s in g t r a d i t i o n a l economic a n a l y s i s .

We w i l l d i s c u s s t h e s e c o n d a r y

e f f e c t s by u s i n g e x a m p le s ; we w i l l s e e how t h e i n c e n t i v e changed t h e
f i n a n c i a l a l t e r n a t i v e s f a c i n g m ot her s - - b o t h on and o f f w e l f a r e - - who
head f a m i l i e s .

The s u b j e c t o f work e x pe ns es i s s o i m p o r t a n t t o t h e s e

financial a lte rn a tiv e s th a t a separate section of th is chapter is
devoted to i t .

Some o f t h e e m p i r i c a l r e s u l t s o f t h i s s t u d y a r e p r e ­

s e n t e d t h e r e i n o r d e r t o d e m o n s t r a t e how i m p o r t a n t t h e s e ex p en se s
re a lly are.

The c h a p t e r i s co n cl u d ed w it h an a n a l y s i s o f t h e i m p l i ­

c a t i o n s o f t h e work i n c e n t i v e f o r AFDC e a r n i n g s and w e l f a r e c o s t s .
The P rim a ry Employment E f f e c t
o f the Incentive
T r a d i t i o n a l economic a n a l y s i s o f t h e e f f e c t o f i n c r e a s e d wages
on ho ur s worked l e a d s t o an ambiguous c o n c l u s i o n .

The h i g h e r wage r a t e s

i n c r e a s e t h e p r i c e o f l e i s u r e i n term s o f e f f o r t made t o g a i n income;
and t h e r e f o r e , t h e consu mpt ion o f goods o b t a i n e d t h r o u g h work i s s u b ­
s t i t u t e d f o r t h e cons ump ti on o f l e i s u r e .
because o f t h i s s u b s t i t u t i o n .

Hours o f work t e n d t o i n c r e a s e

At t h e same t i m e , however, t h e h i g h e r

29

wage i n c r e a s e s t o t a l income which t e n d s t o i n c r e a s e t h e consumption
o f a l l "normal" go ods , i n c l u d i n g , u n d e r us ual a s s u m p t i o n s , l e i s u r e .
The n e t e f f e c t o f t h e s e two op p o s in g t e n d e n c i e s i s n o t known
a p r i o r i ; t h i s depends on t h e r e l a t i v e p r e f e r e n c e f o r income and l e i s u r e .
One co u l d a rg u e t h a t t h e smal l incomes o f AFDC f a m i l i e s , i n c o n t r a s t
t o t h e l a r g e consumption o f l e i s u r e ( t i m e s p e n t i n non-wage p r o d u c in g
a c t i v i t i e s ^ ) , would c r e a t e a s t r o n g r e l a t i v e p r e f e r e n c e f o r income.
In t h i s c a s e , t h e i n c e n t i v e would be e x p e c t e d t o c a u s e more hour s o f
work.
We c a n , however, make a s t r o n g e r c a s e t h a t t h e work i n c e n t i v e
w i l l i n c r e a s e employment f o r t h e AFDC c a s e l o a d g e n e r a l l y .

Most AFDC

moth ers were n o t employed a t t h e s t a r t o f t h e i n c e n t i v e program.

The

r i s e i n wage r a t e s ( i . e . , v i a lowe r " w e l f a r e t a x " ) f o r m o s t, t h e r e f o r e ,
would r a i s e t h e e f f o r t p r i c e o f l e i s u r e b u t , b e c a u s e th e y a r e n o t
employed, would n o t i n c r e a s e t h e i r income; s o t h e r e i s no income e f f e c t .
Th is e l i m i n a t e s t h e t h e o r e t i c a l r a t i o n a l e f o r t h e i d e a t h a t h i g h e r
wages ca u s e l e s s hou rs worked.

A c c o r d i n g l y , t h e h i g h e r wages w i l l

ca u s e an unambiguous t e n d e n c y toward more h o u r s o f work f o r t h o s e
mot hers who were n o t employed.

S i n c e a p p r o x i m a t e l y 90 p e r c e n t o f t h e

mot hers on AFDC were n o t employed a t t h e i n c e p t i o n o f t h e i n c e n t i v e
program, t h a t pr ogram, i n t h e o r y , p r o v i d e s an unambiguous te n d e n c y f o r
most AFDC mothers t o i n c r e a s e t h e number o f h ou rs i n wage payi ng
employment.
The r e s u l t s o f t h e a n a l y s i s imply t h a t t h e work i n c e n t i v e w i l l
p r o v i d e a te n d e n c y f o r t h e employment r a t e s o f t h e AFDC c a s e s as a
whole t o i n c r e a s e .

30

The Sec ond ary Employment E f f e c t
of the Incentive
In t h i s s e c t i o n , t h e i n c e n t i v e ' s e f f e c t on t h e f i n a n c i a l g ai n
from employment i s compared t o i t s e f f e c t on i n c r e a s e d t o t a l income
( i n c l u d i n g w e l f a r e payments and wage s u p p l e m e n t s ) , i n c r e a s e d c o s t s o f
l e a v i n g w e l f a r e , and t h e r e s u l t i n g i n c r e a s e d o p p o r t u n i t y c o s t o f s t a y i n g
o u t o f t h e w e l f a r e program.

The s u b j e c t o f work e x p en s es i s e s s e n t i a l

t o t h i s s e c t i o n ; t h e r e f o r e , e m p i r i c a l e v i d e n c e d e v e l o p e d by t h i s s t u d y
i s presented here r a t h e r than l a t e r in the t h e s i s .
A n a l y s i s o f AFDC m o t h e r s ' f i n a n c i a l
g a i n from work
What i s a w e l f a r e m o t h e r ' s n e t f i n a n c i a l g a i n ( i n c r e a s e i n
s p e n d a b l e income) from working u n d e r t h e work i n c e n t i v e program?
b e n e f i t from work i s h e r g r o s s e a r n i n g s .

The

The c o s t o f employment i s

t h e w e l f a r e t a x ( r e d u c t i o n i n t h e w e l f a r e g r a n t caus ed by t h e e a r n i n g s ) .
The monthly g a i n t o employment w i t h t h e work i n c e n t i v e — as s p e c i f i e d
i n Department o f H e a l t h , E d u c a t i o n

and W e l f a r e r e g u l a t i o n s 2 - - i s

t h i r t y d o l l a r s p l u s o n e - t h i r d t h e r em a in in g monthly income r e g a r d l e s s
o f work e x p e n s e s .

Work e x pe ns es can be c o n s i d e r e d i r r e l e v a n t t o t h e

mother f o r most e a r n i n g s l e v e l s .
r e f l e c t s work e x p e n s e s .

The r e a s o n i s t h a t t h e w e l f a r e t a x

T h a t i s , t h e AFDC f a m i l y ' s g r a n t i s redu ce d

by t h e amount t h a t e a r n i n g s ex ce ed t h e f i r s t t h i r t y d o l l a r s p e r month
p l u s o n e - t h i r d o f t h e re m a in in g e a r n i n g s p l u s a l l work e x p e n s e s .
work ex p e n s e s i n c r e a s e , t h e AFDC r e c i p i e n t l o s e s n o t h i n g .

If

(The

i n c r e a s e d work exp en s es d o , however, c a u s e a d e c r e a s e i n t h e g r a n t
r e d u c t i o n , o r — looked a t a n o t h e r w a y - - a n i n c r e a s e i n t h e c o s t o f
w elfare to tax p ay ers.)

In s i m p l i f i e d f o r m , t h e n , t h e n e t f i n a n c i a l
O '

g a i n from employment e q u a l s tw en ty d o l l a r s p l u s o n e - t h i r d o f e a r n i n g s .

Examples o f t h e g a i n i n s p e n d a b l e income t o AFDC mo th ers f o r
e a r n i n g s from $100 t o $600 p e r month a r e shown i n T ab l e 2 . 1 .
T a b l e 2.1
AFDC R e c i p i e n t ' s F i n a n c i a l
Gain from Employment ( w it h t h e Work I n c e n t i v e )

Monthly e a r n i n g s
from work

$100

$200

$300

$400

$500

$600

Monthly f i n a n c i a l
g a i n from
worki ng

$53

$86

$120

$153

$186

$220

The f i g u r e s in t h e t a b l e a p p l y t o a l l f a m i l y s i z e s .

A mo th er o f a

f a m i l y o f o n e , o r t e n , who e a r n s $300 has $120 more d i s p o s a b l e income
f o r her family.

I t f o l l o w s t h a t t h e same i n c r e a s e i n s p e n d a b l e income

from t h e g iv e n l e v e l o f e a r n i n g s r e s u l t s i n d i f f e r e n t p e r c a p i t a g a i n s
to d i f f e r e n t siz e d f a m ilie s .

Such d i f f e r e n c e s may w e ll a f f e c t t h e

manner i n which mo thers o f d i f f e r e n t s i z e d f a m i l i e s res p on d t o t h e
work i n c e n t i v e .
From T a b l e 2 .1 , i t i s e v i d e n t t h a t even w i t h t h e work i n c e n t i v e
t h e r e i s a high w e l f a r e t a x r a t e which t r a n s f o r m s even r e l a t i v e l y
hig h e a r n i n g s l e v e l s i n t o r e l a t i v e l y smal l i n c r e a s e s i n d i s p o s a b l e
incomes.

To t h e e x t e n t , however, t h a t a working mot her r e c e i v e s

c e r t a i n f r i n g e b e n e f i t s from work, such as l i f e i n s u r a n c e o r a r e t i r e ­
ment p l a n , o r t o t h e e x t e n t t h a t s h e r e c e i v e s n o n p e c u n i a r y rewards
from employment, t h e d a t a i n Ta bl e 2.1 u n d e r s t a t e t h e m o t h e r ' s t o t a l
g a i n from w or k in g .

A l s o , t o t h e e x t e n t t h a t work ex p en se s cl ai m e d by

t h e mo th er a r e h i g h e r th a n a c t u a l , t h e t a b l e a l s o u n d e r s t a t e s t h e

32

m o t h e r ' s g a i n and v i c e v e r s a .
Taxes can be used as an example o f how t h i s wo rk s.

The t r e a t ­

ment o f ex em pti on s f o r t a x p u r p o s e s un d er t h e p r o v i s i o n s o f t h e work
i n c e n t i v e i s s u f f i c i e n t l y ambiguous t o a l lo w mot hers t o c l a i m few er
d e p en d e n ts th a n t h e maximum a l l o w a b l e u n d er f e d e r a l t a x law f o r t a x
w ithholding purposes.

T h i s means t h a t more t a x e s - - w h i c h a r e work

ex pen se s — a r e d e d u c t e d from t h e g r o s s pay b u t wi t h o u t e f f e c t on t h e
n e t income o f t h e AFDC f a m i l y .

When t h e mot her f i l e s h e r income

t a x r e t u r n , a l l d e p e n d e n ts can be c l a i m e d , n e t t i n g a g a i n i n t h e form
o f a tax refund.

In t h i s way t h e mo th er can t u r n a work expense

i n t o a f i n a n c i a l g a i n which i s i n e x c e s s o f t h a t shown i n Ta bl e 2 . 1 .

Maximum g r o s s e a r n i n g s c o i n c i d e n t
w i t h c o n t i n u e d AFDC e l i g i b i l i t y
Both b e f o r e and a f t e r t h e e s t a b l i s h m e n t o f t h e work i n c e n t i v e ,
t h e AFDC f a m i l y l o s t i t s e l i g i b i l i t y f o r w e l f a r e when t h e m o t h e r ' s
e a r n i n g s became high enough f o r t h e w e l f a r e t a x t o equa l t h e w e l f a r e
g r a n t ( t h e amount o f money gi ve n t o t h e f a m i l y th r ou gh AFDC).

Prior

t o t h e work i n c e n t i v e , t h i s o c c u r r e d when g r o s s e a r n i n g s minus work
ex p en se s e q u a l l e d t h e n o n - w e l f a r e g r a n t b e ca us e t h e w e l f a r e g r a n t was
red uce d on a d o l l a r f o r d o l l a r b a s i s w i t h changes i n n e t e a r n i n g s .
The s i z e o f t h e w e l f a r e g r a n t , o r b a s i c need s t a n d a r d , i s
a d m i n i s t r a t i v e l y d e t e r m i n e d by each s t a t e
family s i z e .

and v a r i e s p r i m a r i l y w it h

The main components o f t h e b a s i c need s t a n d a r d i n c l u d e

money f o r f o o d , c l o t h i n g , and r e n t .

While most medical e x pe ns es o f

AFDC r e c i p i e n t s a r e t y p i c a l l y p a i d by t h e r e s p e c t i v e g ov er n m e n ts , t h e y
a r e n o t c o n s i d e r e d p a r t o f t h e AFDC g r a n t .

In o t h e r w o r d s , an AFDC

f a m i l y o f f o u r m i g h t r e c e i v e a money g r a n t o f t h r e e hu ndred d o l l a r s

33

p e r month and, i n a d d i t i o n , r e c e i v e f i v e hundred d o l l a r s w or th o f
medical c a r e .

That fa m ily 's g r a n t i s s t i l l

t h r e e hundred d o l l a r s .

Under t h e work i n c e n t i v e , t h e AFDC f a m i l y c o n t i n u e s t o remain
e l i g i b l e fo r w elfare u n til the w elfare g ran t equals zero.^

The o nl y

c h an ge , as a r e s u l t o f t h e work i n c e n t i v e , i s t h e r a t e a t which t h e
g r a n t i s reduced in response to in c re a s e d e a rn in g s.
The AFDC w e l f a r e g r a n t w i l l be red u ce d t o z e r o when t h e g r a n t
r e d u c t i o n — c a u s e d by t h e w e l f a r e t a x n e t o f work e x pe ns es — e q u a l s
t h e r e c i p i e n t ' s i n i t i a l , non-work AFDC g r a n t .

The p r e c e d i n g d i s c u s s i o n

o f T ab l e 2.1 has shown t h a t f o r each d o l l a r e a r n e d

the re c ip ie n t

r e c e i v e s a b o u t t h i r t y - t h r e e c e n t s a d d i t i o n a l d i s p o s a b l e income.

But

t h e r e m a in in g s i x t y - s e v e n c e n t s does n o t go e n t i r e l y tow ard r e d u c i n g
t h e AFDC g r a n t b e c a u s e t h e f i n a l g r a n t r e d u c t i o n i s t h e 67 p e r c e n t
t a x minus work e x p e n s e s .

Therefore, in ord er to determine th e earnings

l e v e l a t which t h e g r a n t w i l l equa l z e r o , o r t h e maximum g r o s s e a r n i n g s
which a r e p o s s i b l e w h i l e t h e mot her i s on w e l f a r e , some e s t i m a t e o f work
e x p en s es must be made.

E s t i m a t i o n o f AFDC work exp ens es
D i s c u s s i o n s o f n e g a t i v e income t a x p l a n s and work i n c e n t i v e s o f t e n
i g n o r e o r min imi ze t h e i m p o r ta n c e o f work e x p e n s e s .

In t h e 1967 S o c i a l

S e c u r i t y Act Amendment e s t a b l i s h i n g t h e AFDC work i n c e n t i v e , work
e x p en s es were ambiguously d i s c u s s e d .

Th is i s one more i n d i c a t i o n o f

how l i t t l e i m p o r ta n c e many p e r s o n s a s s i g n t o t h e work ex pe ns e i s s u e
when d e a l i n g w i t h f i n a n c i a l i n c e n t i v e s .
Acco rding t o Michigan r e g u l a t i o n s , c o v e r i n g t h e J u l y , 1969 - J u l y ,
1970 p e r i o d , t h e a c t u a l r e p o r t e d work e x p en s es f o r women AFDC r e c i p i e n t s
s h o u l d be twen ty d o l l a r s p e r month f o r m i s c e l l a n e o u s e x pe ns es such as

34

c o s m e t i c s , p l u s an amount equal t o :

(1) b u s i n e s s e x p e n s e s , such as t h e

c o s t o f t o o l s , s p e c i a l c l o t h i n g , o r u n i f o r m s ; (2) t r a n s p o r t a t i o n ; (3)
t r a i n i n g ex p en se s where r e q u i r e d by t h e em pl oy er ; (4) FICA t a x ; (5)
income t a x w i t h h e l d ; (6) mandatory p a y r o l l d e d u c t i o n s such as r e t i r e ­
ment f u n d s , union d u e s , and group i n s u r a n c e p l a n s ; (7) c o u r t - o r d e r e d
payments such as wage g a r n i s h m e n t s .

The tw en t y d o l l a r s f o r m i s c e l ­

l a n e o u s ex p en se s i s t h e same as i t was b e f o r e t h e work i n c e n t i v e .

C hi ld

c a r e i s n o t c o n s i d e r e d an employment ex pe ns e im m e d i a te l y p r i o r t o and
a f t e r t h e i n c e n t i v e program b e c a u s e i t i s p a i d by t h e S t a t e o f Michigan
i n both c a s e s .
The f i g u r e s o b t a i n e d i n t h i s s t u d y from samples o f employed AFDC
mot hers i n d i c a t e t h a t work ex pen ses a r e very l a r g e i n p r o p o r t i o n t o
earnings.

Tabl e 2 . 2 shows t h e p e r c e n t o f g r o s s e a r n i n g s a c c o u n te d

f o r by work exp ens es f o r t h e sample o f women who head Michigan AFDC
households.
The r e p o r t e d e x pe ns es o f employment remain r em a r ka bl y s t a b l e
as a p o r t i o n o f g r o s s e a r n i n g s .

Work e x p en s es a r e r o u g h l y 25 p e r c e n t

t o 31 p e r c e n t o f e a r n i n g s f o r e a r n i n g s between $150 and $500 p e r m o n t h . 5
The i m p o r ta n c e o f ex em p ti n g , from t h e w e l f a r e t a x , an amount o f
e a r n i n g s equal t o o r n e a r 100 p e r c e n t o f work ex pen se s becomes
a p p a r e n t from t h e s e f i g u r e s .

I f a s t a t e o r t h e f e d e r a l government were

t o p u t a c e i l i n g on t h e amount o f a l l o w a b l e work e x p e n s e s , t h e margi nal
t a x r a t e on e a r n i n g s ( w e l f a r e t a x p l u s work e x pe ns es such as f e d e r a l
income t a x ) would appro ac h 100 p e r c e n t o f e a r n i n g s whenever work ex p en se s
exceed ed t h e maximum a l l o w a b l e .

For exam ple, i f a $40 p e r month

c e i l i n g were p l a c e d on work e x p e n s e s , 6

th e n , a c c o r d i n g t o t h e f i g u r e s

i n Ta bl e 2 . 2 , AFDC r e c i p i e n t s e a r n i n g i n e x c e s s o f $151 p e r month would,

35

Table 2.2
Work Expenses as a Percent of Gross Earnings3

Earnings
(gross per month)

Estimated work expenses
range as a percent of
gross earnings

Average work
expense in dollars
per month^

$100-150

27-41%

$41.00

$151-200

26-34%

$52.00

$201-250

26-32%

$64.00

$251-300

25-30%

$74.00

$301-350

27-32%

$95.00

$351-400

26-31%

$106.00

$401-450

26-29%

$117.00

$451-500

26-29%

$129.00

a Sample size: 1,139, which includes all the sample cases with
earnings in the July 1970 sample of female-headed AFDC house­
holds .
k These figures are net of child care costs which are paid by
the State.
Source:

Data obtained from records of the Michigan Department
of Social Services .

36

on t h e a v e r a g e , pay a l l added work ex p e n s e s o u t o f non-exempt e a r n i n g s .
Suppose t h a t a w e l f a r e mot her who i s e a r n i n g more t h a n $151 p e r month
t a k e s a d d i t i o n a l employment which i n c r e a s e s h e r g r o s s income by $100
p e r month.

Out o f t h e a d d i t i o n a l one hundred d o l l a r s o f g r o s s monthly

e a r n i n g s , she would pay a s i x t y - s e v e n d o l l a r w e l f a r e t a x , p l u s a b o u t
t w e n t y - f i v e d o l l a r s f o r added work e x p e n s e s , l e a v i n g h e r o n ly a n e t
increase of eig h t d o lla rs .

The t o t a l amount k e p t by t h e f a m i l y o u t o f

t h e added one hu ndr ed d o l l a r s o f g r o s s e a r n i n g s i s e i g h t d o l l a r s .
can h a r d l y be c o n s i d e r e d a s u b s t a n t i a l

This

improvement from t h e pre-work

incentive period.
The p o l i c y i m p l i c a t i o n s a r e c l e a r .

Any c e i l i n g on exp en s es o f

employment - - such a s t h a t i n c l u d e d i n t h e w e l f a r e r e f o r m Family
A s s i s t a n c e P la n p r o p o s e d by P r e s i d e n t Nixon - - s h o u l d be imposed o n ly
w i t h t h e f u l l r e a l i z a t i o n t h a t i t c o u l d d e s t r o y t h e m a rg i n a l f i n a n c i a l
work i n c e n t i v e .

C a l c u l a t i o n s o f maximum e a r n i n g s p o s s i b l e
w h i l e e l i g i b l e f o r AFDC
Using d a t a from J u l y , 1969 t o J u l y , 1970 and assuming work ex pen se s
to be 25 p e r c e n t o f g r o s s e a r n i n g s p l u s a twen ty d o l l a r m i s c e l l a n e o u s
e x p e n s e , we can e s t i m a t e t h e maximum amount o f g r o s s e a r n i n g s which
Michigan AFDC f a m i l i e s o f v a r i o u s s i z e s c o u l d have e a r n e d w h i l e
r em ai nin g e l i g i b l e f o r w e l f a r e .

T ab l e 2 . 3 shows t h e e s t i m a t e d maximum

e a r n i n g s p o s s i b l e both w i t h and w i t h o u t t h e work i n c e n t i v e .
The f i g u r e s in T a b l e 2 . 3 s u g g e s t t h a t i t i s u n l i k e l y t h a t many
AFDC r e c i p i e n t s would be a b l e t o o b t a i n j o b s w it h e a r n i n g s high enough
to f o r c e them o f f AFDC, e i t h e r w i t h o r w i t h o u t t h e work i n c e n t i v e .

37

Table 2,3
Maximum Gross Earnings Possible while on AFDC,
for the 69-70 Fiscal Year3

Number of
recipients in
family

2

3

4

5

6

7

8

9

10

$182

221

261

299

339

376

413

450

487

Pre-work
incentive

$269

321

375

425

479

528

577

627

676

With work
incentive

$481

574

669

760

855

943

1,031

1,119

1,207

Dollar amount
of the initial
(i .e . non-work)
. D
grant

a The table shows
fare tax equals
all income less
centive and all
of $30 plus all

for each case that earnings level for which the wel­
the non-work AFDC grant. The welfare tax is equal to
work expenses (.25 of income + $20) without the work in­
income less $30 plus one-third of earnings in excess
work expenses.

k The grant levels are averages for the Michigan program.
In actuality,
they may vary for families of the same size. The grant estimates
include an $88 per month imputed rental allowance.

38

Under t h e work i n c e n t i v e , however, i t becomes v i r t u a l l y i m p o s s i b l e
f o r l a r g e r f a m i l i e s t o e a r n t h e i r way o f f AFDC.

This i s expected

t o c a u s e a d e c r e a s e i n t h e number o f f a m i l i e s l e a v i n g w e l f a r e which
c o u l d a f f e c t AFDC employment r a t e s .

The f i n a n c i a l c o s t o f l e a v i n g AFDC
The f i n a n c i a l c o s t o f l e a v i n g AFDC i s s i m p l y t h e sum t o t a l o f
t h e w e l f a r e b e n e f i t s which a r e l o s t .

The most o b v io u s c o s t i s t h e

loss o f whatever w elfare g ra n t th e r e c i p i e n t r e c e iv e s .
more ove r, t h r e e o t h e r i m p o r t a n t c o s t s :

There a r e ,

the lo ss o f fre e c h ild care

f o r t h o s e who work, me dical a s s i s t a n c e which i s p r o v i d e d by t h e
Medicaid pr ogram, and t h e Food Stamp b o n u s 7

Although in c e r t a i n

i n s t a n c e s ( e . g . , a l a r g e number o f c h i l d r e n r e c e i v i n g c h i l d c a r e o r
e x t r e m e l y h ig h medical e x p e n s e s )

a family could s t i l l

receive a

portion o f these s e r v ic e s , the d o l l a r value o f the se rv ic e s l o s t is
O

su b stan tial.
The e x a c t amount depends on such f a c t o r s as t h e number o f c h i l d r e n
i n t h e AFDC f a m i l y , t h e number who r e c e i v e c h i l d c a r e , t h e amount o f
such c a r e t h e y r e c e i v e , and t h e e x t e n t t o which f a m i l y members u t i l i z e
Medicaid s e r v i c e s .

For p u r p o s e s o f o b t a i n i n g an i d e a o f t h e o r d e r s

o f ma g ni tu de i n v o l v e d , t h e v a l u e o f a d d i t i o n a l Medicaid s e r v i c e s were
Q

e s t i m a t e d t o a v e r a g e a b o u t f i f t y d o l l a r s p e r month 3 f o r AFDC f a m i l i e s
i n Mic hi gan .

The v a l u e o f t h e c h i l d c a r e s u b s i d y was c o n s e r v a t i v e l y

e s t i m a t e d t o a v e r a g e a b o u t f o u r d o l l a r s p e r day f o r t h e f i r s t c h i l d
and two d o l l a r s p e r day f o r each a d d i t i o n a l c h i l d , t o t a l l i n g ro u g h ly
e i g h t y d o l l a r s p e r month f o r t h e f i r s t
f o r each a d d i t i o n a l c h i l d .
size.

and f o r t y d o l l a r s p e r month

The Food Stamp bonus v a r i e s by f a m i l y

A f a m i l y o f f o u r would r e c e i v e a bonus o f f o r t y - s i x d o l l a r s p e r

39

month as o f F e b r u a r y , 1970, i f t h e y took a d v a n t a g e o f t h e p r o g r a m . ^
Using t h e s e c o s t e s t i m a t e s , a mot her o f a f a m i l y o f f o u r w i t h
one c h i l d who r e q u i r e d c h i l d c a r e , who l e f t t h e AFDC program a f t e r
e a r n i n g enough t o have a z e r o d o l l a r AFDC g r a n t

and t h e r e f o r e l o s t

M ed ic a id , c h i l d c a r e p ay m en ts, and t h e Food Stamp b on us , would l o s e
s e r v i c e s w or th a b o u t $176 p e r month.

I f t h e mo th er l e f t AFDC w h i l e

e a r n i n g l e s s t h a n t h e amount which would r e d u c e h e r AFDC g r a n t t o
z e r o , she would l o s e t h e v a l u e o f t h e g r a n t as w e ll as t h e $176 p e r
month.
A more i m p o r t a n t q u e s t i o n p e r t a i n i n g t o t h e e f f e c t o f t h e i n c e n ­
t i v e on c a s e op en in g s and c l o s i n g s i s :

what would t h e mo th er have t o

e a r n i n o r d e r t o l e a v e AFDC w i t h o u t a f i n a n c i a l l o s s ?

With o r w i t h o u t

t h e work i n c e n t i v e , t h e AFDC f a m i l y would l o s e t h e same amount p e r
month o f added s e r v i c e s i f i t l e f t t h e w e l f a r e r o l l s .

Therefore,

e i t h e r w i t h o r w i t h o u t t h e i n c e n t i v e , a mot her o f a f a m i l y o f f o u r who
i s e a r n i n g t h e maximum a l l o w a b l e on AFDC ( z e r o g r a n t ) must e a r n an
a d d i t i o n a l n e t income o f $176 p e r month t o be a b l e t o l e a v e AFDC
w i t h o u t a l o s s i n income.

Assuming work exp ens es t o be 25 p e r c e n t o f

e a r n i n g s , t h i s means t h a t 75 p e r c e n t o f t h e a d d i t i o n a l g r o s s e a r n i n g s
must amount t o a t l e a s t $176 p e r month.

In o t h e r w o r d s, t h e f a m i l y

i n t h i s example must e a r n $234 more th a n t h e maximum a l lo w ed p e r month
i n o r d e r t o l e a v e AFDC w i t h o u t a f i n a n c i a l l o s s .
was made f o r o t h e r f a m i l y s i z e s .

Thi s same c a l c u l a t i o n

The e a r n i n g s a t which f a m i l i e s o f

v a r i o u s s i z e s a r e f o r c e d t o l e a v e AFDC a r e p r e s e n t e d i n T ab l e 2 . 3 .
The a d d i t i o n a l g r o s s e a r n i n g s r e q u i r e d t o e n a b l e such f a m i l i e s t o l e a v e
AFDC w i t h o u t f i n a n c i a l l o s s were th e n added t o t h e e a r n i n g s f i g u r e s
i n Ta bl e 2 . 3 t o produce Ta b l e 2 . 4 .

Table 2 .4
Gross Earnings Necessary Before an AFDC Mother
Can Leave AFDC Without Financial Lossa

Number of recipients
in family

2

3

4

5

6

7

8

9

10

Pre-work
incentive

$476

546

610

669

718

789

849

915

979

With work
incentive

$688

799

904

1,004

1,103

1,204

1,303

1,407

1,510

a The cost of services lost by leaving welfare from the zero grant point is assumed at $50 per month
per family for Medicaid, $80 per month for one child who requires day care, and an amount for the
Food Stamp bonus. These figures are based on the assumption that work expenses amount to 25 percent
of gross earnings over the entire earnings range. The figures, therefore, are the same as in Table
2.3 plus 4/3 of a constant $130 (for child care and Medicaid) plus 4/3 of a Food Stamp bonus which
changes with family size.

The c o n c l u s i o n drawn from T a b l e 2 . 4 , i n c o n j u n c t i o n w i t h
Hausman's s t u d y

and o u r s t u d i e s o f Michigan AFDC e a r n i n g s

reported

i n C h a p t e r 6 , i s t h a t a l m o s t no f e m a l e - h e a d e d AFDC f a m i l y can work
i t s way o f f AFDC a t z e r o d o l l a r c o s t t o i t s e l f .

In a d d i t i o n , t h e

f i g u r e s i n t h e t a b l e show t h a t t h e p r o b a b i l i t y o f c l o s i n g
t h e mother o b t a i n s employment
increases.

because

i s e x p e c t e d t o f a l l as f a m i l y s i z e

I t i s , t h e r e f o r e , u n r e a s o n a b l e t o e x p e c t AFDC mo th ers t o

e a r n t h e i r way o f f w e l f a r e u n l e s s i t i s assumed t h a t t h e y l i k e b e i n g
s e l f - s u f f i c i e n t a t a f in a n c ia l c o s t to themselves.

l?

I f mo th ers

c o n t i n u e t o work t h e i r way o f f w e l f a r e ( v o l u n t a r i l y l e a v e ) , i t would
i n d i c a t e a s t r o n g d e s i r e t o be s e l f - s u p p o r t i n g .
B u t, as we i n d i c a t e d e a r l i e r , i t i s e x p e c t e d t h a t t h e h i g h e r
e a r n i n g s a l lo w e d f o r AFDC r e c i p i e n t s and t h e high c o s t o f l e a v i n g
w e l f a r e w i l l d e c r e a s e t h e number o f f a m i l i e s l e a v i n g w e l f a r e when th e y
find jobs.

I f r e c i p i e n t s work w h i l e re m a in in g on AFDC, t h e employment

rate generally w ill r is e .

Thi s must be a c c o u n t e d f o r i n e m p i r i c a l

e s t i m a t e s o f t h e employment e f f e c t s o f t h e i n c e n t i v e .

I n c e n t i v e t o e n t e r t h e AFDC program
The changes b r o u g h t a b o u t by t h e AFDC work i n c e n t i v e have s i g n i ­
f ic a n t im plications f o r the

low-income p o p u l a t i o n which i s n o t

a p a r t o f t h e AFDC program;

by a t t e m p t i n g t o make

currently

work more a t t r a c t i v e

t o AFDC r e c i p i e n t s , t h e program a l s o has made AFDC more a t t r a c t i v e t o
t h e working po or .
The f i n a n c i a l i n c e n t i v e t o e n t e r t h e AFDC program i s eq u al t o
t h e f i n a n c i a l c o s t, o f l e a v i n g AFDC.

The m a g ni tu de o f t h e f i n a n c i a l

i n c e n t i v e t o e n t e r t h e AFDC program i s , t h e r e f o r e , d i f f i c u l t t o

42

d e t e r m i n e f o r t h e same r e a s o n s t h a t t h e f i n a n c i a l c o s t s o f l e a v i n g
AFDC a r e d i f f i c u l t t o d e t e r m i n e .

Some p o o r f a m i l i e s which a r e n o t

on AFDC a r e e l i g i b l e f o r o t h e r and v a r i e d forms o f a s s i s t a n c e .

The

most i m p o r t a n t a s s i s t a n c e i n Michigan f o r t h e s e non-AFDC po o r f a m i l i e s
i s p a r t i a l l y o r t o t a l l y s u b s i d i z e d c h i l d c a r e and some Group I I
M ed ica id s e r v i c e s .

T h i s pos es problems f o r e s t i m a t i n g t h e v a l u e o f

t h e f i n a n c i a l i n c e n t i v e t o e n t e r AFDC.

D e s p i t e t h e s e p r o b l e m s , an

a t t e m p t was made, u s i n g c e r t a i n s i m p l i f y i n g a s s u m p t i o n s , t o d e r i v e
some rough e s t i m a t e s o f t h e f i n a n c i a l i n c e n t i v e t o p a r t i c i p a t e i n
t h e w e l f a r e program.

Only s i n g l e p a r e n t f e m a l e - h e a d e d h o u s e h o ld s

were chosed f o r comp ari so n.

A l s o , t h e as s u m p ti o n was made t h a t t h e

m o t h e r ' s g r o s s e a r n i n g s a r e t h e same w h e t h e r o r n o t s he i s i n t h e
AFDC program.
I f t h e f a m i l y was i n t h e AFDC pro gr am, i t would r e c e i v e a d i s ­
p o s a b l e income equal t o t h e sum o f t h e non-work g r a n t (Ta bl e 2 . 3 ) p l u s
t h e f i n a n c i a l g a i n from working ( T a b l e 2 . 1 ) .

In a d d i t i o n , i t can

be assumed t h a t t h e f a m i l y r e c e i v e s f i f t y d o l l a r s p e r month worth o f
m edical e x p e n d i t u r e s , e i g h t y d o l l a r s p e r month f o r c h i l d c a r e f o r
one c h i l d , and a Food Stamp bo nu s.

I f t h e f a m i l y was n o t i n t h e AFDC

program, i t would r e c e i v e o n ly i t s g r o s s e a r n i n g s r e d uc e d by work
e x p e n s e s , assumed t o be 25 p e r c e n t o f g r o s s e a r n i n g s .

Table 2.5

compares t h e s e n e t s p e n d a b l e income f i g u r e s f o r w e l f a r e and non­
w e l f a r e m o t h er s w i t h g r o s s e a r n i n g s o f $300, $400, and $500 p e r month.
The f i g u r e s i n t h e t a b l e show t h e a c t u a l d o l l a r d i f f e r e n c e between
n e t incomes due to t h e w e l f a r e program.
From t h e t a b l e i t i s c l e a r t h a t t h e AFDC pro gr am, i n c l u d i n g
t h e work i n c e n t i v e p r o v i s i o n

creates a large fin an c ial incentive

43

Table 2.5
Financial Incentive to Enter the AFDC Program

Income net of
work expenses:
on AFDCa

Family of
two monthly
earnings*3

Family of
four monthly
earnings

Family of
six monthly
earnings

$300

$457c

$400

Income net of
work expenses:
not on AFDC

Financial
gain from
AFDC

$225

$232

490

300

190

$300

557

225

332

$400

590

300

290

$500

623

375

248

$300

645

225

420

$400

678

300

378

$500

711

375

336

This includes a Food Stamp bonus of $25, $46, and $56 used in these
calculations for the family sizes 2, 4, 6 respectively.
These are
actual amounts in Michigan as of February 1970. It also includes
amounts of $50 and $80 for Medicaid and child care.
k No comparison is made for earnings of $500 since a family of two
with those earnings is ineligible for AFDC assistance.
c This figure is the sum of $182 welfare grant (from Table 2.3),
$120 work incentive (from Table 2.1), $80 child care, $50 Medicaid
and $25 Food Stamp bonus.

44

f o r t h e non-AFDC wor king p o o r t o a t t e m p t t o e n t e r AFDC.

The i n c e n t i v e

t o e n t e r w e l f a r e i s g r e a t e r f o r l a r g e r f a m i l i e s b u t d e c r e a s e s as
e a r n i n g s i n c r e a s e ; however, i t i s l a r g e a t a l l t h e e x p e c t e d e a r n i n g s
l e v e l s shown i n t h e t a b l e .
The a c t u a l i n c r e a s e i n new c a s e s ca us ed by t h i s f i n a n c i a l
i n c e n t i v e depends n o t o n l y on t h e d e s i r e t o become an AFDC r e c i p i e n t
b u t on t h e e f f e c t i v e n e s s o f t h e b a r r i e r s s p e c i f i c a l l y d e s i g n e d t o
r e d u c e such movement o n to w e l f a r e .

According t o t h e 1967 S o c ia l

S e c u r i t y Amendments, e l i g i b i l i t y r e q u i r e m e n t s f o r AFDC do n o t change
b e c a u s e o f t h e work i n c e n t i v e .

Thi s means t h a t i f a n o n - w e l f a r e

f a m i l y has e a r n i n g s ( n e t o f work e x p e n s e s ) which a r e l a r g e r th a n
t h e w e l f a r e g r a n t t h e f a m i l y would r e c e i v e i f i t were on AFDC
t h a t f a m i l y i s n o t e l i g i b l e f o r AFDC.

Once on AFDC, however, t h e

f a m i l y can e a r n t h e much g r e a t e r amounts i n row 3 o f T a b l e 2 . 3 and
still

remain e l i g i b l e f o r AFDC b e n e f i t s .

The work i n c e n t i v e , t h e r e ­

f o r e , p r o v i d e s an i n c e n t i v e t o r e d u c e e a r n i n g s t e m p o r a r i l y i n o r d e r
t o become a w e l f a r e r e c i p i e n t .
Not c h an gi ng e l i g i b i l i t y r e q u i r e m e n t s a l s o means t h a t m a le ­
headed h o u s e h o ld s a r e f o r t h e most p a r t p r e c l u d e d from AFDC.

Although

t h e AFDC program does i n c l u d e some ma le- h ea de d f a m i l i e s u n d e r t h e
p r o v i s i o n s f o r t h e unemployed (AFDC-UP), e l i g i b i l i t y r e q u i r e m e n t s
g e n e r a l l y p l a c e a s t r i n g e n t b a r r i e r t o e n t r y t o AFDC.

Th is can be

overcome most e f f e c t i v e l y i f t h e f a t h e r l e a v e s .
I f t h e r e s p o n s e t o t h i s i n c e n t i v e i s s i g n i f i c a n t , and i f t h e
v a r i o u s e l i g i b i l i t y b a r r i e r s t o e n t r y a r e overcome o r c i r c u m v e n t e d ,
t h e r e s u l t w i l l be a s i g n i f i c a n t i n c r e a s e i n t h e AFDC c a s e l o a d s i z e .
T h i s i n c r e a s e can c a u s e a change i n t h e AFDC employment r a t e which

45

s h o u l d be e m p i r i c a l l y i s o l a t e d from t h e p r im ar y e f f e c t o f t h e i n c e n t i v e
d e s c r i b e d above.

I f t h e b a r r i e r s t o e n t r y c a n n o t be overcome, a

serious question o f equity is ra is e d .

F a m i l i e s on w e l f a r e a r e c l e a r l y

t r e a t e d b e t t e r t h a n t h o s e which a r e n o t on w e l f a r e . ^

Summary
Under t h e work i n c e n t i v e , an employed AFDC m o t h er su pplements
h e r AFDC g r a n t by a b o u t o n e - t h i r d o f h e r g r o s s e a r n i n g s .

Thi s i s

e x p e c t e d t o have some p o s i t i v e e f f e c t s on AFDC employment g e n e r a l l y ,
which a r e c a l l e d p r i m a r y e f f e c t s i n t h i s s t u d y .
At t h e same t i m e , t h e i n c e n t i v e r a i s e s t h e maximum a l l o w a b l e
e a r n i n g s f o r AFDC m o t h e r s .

T h i s , t o g e t h e r w i t h t h e h ig h f i n a n c i a l

c o s t of v o l u n t a r i l y leaving w e l f a r e , i s expected to decrease the
number o f f a m i l i e s l e a v i n g AFDC f o r employment r e l a t e d r e a s o n s .

The

d e c r e a s e in f a m i l i e s l e a v i n g AFDC, t h e f i r s t o f two s e c o n d a r y employ­
ment e f f e c t s o f t h e i n c e n t i v e , s h o u l d be ac c o u n te d f o r i n any e m p i r i c a l
e s t i m a t i o n o f t h e employment e f f e c t s o f t h e i n c e n t i v e .
L i k e w i s e , t h e o t h e r s e c o n d a r y employment e f f e c t — t h e e x p e c t e d
i n c r e a s e i n f a m i l i e s e n t e r i n g AFDC b e c a u s e o f t h e i n c e n t i v e - - s h o u ld
be a c c o u n te d f o r i n a s t u d y o f AFDC employment.

The work i n c e n t i v e

makes w e l f a r e f i n a n c i a l l y more a t t r a c t i v e o n l y f o r t h o s e who work.
T h e r e f o r e , t h e i n c r e a s e i n new f a m i l i e s coming on AFDC, bec au se of
t h e i n c e n t i v e , s h o u l d i n c l u d e t h o s e who a r e mo st l i k e l y t o work.
T h i s w i l l a f f e c t AFDC employment r a t e s g e n e r a l l y

and s h o u ld be s t u d i e d

f o r t h e s e employment e f f e c t s .
The work i n c e n t i v e i s , t h e r e f o r e , e x p e c t e d t o i n c r e a s e AFDC employ­
ment r a t e s f o r t h r e e r e a s o n s :

i n c r e a s e d f i n a n c i a l r e t u r n from work,

d e c r e a s e d number o f f a m i l i e s l e a v i n g w e l f a r e when t h e y f i n d j o b s , and

46
an I n c r e a s e d a t t r a c t i v e n e s s o f AFDC f o r n o n - w e l f a r e m o t h e r s who want
t o e n t e r AFDC and work.

The Expected E a r n i n g s E f f e c t o f t h e I n c e n t i v e
From t h e e a r l i e r a n a l y s i s i n t h i s c h a p t e r i t i s e v i d e n t t h a t
h i g h e r e a r n i n g s l e v e l s a r e p o s s i b l e f o r AFDC r e c i p i e n t s u n d er t h e
work i n c e n t i v e .

T a b l e 2 . 3 showed t h a t t h e maximum p o s s i b l e e a r n i n g s

c o i n c i d e n t w i t h c o n t i n u e d AFDC e l i g i b i l i t y co u ld i n c r e a s e by o ve r
70 p e r c e n t depending on f a m i l y s i z e .

Thi s i m p l i e s t h a t some m o t h e r s ,

who would have been f o r c e d o f f w e l f a r e b ec a u se o f high e a r n i n g s p r i o r
t o t h e work i n c e n t i v e , w i l l now remain on AFDC.

Thi s w i l l c a u s e a

t e n de nc y toward h i g h e r a v e r a g e e a r n i n g s .
Our a n a l y s i s i n t h e b e g i n n in g o f t h i s c h a p t e r d e m o n s t r a t e d
t h a t i t i s u n c e r t a i n w h e t h e r p r e v i o u s l y employed AFDC m o t h e r s w i l l
s e e k a d d i t i o n a l employment u n d e r t h e i n c e n t i v e .

Thi s u n c e r t a i n t y

e x i s t s b e c a u s e t h e r e a r e oppos ing income and s u b s t i t u t i o n e f f e c t s
which p r e c l u d e t h e d e t e r m i n a t i o n o f such an a p r i o r i c o n c l u s i o n .
F u r t h e r a n a l y s i s i n d i c a t e d t h a t AFDC m ot her s who were employed p r i o r
t o th e work i n c e n t i v e w i l l s e e k employment bec a u se o f t h e i n c e n t i v e .
We, however, d e t e r m i n e how much t h e y w i l l e a r n .
The work i n c e n t i v e exempts t h e f i r s t f o r t y - e i g h t d o l l a r s o f
monthly e a r n i n g s from a l l w e l f a r e t a x .

14

T h e re fo re , i t provides the

g r e a t e s t f i n a n c i a l r e t u r n ( p e r h o u r worked) f o r p a r t - t i m e employment.
I f i t does en co u r a g e more work f o r low e a r n i n g s , t h e a v e r a g e AFDC
e a r n i n g s w i l l te n d t o f a l l .

At t h e same t i m e , h i g h e r p o t e n t i a l

e a r n i n g s a r e p o s s i b l e w h i l e on AFDC which w i l l t e n d t o i n c r e a s e a v e r a g e
AFDC e a r n i n g s .

Thes e o pp os in g f o r c e s , p l u s t h e e x p e c t e d e f f e c t o f

t h e i n c e n t i v e t o e n c o u r a g e more employed pe rs o n s t o e n t e r AFDC a t

47

unknown e a r n i n g s l e v e l s , l e a v e t h e n e t e x p e c t e d e f f e c t on e a r n i n g s
i n an ambiguous s t a t e .

T h e r e f o r e , t h e changes i n e a r n i n g s caus ed

by t h e i n c e n t i v e w i l l have t o be e s t i m a t e d e m p i r i c a l l y w i t h o u t t h e
a i d o f unambiguous t h e o r e t i c a l c o n c l u s i o n s .

An A n a l y s i s o f t h e E xp ec ted B e n e f i t s
o r Costs o f t h e I n c e n t i v e
t o t h e Taxpayers
What i m p l i c a t i o n s does t h e o p e r a t i o n o f t h e work i n c e n t i v e have
f o r the non-welfare taxpayer?

(Since w e lfa re r e c i p i e n t s are l i k e l y

t o pay some form o f t a x e s , t h e te rm n o n - w e l f a r e t a x p a y e r i s u se d in
preference to taxpayer.)

I f o n l y t h e narrow c o n t e x t o f f i n a n c i a l

g a i n o r c o s t i s c o n s i d e r e d , t h e n any r e d u c t i o n i n t h e w e l f a r e g r a n t
g i v e n t o t h e r e c i p i e n t can be viewed as a g a i n t o t h e n o n - w e l f a r e
taxpayer.

In a d d i t i o n , t h e s t a t e and f e d e r a l income t a x e s p a i d by

t h e working r e c i p i e n t can be viewed as a g a i n t o t h a t t a x p a y e r .
On t h e c o s t s i d e , i f a f o r m e r l y unemployed AFDC mot her o b t a i n s
a j o b o u t s i d e t h e home, t h e s t a t e - - a s we have n ot e d a b o v e — w i l l
assume t h e c o s t s o f c h i l d c a r e up t o e s t a b l i s h e d maximum amounts.
T h i s , o f c o u r s e , r e p r e s e n t s an a d d i t i o n a l c o s t t o t h e n o n - w e l f a r e
taxpayer.

These c h i l d c a r e c o s t s n a t u r a l l y v a r y w i t h t h e number o f

young c h i l d r e n i n t h e f a m i l y .

The n o n - w e l f a r e t a x p a y e r c o s t i s

t h e r e f o r e e x p e c t e d t o be g r e a t e r i f t h e AFDC m o t h e r s , who work b e c a u s e
o f t h e work i n c e n t i v e , head f a m i l i e s which a r e l a r g e r and y o u n g e r .
So i n terms o f o u r narrow d e f i n i t i o n o f c o s t s and b e n e f i t s ,
t h e r e i s a n e t f i n a n c i a l b e n e f i t t o n o n - w e l f a r e t a x p a y e r s when an
AFDC r e c i p i e n t f i n d s a j o b i f t h e r e d u c t i o n i n t h e AFDC g r a n t , p l u s
h e r s t a t e and f e d e r a l income t a x e s , minus t h e added c h i l d c a r e c o s t s ,
is positive.

The e s t i m a t e d c o s t s o r b e n e f i t s t o t h e n o n - w e l f a r e

48

t a x p a y e r o f AFDC employment f o r t h r e e e a r n i n g s l e v e l s i s shown i n
Table 2 . 6 .
Altho ug h t h e f i g u r e s i n t h e t a b l e a r e o n ly i l l u s t r a t i v e , th e y
do g i v e a g e n e r a l i d e a o f t h e incomes which Michigan AFDC f a m i l i e s
mu st e a r n b e f o r e t h e c o s t o f a g i v e n AFDC ca s e t o t h e n o n - w e l f a r e
t a x p a y e r becomes lower th a n i t would be i f t h e r e c i p i e n t were n o t
w o rk in g.

I t i s d o u b t f u l t h a t many r e c i p i e n t s c u r r e n t l y on AFDC can

o b t a i n employment w i t h e a r n i n g s a t o r above t h e amounts n e c e s s a r y
to provide a n e t gain t o the ta xpayer.
in t h e e m p i r i c a l s e c t i o n o f t h i s p a p e r .

Th is w i l l be e x p l a i n e d f u r t h e r
Even i f a n e t n o n - w e l f a r e

t a x p a y e r g a i n was found by t h e above measurement p r o c e s s , i t does
n o t n e c e s s a r i l y mean t h a t t h e r e was an a c t u a l g a i n .

A com ple te e s t i m a t e

o f b e n e f i t s o r c o s t s mu st i n c l u d e t h e e x p e c t e d e f f e c t s o f t h e i n c e n t i v e
i n i n c r e a s i n g AFDC c a s e op en in gs and d e c r e a s i n g ca s e c l o s i n g s .

This

is im possible to estim ate a p r i o r i ; t h e r e f o r e , estim a tes of b e n e f i ts
o r c o s t s f o r a l l employed r e c i p i e n t s — w h e th e r o r n o t th e y a r e on
AFDC b e c a u s e o f t h e work i n c e n t i v e — i s t h e b e s t t h a t can be done
w ithout em pirical evidence.
A n e t s h o r t - r u n f i n a n c i a l c o s t o f AFDC employment does n o t
p r e c l u d e a l o n g - r u n g a i n f o r t h e n o n - w e l f a r e t a x p a y e r ; however, v e r y
l i t t l e i s known a b o u t t h e l o n g - r u n g a i n .

N e v e r t h e l e s s , we c a n n o t

e x c l u d e t h e p o s s i b i l i t y t h a t t h e e f f e c t s o f h i g h e r incomes and
employment on AFDC m ot her s and t h e i r c h i l d r e n may s i g n i f i c a n t l y
i n c r e a s e t h e p r o b a b i l i t y t h a t AFDC c h i l d r e n w i l l grow up t o become
economically s e l f - s u f f i c i e n t .
The added p o i n t can be made t h a t an i n c r e a s e in s h o r t - r u n f i n a n ­
c i a l c o s t r e p r e s e n t s a g a i n f o r t h e AFDC f a m i l i e s .

I t should,

49

Table 2.6
Non-Welfare Taxpayer Gain from AFDC Employment3
(Monthly Figures)

$100

$300

$500

+22

+105

+182

0

+28

+68

Child care costs (1 child)

-80

-80

0

Taxpayer net gain (or cost if negative)

-58

+ 53

Earnings

Family with one child receiving child care
Grant reduction*3
c
Estimated State and Federal taxes paid

+250d

Family with two children receiving child care
+22

+105

+188

0

0

+44

-120

-120

-120

-98

-15

+112

+22

+105

+188

0

0

+24

Child care costs (3 children)

-160

-160

-160

Taxpayer net gain (or cost if negative)

-138

-55

+52

Grant reduction
Estimated State and Federal taxes paid
Child care costs (2 children)
Taxpayer net gain (or cost if negative)

Family with three children receiving child care
Grant reduction
Estimated State and Federal taxes paid

a Grant reductions are calculated using the work expense figure of 25%
of gross earnings.
Child care costs are estimated from Michigan pay­
ment schedule at $80 for the first child and $40 for each added child.
k Grant reduction equals all gross income minus $20+1/3 income plus
work expenses or for earnings of 300: 300-[20+1/3($300)+$75]=$105.
c

Estimates were based on the appropriate State and Federal tax
regulations for 1970.

d Under our work expense assumptions, a family of two with earnings
of $500 per month is ineligible for AFDC. We thus assume the
non-welfare taxpayer net gain to be equal to the basic non-work
AFDC grant, shown in Table 2.3 to equal $182, plus the State and
Federal taxes paid by the former client.

50

t h e r e f o r e , be emphasized h e r e t h a t a h i g h e r w e l f a r e c o s t may n o t be an
im p r op er o b j e c t i v e b e c a u s e i t may o b t a i n a b e t t e r q u a l i t y o f l i f e f o r
t h o s e on w e l f a r e .

Summary
The AFDC r e c i p i e n t s r e c e i v e a n e t g a i n from work o f t h i r t y
d o l l a r s plus o n e - th ir d o f e a rn in g s.

Work e x p en s es a r e n o t a c o n s i d e r a ­

t i o n t o t h e r e c i p i e n t once sh e has e a r n e d s u f f i c i e n t income t o pay any
w elfare tax .

Work e x p e n s e s , however, a r e d e du ct ed from t h e w e l f a r e t a x .

C o n s i d e r i n g t h i s d e d u c t i o n , we f i n d t h a t i t t a k e s a ve ry h ig h l e v e l o f
e a r n i n g s b e f o r e t h e w e l f a r e t a x e q u a l s t h e AFDC g r a n t and t h e f a m i l y
becomes i n e l i g i b l e f o r AFDC.

T h is , to g e th e r with th e f a c t t h a t fa m i li e s

which l e a v e w e l f a r e l o s e t h e i r AFDC g r a n t and most Medica id and Food
Stamp b e n e f i t s , s u g g e s t s t h a t t h e AFDC c a s e l o a d w i l l p r o b a b l y i n c r e a s e
as a r e s u l t o f t h e i n c e n t i v e .

The improved f i n a n c i a l a l t e r n a t i v e s which

t h e i n c e n t i v e make a v a i l a b l e o n ly f o r t h e AFDC f a m i l y w i l l a l s o te n d to
i n c r e a s e t h e AFDC c a s e l o a d .

Thi s means t h a t we s h o u l d a t t e m p t n o t o n l y

t o i s o l a t e t h e t o t a l e f f e c t o f t h e work i n c e n t i v e on AFDC employment
r a t e s b u t a l s o t o j u d g e t h e employment e f f e c t s o f t h e i n c r e a s e d c a s e ­
l o a d ca u se d by t h e i n c e n t i v e .
We drew no c o n c l u s i o n s a b o u t t h e e f f e c t o f t h e work i n c e n t i v e on
a v e r a g e AFDC e a r n i n g s l e v e l s .

We d e m o n s t r a t e d t h a t more r e c i p i e n t s were

e x p e c t e d t o e a r n i n t h e low and high e a r n i n g s c a t e g o r i e s , b u t n o t h i n g
c o u l d be s a i d a b o u t changes i n a v e r a g e e a r n i n g s .

I t was shown t h a t high

e a r n i n g s a r e r e q u i r e d b e f o r e t h e w e l f a r e c o s t s o f employed AFDC f a m i l i e s
can f a l l i f t h o s e f a m i l i e s r e c e i v e c h i l d c a r e payments.
The f o r e g o i n g r a i s e s some i s s u e s f o r o u r e m p i r i c a l i n v e s t i g a t i o n .
We have found two p o s s i b l e ways i n which employment may be c au s ed by a

51
work i n c e n t i v e p l a n :

(1) r e t a i n i n g employed mot hers on AFDC when t h e y

o t h e r w i s e would have l e f t ; arid (2 ) e n c o u r a g i n g wor king mo th ers who were
n o t on w e l f a r e t o e n t e r t h e AFDC program.

In o r d e r t o d e t e r m i n e t h e

e f f e c t o f t h e f i r s t p o i n t , we must s t u d y e a r n i n g s d a t a ; f o r t h e s e c o n d ,
we must s t u d y new c a s e o p e n i n g s .
F u r t h e r m o re , e a r n i n g s d a t a s h o u ld be s t u d i e d t o j u d g e t h e e f f e c t
o f t h e i n c e n t i v e on i n c r e a s i n g e x i s t i n g e a r n i n g s o r s t i m u l a t i n g low
earnings.

I n t e r p r e t i n g t h e meaning o f changes i n a v e r a g e e a r n i n g s can

be d i f f i c u l t b e c a u s e t h e i n c e n t i v e ' s z e r o w e l f a r e t a x on low e a r n i n g s
may en co u r a g e p e r s o n s t o keep e a r n i n g s low.

At t h e same t i m e , i t e n ­

c o u r a g e s high e a r n i n g s , by k e e p i n g working mothers on w e l f a r e .

The

change i n a v e r a g e e a r n i n g s r e p r e s e n t s t h e n e t r e s u l t o f t h e s e o f f s e t t i n g
forces.
Our e m p i r i c a l a n a l y s i s o f t h e i n c e n t i v e ' s e f f e c t s on w e l f a r e c o s t s
must i n c l u d e n o t o n l y e a r n i n g s and t h e w e l f a r e t a x b u t work ex p e n s e s and
c h i l d c a r e e x p e n d i t u r e s as w e l l .

FOOTNOTES

^ C l e a r l y m ot her s work even when t h e y do n o t work
The m i s c o n c e p t i o n t h a t mo th ers who a r e n o t employed i n
s e c t o r o f t h e economy, a r e l y i n g around do in g n o t h i n g ,
t h e r e a s o n s f o r t h e h o s t i l i t y d i r e c t e d toward t h e AFDC

f o r wages.
t h e wage
i s one o f
program.

^SRS Program R e g u l a t i o n 2 0 - 7 , Department o f H e a l t h , E d u c a t i o n ,
and W e l f a r e , S o c i a l and R e h a b i l i t a t i o n S e r v i c e , Washington, D.C. ,
J a n u a r y 29 , 1969.
^Denote e a r n i n g s by Y, work e x p en s es by E, t h e g r o s s AFDC
t a x by T, and t h e g r a n t r e d u c t i o n by R. The g r a n t r e d u c t i o n i s
R=T-E. The g r o s s t a x i s 67 p e r c e n t o f a l l e a r n i n g s i n e x c e s s o f
$30 mon th ly; i . e . , T = . 6 7 (Y - 3 0 ) .
I f B re p re s e n ts the c l i e n t ' s
f i n a n c i a l g a i n , t h e n , as shown ab ov e, B = Y - R - E. S in c e R = T - E,
t h i s becomes B = Y - ( T - E ) - E = Y - T .
S in c e T = .6 7 (Y - 3 0 ) ,
we have B = Y - . 6 7 (Y - 30) = .33Y + 20. T h a t i s , t h e c l i e n t ' s
f i n a n c i a l g a i n e q u a l s $20 p l u s o n e - t h i r d o f g r o s s e a r n i n g s .
^The a c t u a l c u t o f f p o i n t i s $4 p e r month b u t assumed t o be
zero fo r sim p licity .
^The r e s u l t s o f a r e g r e s s i o n e q u a t i o n e x p r e s s i n g work ex p en se s
a s a f u n c t i o n o f e a r n i n g s i s $7.8 7 + .232Y where Y i s g r o s s monthly
e a r n i n g s . The Rz = . 4 6 4 , and t h e s t a n d a r d e r r o r o f t h e c o e f f i c i e n t
o f Y i s .0 0 7 . This e q u a t i o n does n o t a c c o u n t f o r d i f f e r e n c e s in
work e x p e n s e s between f a m i l y s i z e s which i s q u i t e l i k e l y due t o
d i f f e r e n c e s i n t a x e s p a i d . The r e a s o n 25 p e r c e n t o f e a r n i n g s was
used r a t h e r th a n t h e above e q u a t i o n i s b ec a u se i t was f e l t t h a t t h e
r e g r e s s i o n has a downward b i a s f o r l a r g e r e a r n i n g s where t h e most
a c c u r a t e e s t i m a t e o f work e x pe ns es i s r e q u i r e d f o r p u r p o s es o f
c a l c u l a t i n g t h e br eak ev en e a r n i n g l e v e l . The 25 p e r c e n t f i g u r e i s
s i m p l e r t o us e and g i v e s a c o n s e r v a t i v e e s t i m a t e o f work e x pe ns es
as a p o rtio n o f e a rn in g s.
^ h e S t a t e o f Michigan imposed a maximum o f $40 on e a r n i n g s
exempted f o r work exp en s es i n Sept em ber , 1970.
^The Food Stamp program o p e r a t e d o n ly
i n Michigan. The Food Stamp program was i n
Michigan c o u n t i e s by t h e end o f f i s c a l 1969
end o f 1970, All c o u n t i e s had Medicaid and
c o s t s up t o a maximum amount p e r c h i l d .

in s e l e c t e d c o u n t i e s
o p e r a t i o n in 45 o f 83
and 63 o f 83 by t h e
paid f o r c h ild c a re

% o r exam ple, Medicaid c o v e r a g e i s c l a s s i f i e d i n t o two g r o u p s .
Groups I c o v e r a g e i s f o r p e r s o n s who r e c e i v e a money g r a n t u n d er
one o f t h e c a t e g o r i c a l a i d programs such as AFDC. Group I I c o v e r a g e
i s f o r t h o s e p e rs o n s who f o r some r e a s o n a r e n o t e l i g i b l e f o r a
c a t e g o r i c a l a s s i s t a n c e program b u t have l a r g e enough medical b i l l s
t o r e d u c e t h e i r n e t income below some p r e d e t e r m i n e d l e v e l . A ma jor
d i f f e r e n c e between t h e groups i s t h e c o m pr e he n s iv en es s o f t h e c o v e r a g e
52

53

provided.
I n - p a t i e n t h o s p i t a l s e r v i c e s , s k i l l e d n u r s i n g home
s e r v i c e s , home h e a l t h s e r v i c e s , emergency t r e a t m e n t , t r a n s p o r t a t i o n ,
and p h y s i c a l t h e r a p y s e r v i c e s a r e i d e n t i c a l f o r b o th g r o u p s . However,
Group I c o v e r a g e i s b r o a d e r i n t h e a r e a s o f o u t p a t i e n t h o s p i t a l
s e r v i c e s , p h y s i c i a n s ' s e r v i c e s and p h a r m a c e u t i c a l s e r v i c e s .
In
a d d i t i o n , f a m i l y p l a n n i n g s e r v i c e s a r e a v a i l a b l e o n ly t o Group I
members. Thus, w h i l e t h e non-AFDC f a m i l y may be e l i g i b l e f o r Group
I I b e n e f i t s , t h e Group I b e n e f i t s u n d e r AFDC a r e , p o t e n t i a l l y
a t l e a s t , of g re a te r value.
^The a v e r a g e Medicaid e x p e n d i t u r e f o r AFDC f a m i l i e s was a b o u t
$50 p e r month i n 1970.
^ T h e s e f i g u r e s a r e ba se d on t h e Michigan c o s t e x p e r i e n c e s f o r
day c a r e and Food Stamp bonus f o r F e b r u a r y , 1970.
^ L e o n a r d Hausman, " P o t e n t i a l f o r F i n a n c i a l S e l f - S u p p o r t
Among AFDC and AFDC-UP R e c i p i e n t s , " S o ut h er n Economic J o u r n a l ( J u l y ,
19 6 9) , 60- 66.
l^ O v er o n e - t h i r d o f t h o s e h a vi ng AFDC p r i o r t o J u l y , 1969,
l e f t bec a u se o f employment w h i l e a b o u t 23 p e r c e n t o f t h o s e l e a v i n g
between J u l y , 1969 and J u l y , 1970, l e f t f o r t h e same r e a s o n . Unles s
t h e s e p e r s o n s d i d n o t know t h e f i n a n c i a l l o s s which t h e y i n c u r r e d ,
t h i s i s s t r o n g i n d i c a t i o n o f a d i s l i k e f o r AFDC s t a t u s by many AFDC
mothers.
^ S o m e o f t h e s e i n e q u i t i e s may be p a r t i a l l y red uc e d by t h e
Family A s s i s t a n c e P la n .
14

Set
T equa l t h e
Y-[30 + 1 /3
exempt from

the w elfare
w elfare ta x ,
(Y-30) + E]
a ll w elfare

t a x eq u al t o z e r o . Let Y equa l e a r n e d income,
and E t h e work ex p en se s o f .25Y. S o l v i n g ,
= 0 , f o r Y gives the h ig h e s t gross earnings
t a x o r $48.

Chapter 3
Will t h e Work I n c e n t i v e S t i m u l a t e AFDC Employment?
A p p l i c a t i o n o f Economic Theory t o S i m p l i f i e d V e r s io n s
o f P u b l i c A s s i s t a n c e Programs
Brehm-Saving
One o f t h e f i r s t a p p l i c a t i o n s o f t h e c l a s s i c a l w o r k - 1 e i s u r e
model t o w e l f a r e i s s u e s was made' i n 1964 by Brehm and S a v i n g J

The

s u b j e c t o f t h e Brehm and Saving a r t i c l e was t h e demand f o r a s p e c i f i c
w e l f a r e program c a l l e d g e n e r a l a s s i s t a n c e pay ments.

General a s s i s t a n c e

i s a n o n c a t e g o r i c a l a s s i s t a n c e program, which means t h a t a p p l i c a n t s
do n o t have t o meet t h e same e l i g i b i l i t y r e q u i r e m e n t s a s t h e y would
f o r Aid t o t h e B l i n d , OASDI, Aid t o t h e D i s a b l e d , o r AFDC.
The Brehm-Saving p a p e r l a i d o u t t h e t h e o r e t i c a l framework f o r
t h e a n a l y s i s o f t h e e f f e c t o f w e l f a r e programs i n g e n e r a l
d e c i s i o n t o work.

on t h e

The demand f o r w e l f a r e a s s i s t a n c e was viewed as

"a s p e c i a l c a s e o f t h e demand f o r l e i s u r e .

.

and t h e a u t h o r s

dev el o pe d t h e g r a p h i c a l a n a l y s i s i n F i g u r e 3.1 i n t h i s way.
P l o t t o t a l r e a l income Y on t h e v e r t i c a l a x i s and l e i s u r e L
along the h o rizo n tal a x is.

The b u d g e t c o n s t r a i n t i s L

Ym w i t h t h e
mm

s l o p e o f t h e l i n e g i v e n by t h e c o n s t a n t r e a l wage r a t e WQ.

With t h i s

b u d g e t c o n s t r a i n t and t h e s e t o f i n d i f f e r e n c e cu rv es , t h e i n d i v i d u a l
would maximize h i s s a t i s f a c t i o n by

J ch o os in3g income Y„ ando l e i s u r e Lo

w i t h t h e amount o f work e f f o r t r e p r e s e n t e d by LQ L^.
Now c o n s i d e r a government g u a r a n t e e d minimum income l e v e l Y^
and assume t h e i n d i v i d u a l may v a l u e income from w e l f a r e d i f f e r e n t l y
54

55

.Total
r e a l Incom e

W.
L
•WORK

LEISURE

BREHM-SAVING ANALYSIS

F ig u re 3.1

L

56

from income d e r i v e d from work.

L et k be a d i s c o u n t r a t e which e q u a t e s

t h e v a l u e o f a w e l f a r e d o l l a r r e c e i v e d t o a work d o l l a r (where k ^ 1 ) .
From t h e r e c i p i e n t ' s p o i n t o f v ie w , t h e new g u a r a n t e e d income l e v e l
i s kY..
b

The new b u d g e t c o n s t r a i n t becomes LmBCYm w i t h t r i a n g l e L„BC
3
m
m
3
m

p r e s e n t i n g t h e s e t o f new a l t e r n a t i v e s a v a i l a b l e t o t h e i n d i v i d u a l .
Under t h e minimum income p l a n , kY^ income can be o b t a i n e d w i t h z e r o
work a t p o i n t B.

Brehm and Saving assume t h a t i f t h e c l i e n t works

t h e g o v e r n m e n t ' s income s u p p o r t i s r e d u c e d on a d o l l a r - f o r - d o l l a r
2
b a s is with e a rn in g s.
Li ne BC has a s l o p e g r e a t e r t h a n z e r o , however,
b e c a u s e , i n t h e Brehm-Saving a n a l y s i s , t h e w e l f a r e d o l l a r s l o s t a r e
t o be d i s c o u n t e d , K < 1 , by t h e w e l f a r e r e c i p i e n t .

The r e a l income

o f t h e r e c i p i e n t , t h e r e f o r e , goes up by WQ (1 - k) f o r each ho u r
worked o r by t h e added v a l u e a t t a c h e d t o e a r n i n g s .
Brehm-Saving c o n c l u d e t h e f o l l o w i n g from t h e i r a n a l y s i s .

F irst,

t h e income m a in te n a n c e p l a n c a n n o t i n j u r e t h e w e l f a r e o f t h e p o t e n t i a l
recipient.

The p o t e n t i a l r e c i p i e n t c a n n o t be wor se o f f un d er t h e

income m a in te n a n c e p l a n b e c a u s e l i n e Ym L„ i s s t i l l
r
mm
l i n e LmBC i s a new p o s s i b i l i t y .

a t ta in a b le while

Second, t h e e f f e c t o f t h e w e l f a r e

program on work i s z e r o u n l e s s l i n e BC i s t a n g e n t t o a h i g h e r i n d i f ­
f e r e n c e c u r v e t h a n a t t a i n a b l e w i t h o u t t h e w e l f a r e program.

The h i g h e r

t h e income f l o o r ( h i g h e r p o i n t B) t h e more l i k e l y a p e r s o n w i l l
i n c r e a s e h i s consumption o f l e i s u r e .

T h i r d , as w e l f a r e payments a r e

d i s c o u n t e d a g r e a t e r amount ( s m a l l e r k ) ,

few er

p e r s o n s w i l l change

t h e i r work b e h a v i o r due t o t h e e x i s t e n c e o f a g i v e n w e l f a r e program.
T h a t i s , i n d i v i d u a l s d i s p l a y a r e l u c t a n c e t o becoming a w e l f a r e
recipient.

F o u r t h , t h e lo w er t h e wage r a t e Wq , t h e g r e a t e r t h e

p r o b a b i l i t y t h a t a c e r t a i n l e v e l o f income m a in te n a n c e w i l l d e c r e a s e

57

a p e r s o n ' s work e f f o r t .
The Brehm-Saving a n a l y s i s d i d n o t deal w it h t h e q u e s t i o n o f
how d i f f e r e n t w e l f a r e t a x e s a f f e c t n e t e a r n i n g s , n o r w i t h t h e i n s t i ­
t u t i o n a l f a c t o r s which a f f e c t work e f f o r t .

I t d i d , however, p r e s e n t

t h e economic r a t i o n a l e b e h i n d some s t r a i g h t for wa rd c o n c l u s i o n s on
t ’se e f f e c t o f w e l f a r e payment on work e f f o r t .
C h r i s t o p h e r Green and Michael Boskin expanded t h e a p p l i c a t i o n
o f t h e w o r k - l e i s u r e a n a l y s i s t o c o v e r w e l f a r e t a x e s and i n s t i t u t i o n a l
f a c t o r s i n s e p a r a t e a r t i c l e s on t h e s u b j e c t o f n e g a t i v e income t a x e s .

3

P a r t s o f G r e e n ' s and B o s k i n ' s a n a l y s e s a r e a l m o s t i d e n t i c a l , and we w i l l
d i s c u s s them by r e f e r e n c e t o G r e e n ' s work.

B oskin's a d d i tio n a l ideas

are included s e p a r a te ly .
Green
Green b e g i n s h i s a n a l y s i s w i t h a method t h a t i s s i m i l a r to
Brehm and S a v i n g .

T o t a l income i s p l a c e d on t h e v e r t i c a l a x i s and

t i m e on t h e h o r i z o n t a l a x i s .

The n o n - w e l f a r e bu d g et c o n s t r a i n t i s

Si/ m w i t h t h e s l o p e o f t h e l i n e g i v e n by a c o n s t a n t r e a l wage r a t e WQ.
He t h e n adds a government s u b s i d y o f OY^.

At z e r o w o r k , t h e p er s o n i s

a t p o i n t D w i t h t o t a l income equal t o t h e government s u b s i d y .
p e r s o n w or k s, he g a i n s i n t o t a l money income al o ng BD.

As th e

The d i f f e r e n t

d e t e r m i n a t e s o f t h e s l o p e o f BD v e r s u s t h e s l o p e o f BC i n t h e BrehmS avi ng a r t i c l e i n d i c a t e

one i m p o r t a n t d i f f e r e n c e between t h e a r t i c l e s .

The s l o p e o f BD i s d e t e r m i n e d i n p a r t by t h e wage r a t e , in a f a s h i o n
which i s s i m i l a r t o t h e Brehm-Saving a n a l y s i s ; however, i t i s a l s o
d e t e r m i n e d by t h e g o v e r n m e n t ' s m a rg i n a l w e l f a r e ta x on e a r n i n g s . ^

The

s l o p e o f BC i n t h e Brehm-Saving p a p e r , on t h e o t h e r h a n d , was d e t e r m in e d
by t h e wage r a t e and t h e r a t e o f d i s c o u n t which a w e l f a r e r e c i p i e n t

58

"Tbtal In co m e

L L
•WORK

LEISURE

GREEN'S ANALYSIS

F ig u re 3.2

59

a p p l i e s t o income r e c e i v e d from w e l f a r e .

Green goes i n t o a more

d e t a i l e d a n a l y s i s t h a n Br ehm-Saving, e x p l i c i t l y d i s c u s s i n g t h e p r e s e n c e
o f income and s u b s t i t u t i o n e f f e c t s .
Green c a l l s t h e income e f f e c t o f t h e i n c r e a s e d non-work g r a n t
t h e "lump sum income e f f e c t . "

P a r t o f t h e h i g h e r income w i l l be u se d

t o p u r c h a s e l e i s u r e , i f l e i s u r e i s a normal good.

The i n c r e a s e d

non-work g r a n t s h o u l d , t h e r e f o r e , t e n d t o d e c r e a s e work e f f o r t .
S i n c e t h e w e l f a r e programs n o t o n ly p r o v i d e a non-work g r a n t
b u t p l a c e a w e l f a r e t a x on e a r n i n g s as w e l l , t h e p r i c e o f l e i s u r e
t h o s e on w e l f a r e f a l l s .

for

The t a x , t h e n , i s a f o r c e l e a d i n g toward

t h e g r e a t e r consumption o f c h e a p e r l e i s u r e .

In o t h e r w o r d s, t h e w e l f a r e

t a x has a s u b s t i t u t i o n e f f e c t which l e a d s t o i n c r e a s e d consumption o f
leisure.

Th us , b o th t h e lump sum income e f f e c t and t h e s u b s t i t u t i o n

e f f e c t o p e r a t e t o d e c r e a s e work e f f o r t .

The w e l f a r e t a x , t h o u g h ,

lo w er s t h e n e t income from any g iv e n work e f f o r t below what i t would
be w i t h o u t t h e t a x

and t h e r e f o r e

has an a d d i t i o n a l income e f f e c t .

Green c a l l s t h i s a " p u r e income e f f e c t . "

The pu re income e f f e c t has

a p o s i t i v e im p ac t on work b e c a u s e , as income f a l l s , t h e r e w i l l be a
r e du ce d consumption o f a l l normal g o o d s , and t h e r e f o r e , some l e i s u r e
w i l l be s a c r i f i c e d i n o r d e r t o i n c r e a s e e a r n i n g s toward t h e p r e - w e l f a r e
tax le v e l.

Thi s w e l f a r e t a x c o u l d be viewed s im pl y as a r e d u c t i o n i n

the s iz e of

t h e lump sum income e f f e c t .

G r e e n ' s i n d i f f e r e n c e map a n a l y s i s p r e s e n t s some a d d i t i o n a l
i n s i g h t s i n t o t h e d e c i s i o n t o work unde r a w e l f a r e program.
initial

I f the

( p r e - w e l f a r e program) e q u i l i b r i u m i n d i f f e r e n c e c u r v e / b u d g e t -

l i n e ta n g e n c y p o i n t i s above p o i n t D, and i f an i n d i f f e r e n c e c u r v e
does n o t c u t DB a t a l l , t h e r e w i l l be no change i n b e h a v i o r .

This

60

p o i n t i s made by Brehm and S avi ng a l s o .

I f , however, an i n d i f f e r e n c e

c u r v e c u t s DB from ab ove , work e f f o r t w i l l f a l l so even t h o s e p e r s o n s
w i t h e a r n i n g s h i g h e r t h a n , o r even a t , p o i n t B may r e d u c e t h e i r work
due t o t h e income s u p p le m e n t.

Th is i s i m p o r t a n t b e c a u s e i t shows

t h a t a p u b l i c a s s i s t a n c e program w i t h l e s s th a n a 100 p e r c e n t t a x
on e a r n i n g s w i l l a f f e c t t h e amount o f work done by p e r s o n s even though
t h e y have e a r n i n g s i n e x c e s s o f t h e a s s i s t a n c e l e v e l .
Green and Boskin b o th r a i s e t h e p o s s i b i l i t y o f an i n c r e a s e d
work e f f o r t due t o a w e l f a r e program which i n c l u d e s a lump sum w e l f a r e
g r a n t w i t h l e s s th a n a 100 p e r c e n t w e l f a r e t a x on e a r n i n g s .

Green

s u g g e s t s two r e a s o n s why work may i n c r e a s e i n a s t a t i c a n a l y s i s .
l e i s u r e may be an i n f e r i o r good.

Th is i s r e a s o n a b l e f o r a p e r s o n who

has a g r e a t d e a l o f l e i s u r e f o r which he c a n n o t f i n d an
use.

F irst,

interesting

Green a l s o s u g g e s t s t h a t t o t h e e x t e n t t h a t p e o p l e d i s c o u n t

w e l f a r e payments (Brehm and S a v i n g ' s k f a c t o r ) t h e lump sum income
e f f e c t becomes l e s s .

In t h e e x t r e m e , he s u g g e s t s t h a t i f o n ly t h e

wage r a t e i s t a k e n i n t o a c c o u n t by t h e p e r s o n (k must = 0 ) :
. . . th e n t h e lump sum income e f f e c t o f a n e g a t i v e income t a x p la n
v a n i s h e s and t h e consumer u n i t r e a c t s s o l e l y t o t h e t a x r a t e p a r t
o f the plan.
In t h e s e c i r c u m s t a n c e s , w h e t h e r t h e consumer u n i t
i n c r e a s e s o r d e c r e a s e s i t s work e f f o r t depends on t h e r e l a t i v e
w e i g h t s o f t h e s u b s t i t u t i o n and " p u r e " income e f f e c t s produ ced by
the negative tax r a t e . 5
But why t h e r e s h o u l d be any income o r s u b s t i t u t i o n e f f e c t s a t
a l l i s q u e s t i o n a b l e un de r G r e e n ' s a s s u m p t i o n s .

The amount o f Y^,

t h e government a i d , i s t h e o n l y t h i n g a f f e c t e d by t h e w e l f a r e t a x r a t e
i n r e a l w o rl d w e l f a r e programs ( s e e C h a p t e r 2 ) .

The w e l f a r e t a x i s

a p p l i e d a g a i n s t t h e government g r a n t and n o t e a r n i n g s d i r e c t l y .

Since

un d er t h e k = 0 as s u m p ti o n t h e v a l u e o f Y^ i s d i s c o u n t e d t o z e r o , a
change i n t h e t a x which a f f e c t s o n l y Y^ s h o u l d have z e r o e f f e c t on

work e f f o r t .

In t h i s ex tre me s i t u a t i o n , where t h e l o s s o r g a i n o f

income from t h e government means n o t h i n g

and t h e wage r a t e WQ i s

t h e o n l y t h i n g t h a t m a t t e r s i n t h e work d e c i s i o n , we simp ly have a
s i t u a t i o n where a p e r s o n does n o t c a r e a b o u t w e l f a r e paym ent s; so
n a t u r a l l y , h i s work d e c i s i o n would be b a s e d on t h e wage r a t e o n l y .
Green i s c o r r e c t t h a t as k f a l l s t h e lump sum income e f f e c t f a l l s .
But i n a d d i t i o n , b e c a u s e t h e w e l f a r e t a x i s a p p l i e d a g a i n s t t h e
w e l f a r e g r a n t , t h e p u r e income e f f e c t f a l l s as k f a l l s b e c a u s e t h e
v a l u e o f t h e income g a i n e d o r l o s t d e c r e a s e s .

S im ilarly, the s u b s t i ­

t u t i o n e f f e c t , ca u se d by changes i n t h e e f f e c t i v e wage r a t e s v i a t h e
welfare ta x , also decreases.

Th is i m p l i e s t h a t work i n c e n t i v e s

which a f f e c t g r a n t s i z e s a r e l e s s l i k e l y t o change hours o f employment
f o r t h o s e p e r s o n s on w e l f a r e who have a s t r o n g e r d i s l i k e o f w e l f a r e
dollars.

C o n v e r s e l y , i t w i l l have t h e g r e a t e s t p o t e n t i a l e f f e c t

on t h o s e p e r s o n s who l i k e w e l f a r e .

Th is u n d e r s c o r e s t h e e a r l i e r s t a t e ­

ment i n C h a p t e r 2 t h a t t h e i n c e n t i v e may en co u ra g e p e o p l e t o work
b u t t h a t th e y may rema in on w e l f a r e r e g a r d l e s s .

The above a n a l y s i s

s u g g e s t s t h a t t h o s e who may be a f f e c t e d most by t h e i n c e n t i v e may a l s o
be t h o s e most i n t e r e s t e d i n re m a in in g on w e l f a r e .
Boskin
B o s k i n ' s t r e a t m e n t o f t h e t r a d i t i o n a l economic a n a l y s i s o f
income m a in te n a n c e programs and work e f f o r t i s s i m i l a r t o G r e e n ' s .
His r e a l c o n t r i b u t i o n t o t h e t h e o r e t i c a l problems o f work e f f o r t
o c c u r s when he s u g g e s t s t h r e e r e a s o n s why c o n c l u s i o n s drawn from
t r a d i t i o n a l t h e o r y may be e r r o n e o u s and t h a t income m a in te n a n c e may,
i n f a c t , i n c r e a s e r a t h e r th a n d e c r e a s e work e f f o r t .

62

Boskin c a l l s t h e f i r s t r e a s o n t h e " p r o d u c t i v i t y e f f e c t . "

If

a t l e a s t p a r t o f t h e i n c r e a s e d income from an income m a in te n a n c e p la n
i s us ed f o r improved h e a l t h ( i . e . , b e t t e r d i e t s ) , t h i s may i n c r e a s e
productivity.

I f p r o d u c t i v i t y i n c r e a s e s , i t w i l l be r e f l e c t e d i n an

i n c r e a s e d wage r a t e and a new b u d g e t c o n s t r a i n t .

Th is i n c r e a s e d wage

r a t e i n c r e a s e s t h e c o s t o f l e i s u r e an d , t h e r e f o r e , g e n e r a t e s a s u b ­
s t i t u t i o n e f f e c t f a v o r i n g work.

Thi s new f o r c e

may be s u f f i c i e n t l y

l a r g e t o l e a d t o a n e t i n c r e a s e i n work e f f o r t .
Boskin c a l l s t h e second r e a s o n f o r a p o s s i b l e i n c r e a s e i n
t o t a l work e f f o r t b e c a u s e o f a n e g a t i v e t a x t h e " r e s t r i c t e d a c t i v i t y
effect."

A p e r s o n may work l e s s th a n he wants t o b e ca u se o f poor

h e a lth ; i . e . , his actual preference s e t is biased in favor o f le is u r e .
I f t h i s i s t h e c a s e , t h e added income from t h e n e g a t i v e t a x may improve
h e a l t h and remove t h i s r e s t r i c t i o n ( o r a l t e r h i s p r e f e r e n c e s e t
from l e i s u r e ) .

away

The n e t e f f e c t may, once a g a i n , l e a d t o an i n c r e a s e d

work e f f o r t .
Boskin c a l l s t h e f i n a l r e a s o n t h e " i n v e s t m e n t e f f e c t . "

Th is

e f f e c t w i l l n o t be f e l t f o r a long p e r i o d o f ti m e b e ca us e i t depends
on t h e i n v e s t m e n t i n po o r c h i l d r e n and i t s e v e n t u a l e f f e c t on t h e i r work
effort.

The argume nt i s made by Boskin t h a t i n

timethe investm ent

w i l l pr od uce a h i g h e r t o t a l work e f f o r t .
B o s k i n ' s work r a i s e s t h e p o s s i b i l i t y t h a t a work i n c e n t i v e may
l e a d t o more work, t h e n more income, th e n even more work.
is.*

The q u e s t i o n

When me as u ri n g t h e e f f e c t o f t h e i n c e n t i v e i s one me as u ri ng t h e

i n i t i a l e f f e c t on work o r t h a t e f f e c t compounded by t h e s e c o n d a r y
e f f e c t s on h e a l t h , e t c . ?

While t h e s e s e c o n d a r y e f f e c t s a r e l i k e l y t o

be unambiguously p o s i t i v e l y c o r r e l a t e d w i t h work, t h e i r i m p a c t i n t h e

63

s h o r t run (one y e a r i n o u r s t u d y )
is

is

n o t l i k e l y t o be g r e a t and

assumed t o be i n s i g n i f i c a n t .

Summary
The t h e o r e t i c a l work done on w e l f a r e payments and work e f f o r t
has a l m o s t e x c l u s i v e l y us ed t h e t r a d i t i o n a l w o r k - l e i s u r e a n a l y s i s
ap p r o a c h .

The c o n c l u s i o n s drawn from s t a t i c t h e o r y i n d i c a t e t h a t a :

w e l f a r e program made up o f a lump sum non-work g r a n t and a p o s i t i v e
ma rg i n al w e l f a r e t a x on e a r n i n g s i s l i k e l y t o d e c r e a s e t h e t o t a l
work e f f o r t .

Ac cor din g t o t h e t h e o r y , t h e work e f f o r t i s i n v e r s e l y

r e l a t e d t o t h e non-work w e l f a r e g r a n t and t h e w e l f a r e t a x , and i s
d i r e c t l y r e l a t e d t o t h e r a t e o f d i s c o u n t on w e l f a r e payments.

None

o f t h e s e a r t i c l e s s p e c i f i c a l l y d e a l s w i t h t h e AFDC program n o r t h e
e x p e c t e d e f f e c t s o f f i n a n c i a l work i n c e n t i v e s a l o n e , b o th o f which
a r e the s u b je c t of the following s e c tio n s of t h i s study.

Budget C o n s t r a i n t s f o r AFDC Mothers B e f o r e and
A f t e r t h e Work I n c e n t i v e
The p r e f e r e n c e s e t s o f t h e AFDC mo thers a r e unknown and must be
c o n s i d e r e d as g i v e n .

An a n a l y s i s o f work b e h a v i o r can t h e n be made

u s i n g d i f f e r i n g a s s u m p ti o n s a b o u t t h e s e assumed p r e f e r e n c e s e t s .

One

i m p o r t a n t v a r i a b l e r e m a i n s ; we must e x p l a i n how w e l f a r e programs
a f f e c t employment t h r o u g h ch an gi ng t h e s h ap e o f t h e r e l e v a n t b u d g e t
lines.

The s h a p e o f t h e bu d ge t l i n e s f a c i n g an AFDC mo th er b e f o r e

and a f t e r t h e work i n c e n t i v e was s t a t e d a l g e b r a i c a l l y i n C h a p t e r 2.
In t h i s s e c t i o n o f t h e t h e s i s t h e r e l e v a n t b u d g e t l i n e s a r e p r e s e n t e d
g r a p h i c a l l y and used t o :

(1) show t h e e x p e c t e d e f f e c t s o f t h e work

i n c e n t i v e w ith v a r i o u s assumed p r e f e r e n c e s e t s ; (2) show p r e c i s e l y
how t h e work i n c e n t i v e a f f e c t s t h e b u d g e t c o n s t r a i n t s ; (3) c o n t r a s t

64

t h e a c t u a l b u d g e t c o n s t r a i n t s u n d er t h e AFDC program w i t h t h o s e assumed
i n t h e t h e o r e t i c a l d i s c u s s i o n s o f Br ehm-Saving, Gr een , and B o s k i n , which
we have d i s c u s s e d above .
F i g u r e s 3 . 3 and 3 . 4 compare t h e AFDC f a m i l y ' s b u d g e t c o n s t r a i n t s
w i t h and w i t h o u t t h e work i n c e n t i v e .
p l o t t e d along the v e r t i c a l a x is .

Income i n d o l l a r s p e r month i s

Time i n ho u rs p e r month i s p l o t t e d

a l o n g t h e h o r i z o n t a l a x i s . At p o i n t A, an i n d i v i d u a l consumes a l l a v a i l C
able time in l e i s u r e .
Moving l e f t from p o i n t A i n c r e a s e s h o u r s o f work
f o r wages.
In o r d e r t o make a n u me ric al comparison o f t h e b u d g e t c o n s t r a i n t s ,
a c e r t a i n f a m i l y s i z e has t o be s e l e c t e d .

We w i l l s e l e c t a f a m i l y o f

f o u r a s most r e p r e s e n t a t i v e o f t h e Michigan AFDC p o p u l a t i o n as a who le.
The AFDC g r a n t in Michigan f o r a f a m i l y o f f o u r was e s t i m a t e d i n Table
2 . 3 a t $261 p e r month between J u l y , 1969 and J u l y , 1970.

In a d d i t i o n ,

we e s t i m a t e $50 p e r month f o r Medicaid e x p e n d i t u r e s ^ and $46 p e r month
O

f o r an a v a i l a b l e Food Stamp bonus .

The t o t a l AFDC g r a n t p l u s income-

i n - k i n d r e p r e s e n t e d by AB i n b o th f i g u r e s 3 . 3 and 3 . 4 i s , t h e r e f o r e ,
an e s t i m a t e d $357 p e r month.
Line A J, in b o t h f i g u r e s , r e p r e s e n t s an assumed g r o s s e a r n i n g s
l i n e a t a wage r a t e o f $5 p e r h o u r .

This i s why:

Figure 3.4 dem onstrates

t h a t u n d e r t h e i n c e n t i v e t h e mot her w i l l have t o work o v e r f o r t y hou rs
p e r week t o e a r n t h e $904 p e r month n e c e s s a r y t o l e a v e AFDC w i t h o u t l o s ­
i n g money by d oi n g s o .
family s i z e s . )

(See Ta b le 2 . 4 f o r co m par abl e f i g u r e s f o r o t h e r

At lo w e r h o u r l y e a r n i n g s r a t e s , t h e number o f ho ur s o f

work f o r wages r e q u i r e d t o l e a v e w e l f a r e w i t h o u t f i n a n c i a l l o s s becomes
u n r e a l i s t i c a l l y high.
Line AI i n b o th f i g u r e s 3 . 3 and 3 . 4 shows t h e income n e t o f work

65

Dollars
p e r month
900 - i -

800

700

600

500

400
357
311

300

261

200

100

160

120

Hours of leisure
-

40
Hours w orked

100- 1

BUDGET CONSTRAINT FOR AN AFDC AND NON-AFDC
FAMILY BEFORE THE WORK INCENTIVE

Figure 3.3

H ours/M o.

66

Dollars
p e r month
900 T —

800

700

600

500

%
400
357
311

300

261

200

100

160

120

Hours of leisure

80
Hours worked

-100

BUDGET CONSTRAINTS FOR AN AFDC AND NON-AFDC
FAMILY UNDER THE WORK INCENTIVE

Figure 3.4

H ours/M o.

67

e x p en s es f o r a n o n - w e l f a r e r e c i p i e n t .

Based on e v i d e n c e p r e s e n t e d

i n C h a p t e r 2 , we assume work e x pe n s es t o be 25 p e r c e n t o f g r o s s e a r n i n g s .
Income n e t o f work e x pe n s es and c h i l d c a r e c o s t s i s shown by KF.
Line KF i s drawn w i t h an assumed c h i l d c a r e c o s t o f e i g h t y d o l l a r s
p e r month f o r one c h i l d , i r r e s p e c t i v e o f t h e number o f ho ur s worked.
The i n v a r i a n c e o f c h i l d c a r e c o s t s i s n o t c o m p l e t e l y r e a l i s t i c b u t
i s s i m p l e and does n o t d i s t o r t t h e a n a l y s i s a t t h e p o i n t s o f i n t e r e s t .
Li ne KF, t h e r e f o r e , r e p r e s e n t s a r e a s o n a b l e e s t i m a t e o f t h e bu d g et
c o n s t r a i n t , r e p r e s e n t i n g income n e t o f a l l work e x pe ns es f o r a
n o n - w e l f a r e f a m i l y o f f o u r which must pay f o r t h e c a r e o f one c h i l d .
T h i s i d e a o f income n e t o f work e x pe ns es i s p a r t i c u l a r l y i m p o r t a n t
i n o u r c o m p a r a t i v e a n a l y s i s o f employment o f mothers who a r e e i t h e r
on o r o f f w e l f a r e .

A non-working w e l f a r e m o t h e r ’s g r a n t i s t o t a l l y

a v a i l a b l e f o r t h e f a m i l y ( i g n o r i n g t h e problems w i t h i n c o m e - i n - k i n d
l i k e Medicaid) w i t h o u t any work e x p e n s e s .

T h e r e f o r e , i n o r d e r t o be

r e l e v a n t , a comparison o f t h e income o f employed mo th ers t o t h a t o f
unemployed mot hers s h o u ld be made on t h e b a s i s o f income n e t o f a l l
employment ex pe ns es (assuming no u t i l i t y i s ga i n e d from income s p e n t
on e x p e n s e s ) .
The b u d g e t c o n s t r a i n t r e p r e s e n t i n g income n e t o f e x p en s es f o r
t h e AFDC f a m i l y p r i o r t o t h e work i n c e n t i v e i s shown i n F i g u r e 3 . 3
as ABGHF.

Th is l i n e shows t h a t

as long as t h e mo th er i s on AFDC

income n e t o f work exp en s es does n o t change as e a r n i n g s r i s e . - A
b u d g e t c o n s t r a i n t drawn un d er t h e as s u m p ti o n t h a t p o s i t i v e u t i l i t y i s
g a i n e d from work exp en s es would n o t be f l a t o v e r BG b u t would s l o p e
upward r e f l e c t i n g t h e twen ty d o l l a r s p l u s most a c t u a l work exp ens es
t h a t t h e mot her keeps un de r AFDC r e g u l a t i o n s .

The f l a t l i n e used by

68
many (See Brehm-Saving, Green and Boskin e a r l i e r i n t h i s c h a p t e r )
t o show t h e 100 p e r c e n t w e l f a r e t a x i s , t h e r e f o r e , o n ly a s p e c i a l
c a s e where t h e income s p e n t on work exp en s es g i v e s no u t i l i t y t o t h e
family.
At p o i n t G o f F i g u r e 3 . 3 t h e f a m i l y i s f o r c e d o f f AFDC and t h e
n e t income o f t h e f a m i l y f a l l s t o H ( t h e "n o tc h e f f e c t " ) .

GH r e f l e c t s
g
t h e l o s s o f M ed ic a id , Food Stamp b o n u s , and t h e c h i l d c a r e c o s t s , a l l o f
which t h e mother would assume i n f u l l upon l e a v i n g AFDC.

The f a m i l y

i s f o r c e d o f f w e l f a r e a t a g r o s s e a r n i n g s o f $375 ( p o i n t L a l o n g AJ)
which i s t h e e a r n i n g s l e v e l a t which t h e AFDC g r a n t i s z e r o .
T ab l e 2 . 3 f o r com par abl e f i g u r e s f o r o t h e r f a m i l y s i z e s . )

(See

Notice

t h a t t h e mother would now have a n e t income b u d g e t c o n s t r a i n t al on g
HF.

In o r d e r t o have n e t income equa l t o t h a t o f t h e w e l f a r e m o t h e r ,

t h e n o n - w e l f a r e mother must be a t p o i n t M a l o n g HF w i t h a g r o s s
e a r n i n g s o f $610 ( s e e T a b l e 2 . 4 ) a t p o i n t N al o ng AJ.

Thi s shows

t h a t , w i t h o u t t h e work i n c e n t i v e , t h e working n o n - w e l f a r e m o t h e r ' s
e a r n i n g s must be very h ig h b e f o r e t h e n e t income f o r h e r f a m i l y i s
equal t o t h a t o f t h e non-working AFDC m o th er .
i d e a which we pr o po s ed i n C h a p t e r 2:

T h i s emphasizes an

The h ig h r a t e o f mo thers l e a v i n g

AFDC t o t a k e employment i s d e s p i t e a p r o b a b l e f i n a n c i a l l o s s .

Therefore,

e i t h e r t h e r e c i p i e n t s were i g n o r a n t o f t h e l o s s o r t h e y had a s t r o n g
d e s i r e t o be s e l f - s u p p o r t i n g .
Line ABCDEF, i n F i g u r e 3 . 4 , i s t h e a v a i l a b l e income bu dg et
c o n s t r a i n t f o r an AFDC f a m i l y w i t h t h e work i n c e n t i v e .^ 0

Segment BC

has t h e same s l o p e as A I, r e f l e c t i n g z e r o w e l f a r e t a x and work e x p e n ­
s e s o f 25 p e r c e n t o f g r o s s e a r n i n g s .
p l a i n e d by t h e f a c t t h a t t h e f i r s t

The z e r o w e l f a r e t a x i s e x ­
$48 o f e a r n i n g s ( t h e v e r t i c a l

i

69

d i s t a n c e between B and C p l u s an amount equal t o a c t u a l work ex p e n s e s )
i s exempt from w e l f a r e t a x b e c a u s e o f t h e me chanics o f t h e i n c e n t i v e
p la n .^

Between C and D t h e g a i n i n n e t income i s eq u al t o o n e -

t h i r d t h e added g r o s s e a r n i n g s .

As we e x p l a i n e d i n C h a p t e r 2 , work

e x p e n s e s a r e a b s o r be d by a r e d u c t i o n i n t h e g r o s s w e l f a r e t a x and
t h e r e f o r e do n o t a f f e c t t h e s l o p e o f CD.

I t i s im portant to note

t h a t CD would be s t e e p e r i f work exp ens es were assumed t o y i e l d
positive u t i lit y .
At p o i n t D t h e r e i s a "n o tc h e f f e c t . "

For g r o s s e a r n i n g s o v e r

$669, a t p o i n t 0 a l o n g AJ ( s e e T a b l e 2 . 3 f o r f i g u r e s f o r o t h e r f a m i l y
s i z e s ) , t h e AFDC f a m i l y l o s e s i t s AFDC e l i g i b i l i t y .

I t l o s e s an

amount eq u al t o DE which i s t h e amount o f M e d i c a i d , Food Stamp b o n u s ,
and c h i l d c a r e c o s t s .

The l o s s i s i d e n t i c a l t o t h e non-work i n c e n t i v e

c a s e ; t h e r e f o r e , DE i n F i g u r e 3 . 4 i s t h e same h e i g h t as GH i n F i g u r e 3 . 3 .
By t h e same p r o c e s s we used i n t h e non-work i n c e n t i v e c a s e we can
d e t e r m i n e P o i n t J a l o n g AJ.

Th us , t h e n e t income o f an AFDC mother

e a r n i n g $669 p e r month i s equal t o t h a t o f a non-AFDC m o t h er e a r n i n g
$904 p e r month, o r n e a r l y $1 1,000 p e r y e a r .

Th is i m p l i e s t h a t an

AFDC mother, who knows h e r a l t e r n a t i v e s and has no o b j e c t i o n t o a c c e p t i n g
w e l f a r e , i s n o t e x p e c t e d t o l e a v e AFDC v o l u n t a r i l y u n l e s s s h e a t t a i n s
an income o f $1 1,000 p e r y e a r .

(T hi s i g n o r e s t h e p o s s i b i l i t y r a i s e d

e a r l i e r i n r e f e r e n c e t o G r e e n ' s work t h a t even h i g h e r e a r n i n g s th a n
t h i s may be r e q u i r e d t o g e t mot hers t o want t o l e a v e w e l f a r e depend ing
on t h e s h a p e o f t h e i n d i f f e r e n c e c u r v e which may be t a n g e n t t o AJ
above J b u t a l s o i n t e r s e c t DC from a b o v e . )

70

T r a d i t i o n a l Economic A n a l y s i s A p pl ie d
t o t h e Michigan AFDC Program
General a n a l y s i s
We a r e now r e a d y t o a p p l y i n d i f f e r e n c e c u r v e a n a l y s i s t o a
s p e c i f i c w e l f a r e pr ogram, t h e AFDC work i n c e n t i v e .

In F i g u r e 3 . 5

we have a s i m p l i f i e d v e r s i o n o f f i g u r e s 3 . 3 and 3 . 4 which can be
used f o r t h e a n a l y s i s .
The work i n c e n t i v e r e d u c e s t h e m a rg in al w e l f a r e t a x r a t e
s h i f t s t h e r e l e v a n t b u d g e t l i n e up from AFGHF t o ABCDEF.

and

The r e a c t i o n

t o t h e i n c e n t i v e depends on t h e t a n g e n c y o f t h e i n d i f f e r e n c e cu r v e
p r i o r t o t h e work i n c e n t i v e as w e l l as i t s s l o p e .
The work i n c e n t i v e ' s e f f e c t on
p e r s o n s n o t on AFD~C
I f t h e h i g h e s t a t t a i n a b l e i n d i f f e r e n c e c u r v e eve ry w her e l i e s
above ABCDEF(I-|) t h e work i n c e n t i v e w i l l n o t a f f e c t t h e work o f t h a t
non-welfare person.

For o t h e r p e r s o n s who were n o t on w e l f a r e p r i o r

t o t h e i n c e n t i v e b u t whose i n d i f f e r e n c e c u r v e s do i n t e r s e c t t h e new
b u d g e t l i n e , t h e work e f f o r t w i l l d e c l i n e .

For t h o s e e a r n i n g between

F and E( I g ) » t h e r e w i l l be a d e f i n i t e d e c l i n e i n h o u r s worked ( i f t h e y
can g e t on AFDC) u n l e s s t h e y a r e s a t i a t e d w i t h l e i s u r e .

T h i s i s so

b e c a u s e t h e same income can be o b t a i n e d w i t h no more work t h a n a t
p o i n t D.

F u r t h e r d e c l i n e i n hours worked i s p o s s i b l e .

For t h o s e

e a r n i n g above F b e f o r e t h e i n c e n t i v e and w i t h a h i g h e r i n d i f f e r e n c e
c u r v e from t h e same p r e f e r e n c e s e t t h a t i s t a n g e n t t o DC ( 13 )* work
w i l l d e c l i n e t o between D and z e r o dep en d in g on t h e sh ap e o f t h e i n d i f ­
ference curve.

The s t e e p e r t h e c u r v e , t h e more t h e work e f f o r t w i l l

be r e d uc e d toward C.

Thi s m e re ly shows t h a t — f o r a g i v e n consumption

o f l e i s u r e - - p e r s o n s who p l a c e a h i g h e r ma rg in al u t i l i t y on l e i s u r e

71

Dollars
per month

A
Work

Leisure

PRESENTATION OF SIMPLIFIED BUDGET CONSTRAINTS
Figure 3.5

72

v e r s u s income w i l l d e c r e a s e t h e i r work e f f o r t f u r t h e r .
With a g i v e n i n d i f f e r e n c e map, t h e s t e e p e r DC ( t h e l e s s t h e
w e l f a r e t a x ) t h e f u r t h e r any new e q u i l i b r i u m ta n g e n c y p o i n t a l o n g DC
moves tow ard D.

While a s t e e p e r DC i s e x p e c t e d t o i n c r e a s e t h e number

o f p e r s o n s who s e e k w e l f a r e , t h e s e new e n t r a n t s t o w e l f a r e a r e more
l i k e l y t o e a r n n e a r t h e maximum c o i n c i d e n t w i t h c o n t i n u e d AFDC e l i g i ­
b i l i t y (t o w ar d D).

Thi s makes s e n s e b e c a u s e t h e p r i c e o f l e i s u r e i n

terms o f income i s r a i s e d as t h e w e l f a r e t a x r a t e i s lowere d.

With

a g iv e n i n d i f f e r e n c e map, t h e p o i n t o f ta n g e n c y t o DC i s more l i k e l y
t o be a t a p o i n t on t h e i n d i f f e r e n c e c u r v e where t h e Ml^/MUy i s g r e a t e r
o r t h e i n d i f f e r e n c e cu r ve more s t e e p ; i n o t h e r w o rd s, where l e s s l e i s u r e
i s consumed.
Those e a r n i n g between M and E (1^ )

w i l l d e f i n i t e l y become

AFDC r e c i p i e n t s u n d e r t h e work i n c e n t i v e i f t h e y have no b i a s a g a i n s t
w e l f a r e payments o r i n s t i t u t i o n a l
w e l f a r e program.

r e s t r i c t i o n s b arrin g en try to the

Those e a r n i n g between H and M would move o n t o w e l f a r e

even w i t h o u t t h e i n c e n t i v e .

Th ere i s , however, one s p e c i f i c b a r r i e r

t o becoming an AFDC r e c i p i e n t .

Under t h e p r o v i s i o n s o f t h e i n c e n t i v e ,

p e r s o n s who a r e n o t on AFDC b u t e a r n between M and E a r e n o t e l i g i b l e
f o r AFDC.

P er s o ns i n such a p o s i t i o n must somehow r e d u c e t h e i r n e t

e a r n i n g s below M i n o r d e r t o be e l i g i b l e f o r AFDC.

Once on AFDC,

t h e r e c i p i e n t has t h e o p t i o n o f re m a in in g on w e l f a r e and e a r n i n g
between M and E.

Once t h e s e p e o p l e a r e on w e l f a r e , however, t h e y

w i l l work l e s s t h a n b e f o r e b e c a u s e o f t h e work i n c e n t i v e ; t h i s i s
b e c a u s e t h e y g a i n i n income and f a c e c h e a p e r l e i s u r e .

Therefore, the

income and s u b s t i t u t i o n e f f e c t s c au s ed by t h e work i n c e n t i v e o p e r a t e
i n t h e same d i r e c t i o n .

73

In g e n e r a l , f o r p e r s o n s n o t on w e l f a r e p r i o r t o t h e work
i n c e n t i v e , t h a t i n c e n t i v e w i l l e i t h e r l e a v e t h e number o f hour s
worked unchanged o r i t w i l l r e d u c e t h e hours worked.

Th is means

t h a t t h e AFDC c a s e l o a d w i l l p r o b a b l y i n c r e a s e ; we w i l l examine t h e
e f f e c t s o f t h i s on AFDC employment r a t e s i n C h a p t e r 5.

The work i n c e n t i v e ' s e f f e c t on
p e r s o n s on AFbC
What can we e x p e c t t o happen t o hours worked

o f t h o s e who were

on AFDC p r i o r t o t h e i n s t i t u t i o n o f t h e work i n c e n t i v e ?

The h i g h e s t

a t t a i n a b l e i n d i f f e r e n c e c u r v e t a n g e n c y p o i n t would be al on g BG as
drawn i n F ig u r e 3 . 5 .

The o n l y r e a s o n s f o r t h e i r n o t h a v i n g been a t

P o i n t B would be t h a t t h e y were s a t i a t e d w i t h l e i s u r e o r had d i s c o u n t e d
the w elfare d o lla r.

Tangency a l o n g a f l a t BG would imply a n e c e s s a r i l y

f l a t o r upward b end in g i n d i f f e r e n c e cu r ve ( s a t i a t i o n o f l e i s u r e ) .

In

t h i s c a s e , a work i n c e n t i v e w i l l c a u s e both an income e f f e c t and a
s u b s t i t u t i o n e f f e c t which w i l l f a v o r work.

Those p e r s o n s s a t i a t e d

w i t h l e i s u r e w i l l t h e r e f o r e work more b e c a u s e o f t h e work i n c e n t i v e .
I f , as Brehm and Saving show, BG has a p o s i t i v e s l o p e b e c a u s e
o f a d i s c o u n t o f w e l f a r e d o l l a r s o r i f , as s u g g e s t e d e a r l i e r , p e r s o n s
g a i n p o s i t i v e u t i l i t y from income used f o r work e x p e n s e s , ta n g e n c y
a l o n g a p o s i t i v e l y s l o p e d BG i s p o s s i b l e w i t h o u t t h e i r b e i n g s a t i a t e d
with l e i s u r e .

U n f o r t u n a t e l y , t h e e f f e c t o f t h e work i n c e n t i v e on

t h e s e p e r s o n s i s ambiguous.

The i n c e n t i v e c a u s e s t h e i r income t o

i n c r e a s e b u t i n c r e a s e s t h e p r i c e o f l e i s u r e as w e l l ; t h e r e f o r e , i t
i s n o t known a p r i o r i what t h e e f f e c t o f t h e i n c e n t i v e w i l l be on t h e
employment and e a r n i n g s o f AFDC mo th ers who worked un de r a 100 p e r c e n t
w e lf a r e ta x because they disco un ted t h e value o f w elfa re d o l l a r s .

74
For t h o s e w e l f a r e r e c i p i e n t s who d i d n o t work a t a l l b e f o r e
th e in c e n tiv e (tangency o f h i g h e s t a t t a i n a b l e i n d i f f e r e n c e curve
a t P o i n t B), t h e r e i s an unambiguous e f f e c t toward more employment.
S i n c e income f o r t h e unemployed AFDC m o t h er does n o t change w i t h t h e
i n c e n t i v e , t h e o n l y e f f e c t i s t h e s u b s t i t u t i o n e f f e c t caused by a
drop i n t h e income p r i c e o f l e i s u r e .

This i s extrem ely im portant

s i n c e most AFDC r e c i p i e n t s f a l l i n t o t h i s c a t e g o r y , and t h i s i m p l i e s
a p r i o r i t h a t t h e work i n c e n t i v e w i l l t e n d t o i n c r e a s e AFDC employ­
ment.

We w i l l t r y t o measure t h i s i n c r e a s e i n C h a p t e r 5.

Summary
The c o n c l u s i o n s o f a n a l y s e s , such a s t h o s e o f Brehm-Saving,
G r een ,a nd B o s k i n , a p p l y l e s s t o a work i n c e n t i v e and more t o t h e e f f e c t s
o f adjustments in w elfare g ra n t l e v e ls .

The a n a l y s e s do n o t ap p ly

d i r e c t l y t o t h e AFDC program; t h i s has t o be t r e a t e d s e p a r a t e l y .
N e i t h e r t h e p r e v i o u s l i t e r a t u r e n o r o ur added a n a l y s i s o f t h e
AFDC program a r e a d e q u a t e t o f u l l y e x p l a i n t h e e x p e c t e d e f f e c t o f
the incentive.
empirical study:

Yet,we draw two i m p o r t a n t t h e o r e t i c a l c o n c l u s i o n s f o r
(1) s i n c e most AFDC r e c i p i e n t s a r e n o t employed, i t

i s l i k e l y t h a t t h e work i n c e n t i v e w i l l i n c r e a s e AFDC employment; and
( 2) th e w e lf a r e caseload i s l i k e l y to i n c r e a s e because o f t h e i n c e n t i v e .

FOOTNOTES

1C. T. Brehm and T. R. S a v i n g , "The Demand f o r General A s s i s t a n c e
pa y m en ts ," American Economic Review, December 1964, pp. 1002 - 1018.

2

The mechanics o f t h e 100 p e r c e n t t a x were d e s c r i b e d i n C h a p t e r 2.
The a c t u a l t a x i s 100 p e r c e n t o f e a r n i n g s minus work e x p e n s e s .
3

C h r i s t o p h e r Green, "N e g a ti v e Taxes and Monetary I n c e n t i v e s t o
Work: The S t a t i c T h e o r y , " J o u r n a l o f Human R e s o u r c e s , I I I (Summer 1 96 8 ) ,
280 - 288; Michael J a y B o s k i n , "The N a g a t i v e Income Tax and The Supply
o f Work E f f o r t , " N a t i o n a l Tax J o u r n a l , December 1967, pp . 353 - 367.
4
dG
The w e l f a r e t a x can be d e f i n e d as 3 7 = -k w i t h G b e i n g t h e w e l f a r e
payment and Y b e i n g e a r n i n g s . The s i g n o f t h e d e r i v a t i v e i s n e g a t i v e
and ran ge s from z e r o t o on e. As i n t h e Brehm-Saving a n a l y s i s t h i s
i g n o r e s work e x p e n s e s .
5
Gr een , op. c i t . , p. 288.
®The use o f t h e t e r m l e i s u r e does n o t mean no work, b u t r a t h e r
no work f o r wages.
This i s i m p o r t a n t i n t h e a n a l y s i s o f AFDC employ­
ment.
^The s i z e o f t h i s imputed v a l u e i s n o t i m p o r t a n t f o r t h e a n a l y s i s
b u t does p r e s e n t an i n t e r e s t i n g problem.
I f th e budget c o n s t r a i n t
i n c l u d e s a l l income a v a i l a b l e f o r co ns um pt ion , i n c l u d i n g income i n k i n d ,
t h e q u e s t i o n i s how do we h a n d l e t h i s income i n kin d? Can we assume
t h a t a d o l l a r as income i n k in d i s t h e same t o t h e w e l f a r e r e c i p i e n t
a s a d o l l a r i n money? I f i t i s n o t , t h e b ud g et c o n s t r a i n t s h i f t s o u t ­
ward by l e s s t h a n t h e d o l l a r v a l u e o f income i n k in d as d e t e r m i n e d i n
t h e ma rke t p l a c e .
In t h i s s e n s e , t h e b u d g e t c o n s t r a i n t i s equal t o
t h e d o l l a r income p l u s t h e d o l l a r v a l u e t h e p e r s o n a t t a c h e s t o t h e
income i n k i n d . We assume t h a t t h e v a l u e o f Medicaid i s equal t o t h e
a v e r a g e monthly f a m i l y Me dicaid e x p e n d i t u r e o r a b ou t $50 p e r month i n
Michigan i n 1970.
Q

The same p o i n t as made i n f o o t n o t e
t h a t o n l y a b o u t 37 p e r c e n t o f t h e e l i g i b l e
to o k a d v a n t a g e o f food stamps i n t h e J u l y ,
p e r i o d i n d i c a t e s t h a t p e r s o n s may d i s c o u n t

7 a p p l i e s h e r e . The f a c t
AFDC f a m i l i e s i n Michigan
1969 th r o ug h J u l y , 1970
t h e v a l u e o f t h a t program.

9

Some o f t h e s e b e n e f i t s a r e a v a i l a b l e t o non-AFDC f a m i l i e s w i t h
low incomes o r v e r y high me dic al e x p e n s e s . In Michigan between J u l y ,
1969 and J u l y , 1970, a t e a r n i n g s high enough t o f o r c e a f a m i l y from
AFDC, i t i s u n l i k e l y t h a t t h e f a m i l y would r e c e i v e any w e l f a r e b e n e f i t s
once i t l e f t AFDC.
^ T h i s does n o t c o n s i d e r e a r n i n g s o f t h e c h i l d r e n which a r e exempt
from w e l f a r e t a x i n most c a s e s .
I t a l s o assumes no income from s o u r c e s
o t h e r th a n e a r n i n g s o r AFDC g r a n t .
Income from c h i l d s u p p o r t r e d u c e s
t h e g r a n t on a d o l l a r f o r d o l l a r b a s i s and has t h e e f f e c t o f d e c r e a s i n g
75

76

t h e t o t a l p o t e n t i a l e a r n i n g s o f t h e AFDC f a m i l y .

11

Applying t h e a n a l y s i s o f C h a p t e r 2, s e t t h e w e l f a r e t a x equal
t o z e r o . L6 t Y eq ua l e a r n e d income, T equa l t h e w e l f a r e t a x , and E t h e
work ex pe ns es o f .25Y. S o l v i n g , Y-[30 + 1 /3 (Y-30) + E] = 0 , f o r Y
g i v e s t h e h i g h e s t g r o s s e a r n i n g s exempt from a l l w e l f a r e t a x o r $48.

Chapter 4
The E m p ir ic a l I s s u e s and Data S e l e c t i o n
In t h i s c h a p t e r , we w i l l examine i n d e t a i l problems i n v o l v e d i n
i s o l a t i n g t h e e f f e c t o f t h e work i n c e n t i v e , a t t e m p t s t o s o l v e t h e s e
p r o b l e m s , and t h e sample s e l e c t i o n and d a t a f o r t h e s t u d y as w e ll as
some o f t h e e x i s t i n g d a t a p ro b le m s .
Our a n a l y s i s i n C h a p t e r 2 and C h a p t e r 3 s u g g e s t s t h a t t h e work
i n c e n t i v e w i l l , o t h e r t h i n g s b e i n g e q u a l , l e a d t o a h i g h e r r a t e o f AFDC
employment.

D et er m in in g w h e t h e r o r n o t employment r a t e s hav e i n c r e a s e d

i s a r e l a t i v e l y e a s y e m p i r i c a l pr oblem.

But o t h e r t h i n g s a r e n o t e q u a l ;

o v e r t h e y e a r o f t h i s s t u d y AFDC employment r a t e s may have changed
b e c a u s e o f f a c t o r s o t h e r t h a n t h e work i n c e n t i v e .

Our pro blem i s i n

i s o l a t i n g t h e e f f e c t o f t h e i n c e n t i v e on r a t e s o f employment.
In o r d e r t o do t h i s , we w i l l f i r s t o f a l l s p e c i f y t h e more
i m p o r t a n t v a r i a b l e s which a f f e c t AFDC employment.

These have b e e n , i n

p a r t , o b t a i n e d from e a r l i e r work c i t e d i n C h a p t e r I . 1

We w i l l th e n

t r y t o e l i m i n a t e some o f t h e v a r i a b l e s t h r o u g h sample s e l e c t i o n , by
r e s t r i c t i n g t h e sc o p e o f t h e p ro b le m , and by making s i m p l i f y i n g assump­
tions.

The employment e f f e c t s o f t h e r e m a in in g v a r i a b l e s w i l l be

d i s c u s s e d i n C h a p t e r 5 and C h a p t e r 6 .

In t h i s manner, we i n t e n d t o

i s o l a t e t h e work i n c e n t i v e t o s e e w h e t h e r i t a l o n e has c au s ed changes
i n AFDC e a r n i n g s and employment.

77

78

V a r i a b l e s A f f e c t i n g Market Work
The employed p o r t i o n o f t h e AFDC c a s e l o a d can be c o n s i d e r e d a f u n c ­
tio n o f th ree c a teg o ries o f v a ria b le s :
o f t h o s e on w e l f a r e ,
(1 )
include:

( 1 ) dem ographic c h a r a c t e r i s t i c s

(2) w e l f a r e program v a r i a b l e s , (3) o u t s i d e f a c t o r s .

Demographic c h a r a c t e r i s t i c s o f t e n us ed i n l a b o r s u p p l y s t u d i e s
( a ) s e x , ( b ) f a m i l y s t a t u s [ o n e o r two p a r e n t s ] , ( c ) f a m i l y s i z e ,

(d) h e a l t h , ( e ) jo b s k i l l s , ( f ) e d u c a t i o n , (g) r a c e , ( h ) age o f t h e m o t h e r ,
(i)

age o f t h e c h i l d r e n , ( j ) o u t s i d e income [ a l i m o n y , e t c . ] , (k) p r e v i o u s

work h i s t o r y .

I d e a l l y we c o u l d i s o l a t e t h e e f f e c t o f t h e work i n c e n t i v e

on p e r s o n s w i t h v a r y i n g c h a r a c t e r i s t i c s .

However, t h e t h e o r e t i c a l as w e ll

as e m p i r i c a l p r o b le m s , which a r i s e in t r y i n g t o i s o l a t e t h e e f f e c t o f e a c h ,
a r e v e r y g r e a t and p l a c e demands on d a t a which f a r ex c e e d t h o s e a v a i l a b l e
for th is thesis.
A much l e s s a m b i t i o u s t a s k i s t o t a k e t h e i n i t i a l demographic com­
p o s i t i o n o f t h e AFDC c a s e l o a d as g iv e n and th e n t o a c c o u n t f o r t h e employ­
ment e f f e c t s o f changes i n t h a t c o m p o s i t i o n .

We w i l l n o t e s t i m a t e how

t h e i n c e n t i v e would have a f f e c t e d AFDC employment d i f f e r e n t l y had t h e
in itial

c a s e l o a d been d i f f e r e n t .
Changes i n t h e demo gra phic c o m p o s i t i o n o f t h e c a s e l o a d o c c u r p r i ­

m a r i l y b e c a u s e o f d i f f e r e n t t y p e s o f f a m i l i e s l e a v i n g and e n t e r i n g AFDC.
The n o r m a l l y h ig h r a t e o f AFDC t u r n o v e r p r o v i d e s an o p p o r t u n i t y f o r s u b ­
s t a n t i a l change i n t h e c a s e l o a d c o m p o s i t i o n .

Between J u l y , 1969 and J u l y ,

1970 ( t h e p e r i o d o f t h i s s t u d y ) , an e s t i m a t e d 4 1 , 5 0 0 f a m i l i e s e n t e r e d t h e
AFDC program i n M ic h ig an , w h i l e 16,500 f a m i l i e s l e f t t h e program.

2

Because t h e normal t u r n o v e r i s so h i g h , and b e c a u s e t h e AFDC employment
r a t e i s l i k e l y t o v a ry w i t h t h e ty p e o f p e r s o n s on w e l f a r e , t h a t t u r n o v e r
must be c o n s i d e r e d as a p o t e n t i a l l y i m p o r t a n t s o u r c e o f change i n AFDC .

79

employment.

Thi s p r e s e n t s problems i n measurement which c o m p l i c a t e t h e

t a s k o f e m p i r i c a l l y i s o l a t i n g t h e e f f e c t o f t h e work i n c e n t i v e .
How t u r n o v e r i n AFDC c a s e s a f f e c t s w e l f a r e employment r a t e s can
be e s t i m a t e d by l o o k i n g a t t h e employment s t a t u s o f t h o s e who have
r e c e n t l y become w e l f a r e r e c i p i e n t s and t h o s e l e a v i n g w e l f a r e .

S im ilarly,

t h e e f f e c t o f t u r n o v e r can be p a r t i a l l y i s o l a t e d by f o l l o w i n g a c e r t a i n
group o f mo thers o v e r a l e n g t h o f t i m e .

Both a p p r o a c h e s a r e used in

t h e e m p i r i c a l work p r e s e n t e d i n C h a p t e r 5 and C h a p t e r 6 ; we assume t h a t
t h i s s t r a t e g y w i l l e l i m i n a t e t h e most i m p o r t a n t s o u r c e o f change in
t h e demographic c o m p o s i ti o n o f t h e c a s e l o a d o t h e r th a n t h o s e c au s ed by
f e a t u r e s o f t h e w e l f a r e program and o u t s i d e f a c t o r s .
(2)

The work i n c e n t i v e i s an example o f one o f s e v e r a l ways in

which p o l i c y makers a f f e c t work d e c i s i o n s t h r o u g h chang es i n t h e w e l f a r e
program.

O t h e r program v a r i a b l e s i n c l u d e :

(a) t h e s i z e o f t h e w e l f a r e

g r a n t , (b) t e a c h i n g AFDC m o th er s t o u n d e r s t a n d t h e economic a l t e r n a t i v e s
t h e y f a c e , (c) work t r a i n i n g [ t h e WIN program i n p a r t i c u l a r ] , (d) M e d i c a i d ,
(e) c h i l d c a r e p r o v i s i o n s , (f) t r a n s p o r t a t i o n p r o v i s i o n s .

As i n t h e

c a s e o f t h e demographic v a r i a b l e s we d i s c u s s e d a bo ve , we w i l l a c c o u n t
f o r t h e employment e f f e c t s o f changes i n program v a r i a b l e s .
program changes t o a f f e c t employment i n one o f two ways:

We e x p e c t

f i r s t , th r o u g h

changes i n t h e program v a r i a b l e s d u r i n g t h e p e r i o d o f s t u d y (chang es i n
t h e s i z e o f t h e w e l f a r e g r a n t s o r w e l f a r e t a x r a t e s and s o f o r t h ) ;
s e c o n d , th ro u g h p o s s i b l e la g g e d e f f e c t s o f programs which have changed
in the past.

For exam ple, t h e h e a l t h l e v e l o f t h e AFDC c a s e l o a d may

improve f o r a p e r i o d o f ti m e a f t e r a medical c a r e p la n i s i n t r o d u c e d .
As i n t h e above c a s e o f demographic v a r i a b l e s , t h e a b s o l u t e
e f f e c t o f t h e program v a r i a b l e s on t h e r a t e s o f employment a t any s i n g l e

80

p o i n t i n t i m e w i l l n o t be m ea su re d.

The t a s k we must ac co mp li sh a f t e r

t h i s s i m p l i f i c a t i o n i s t o i s o l a t e t h e employment e f f e c t s o f program
changes from t h o s e o f t h e work i n c e n t i v e .

Because program changes can

a f f e c t t u r n o v e r as w e l l as d i r e c t l y a l t e r employment o f t h o s e on w e l f a r e ,
we must a c c o u n t f o r b o th p o s s i b i l i t i e s .

We t a k e up t h i s s u b j e c t i n

C h a p t e r 5 and C h a p t e r 6 w h er e, g iv e n t h e d a t a l i m i t a t i o n s , we i s o l a t e
t h e e f f e c t s o f t h e i n c e n t i v e on employment and e a r n i n g s .
(3)

V a r i a b l e s which can be c l a s s i f i e d as e x t e r n a l t o t h e w e l f a r e

program ( o u t s i d e f a c t o r s ) a l s o can have an i m p o r t a n t e f f e c t on t h e
employment o f p e r s o n s on AFDC.

Outside f a c t o r s include:

fe) l a b o r ma rket

c o n d i t i o n s , ( b ) work a t t i t u d e s o f n o n - w e l f a r e r e c i p i e n t s , (c) a t t i t u d e s
toward w e l f a r e , (d) knowledge o f n o n - w e l f a r e r e c i p i e n t s a b o u t t h e i r
economic a l t e r n a t i v e s .

As i n t h e c a s e o f program v a r i a b l e s , changes in

o u t s i d e f a c t o r s can c a u s e changes i n t h e employment o f AFDC c a s e l o a d by
a l t e r i n g t u r n o v e r and a l s o d i r e c t l y a l t e r i n g employment o f t h o s e a l r e a d y
on AFDC.

Both o f t h e s e p o s s i b i l i t i e s a r e c o n s i d e r e d i n c h a p t e r s 5 and 6 .

The employment e f f e c t s o f changes i n o u t s i d e f a c t o r s w i l l be d i s c u s s e d
i n a manner s i m i l a r t o t h e demographic and program v a r i a b l e s . '

No

a t t e m p t i s made t o d e t e r m i n e how t h e i n c e n t i v e would have a f f e c t e d
employment d i f f e r e n t l y w i t h d i f f e r e n t i n i t i a l

lev els of outside fa c to rs.

The f o r e g o i n g d i s c u s s i o n o u t l i n e s t h e v a r i a b l e s we c o n s i d e r e d
i m p o r t a n t t o e x p l a i n i n g AFDC employment.
accounting f o r a l l th e se ,
i n c e n t i v e , i n two ways:

We s i m p l i f i e d t h e problem o f

and t h e r e b y i s o l a t i n g t h e e f f e c t o f t h e
(1 ) by l i m i t i n g t h e s t u d y t o t h e e f f e c t s o f

changes i n t h e s e v a r i a b l e s , and (2 ) a c c o u n t i n g f o r many o f t h e changes i n
t h e v a r i a b l e s th r o u g h s t u d y i n g t h e employment r a t e s o f c a s e s e n t e r i n g
and l e a v i n g AFDC.

We w i l l i s o l a t e t h e i n c e n t i v e ' s e f f e c t th r o u g h two

additional steps.

F i r s t , we w i l l e l i m i n a t e some v a r i a b l e s by n ar ro w in g

o u r f o c u s and t h r o u g h sample s e l e c t i o n .
follows next in t h i s c h a p te r.

A r a t i o n a l e f o r t h i s procedure

Seco nd , we w i l l i d e n t i f y t h e e x p e c t e d

employment e f f e c t s o f changes i n a l l v a r i a b l e s n o t a c c o u n t e d f o r o r
e l i m i n a t e d th r o u g h t h e s i m p l i f i c a t i o n and f o c u s i n g o f t h e problem.
Th is i s done i n C h a p t e r 5 and C h a p t e r 6 .
Narrowing t h e E m p ir ic a l Problem
t h r o u g h Sample S e l e c t i o n
The e m p i r i c a l f o c u s was narrowed by: (1 ) r e s t r i c t i n g t h e s t u d y t o
t h e one y e a r p e r i o d a f t e r t h e s t a r t o f t h e i n c e n t i v e ; ( 2 ) r e s t r i c t i n g
t h e s t u d y t o J u l y , 1969
headed f a m i l i e s o n l y .

and J u l y , 1970

o n l y ; and (3) s t u d y i n g f e m a l e ­

In a d d i t i o n t o n ar r ow in g t h e f o c u s , we f e l t t h a t

we c o u l d improve t h e s t u d y by s e l e c t i n g d a t a s t r a t i f i e d by g e o g r a p h i c
areas.

The r a t i o n a l e f o r t h e s e i s e x p l a i n e d n e x t .
(1)

One o f t h e most d i f f i c u l t e m p i r i c a l problems f a c e d i n t h i s

s t u d y was an i n a b i l i t y t o s t u d y t h e c a u s e s o f changes i n AFDC employ­
ment o v e r a number o f y e a r s p r i o r t o t h e work i n c e n t i v e .

T h i s caus ed

us t o r e s t r i c t t h e s t u d y t o a one y e a r p e r i o d a f t e r t h e i n c e n t i v e .
A one y e a r i n t e r v a l f o r t h e s t u d y — J u l y , 1969 t o J u l y , 1970 —
was s e l e c t e d r e l u c t a n t l y .

I d e a l l y , we would a l s o a n a l y z e AFDC employ­

ment d a t a p r i o r t o t h e s t a r t o f t h e work i n c e n t i v e on J u l y , 1969, i n
o r d e r t o f u l l y i n t e r p r e t changes which o c c u r r e d s u b s e q u e n t t o i t .

But

a s e a r c h f o r such d a t a y i e l d e d l i t t l e , w ith t h e e x c e p t i o n o f s u r v e y s
c o nd uc te d by t h e S t a t e o f Michigan as p a r t o f a n a t i o n w i d e s t u d y by
t h e U. S. Department o f H e a l t h , E d u c a ti o n and Welfare (HEW).

These

s u r v e y s were made i n November, 1961; December, 1967; and May, 1969.
U n f o r t u n a t e l y , t h e y do n o t g i v e a c o n c r e t e p i c t u r e o f t h e p a t t e r n o f

82

AFDC employment r a t e s p r i o r t o t h e i n c e n t i v e .

T h i s i s b e c a u s e employ­

ment r a t e s i n Michigan g e n e r a l l y behave i n a c y c l i c a l f a s h i o n and te n d
t o be h i g h e r i n l a t e

summer and m i d - w i n t e r .

The HEW s t u d i e s were made

i n d i f f e r e n t months and a r e l i k e l y t o r e f l e c t t h e s e c y c l i c a l d i f f e r e n c e s ;
none were made i n J u l y and t h e r e f o r e do n o t p r o v i d e good b a s e l i n e i n f o r ­
mation.

In a d d i t i o n , g e n e r a l employment c o n d i t i o n s and AFDC program

v a r i a b l e s were q u i t e d i f f e r e n t a t t h e t i m e o f t h e s u r v e y s t h a n t h e y
w ere d u r i n g t h e p e r i o d u n d e r t h e work i n c e n t i v e .

We f e e l , t h e r e f o r e ,

t h a t no u s e f u l AFDC employment d a t a e x i s t b e f o r e J u l y , 1969

to provide

b a s e lin e inform ation.
The a b s e n c e o f such d a t a i m p l i e s t h a t t o a s c e r t a i n t h e e f f e c t s
o f the in c e n tiv e

i t would be b e t t e r t o s t u d y a s long an i n t e r v a l as

p o ssib le a f t e r th e s t a r t of the in c e n tiv e .

We, t h e r e f o r e , o r i g i n a l l y

i n t e n d e d t o o b t a i n d a t a f o r a t l e a s t a y e a r and a h a l f a f t e r t h e s t a r t
o f the in c en tiv e .

U n f o r t u n a t e l y , t h e r e a l w o r l d does n o t u s u a l l y

r emain s t a t i c l o n g enough t o s a t i s f y t h e d e s i r e s o f t h e r e s e a r c h e r , and
t h i s i n s t a n c e was no e x c e p t i o n .
In S ep te m be r , 1970, m a j o r program changes were implemented i n
M ich ig an ; a c e i l i n g o f f o r t y d o l l a r s p e r month was p l a c e d on work e x p en s es
exempted un de r t h e work i n c e n t i v e mechanism, and AFDC g r a n t s were r a i s e d
substantially.

This had t h e e f f e c t o f s u b s t a n t i a l l y r e d u c i n g t h e

f i n a n c i a l re w ar ds o f employment f o r t h e AFDC r e c i p i e n t and r a i s i n g t h e
non-work income from AFDC.

A reduction in the response of re c ip ie n ts

t o t h e work i n c e n t i v e would be e x p e c t e d f o r b o t h o f t h e s e r e a s o n s .

At

a b o u t t h e same t i m e , a t h r e e - m o n t h General Motors s t r i k e be gan ; t h i s
had a d r a m a t i c im p ac t on M i c h i g a n ' s w e l f a r e c a s e l o a d and g e n e r a l employ­
ment c o n d i t i o n s .

So i t i s l i k e l y t h a t t h i s s t r i k e i n f l u e n c e d AFDC

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employment as w e l l .
T h e r e f o r e , t h e employment d a t a which can be used t o a n a l y z e t h e
e f f e c t o f t h e work i n c e n t i v e do n o t , i n o u r ju d g m e n t, e x t e n d beyond
O c t o b e r , 1970.

F u r t h e r m o r e , b e c a u s e d a t a on Michigan employment p a t t e r n s

show t h a t t y p i c a l l y t h e r e a r e d i f f e r e n c e s between employment l e v e l s i n
3
J u l y and t h e months o f September and O c t o b e r , and s i n c e AFDC employ­
ment d a t a a r e n o t a v a i l a b l e f o r t h e months o f Se ptember and O c t o b e r ,
1969, we d e c i d e d t h a t i n t e r p r e t i n g AFDC d a t a f o r September and O c t o b e r ,
1970

would be s o d i f f i c u l t t h a t i t was n o t u s e f u l .

We w i l l , t h e r e f o r e ,

c o n f i n e t h e s t u d y o f t h e work i n c e n t i v e t o t h e p e r i o d o f J u l y , 1969,
t o J u l y , 1970.
( 2 ) At t h e s t a r t o f t h i s s t u d y , AFDC employment d a t a were a v a i l ­
able fo r July
1970.

and O c t o b e r , 1969

O c t o b e r , 1969

as well as J a n u a r y , A p r i l , and J u l y ,

and A p r i l , 1970

d a t a were e r a s e d by e r r o r by

t h e Computer D i v i s i o n o f t h e Michigan Department o f S o c i a l S e r v i c e s .
Of t h e t h r e e r e m a i n i n g months, we c o n s i d e r e d J u l y , 1969

and J u l y , 1970

t o be t h e most c r i t i c a l .
J a n u a r y , 1970

d a t a a r e n o t r e p o r t e d b e c a u s e we a r e c o n v i n c e d ,

from h i s t o r i c a l d a t a on Michigan employment r a t e s , t h a t l a b o r m a rk e t
c o n d i t i o n s i n December a r e d i f f e r e n t th a n t h o s e i n J u l y .
J a n u a r y , 1970

Because

d a t a r e f l e c t m a in ly l a b o r c o n d i t i o n s o f December, 1969

and b e c a u s e t h e r e were no AFDC d a t a a v a i l a b l e f o r any J a n u a r y p r i o r
t o t h e work i n c e n t i v e , we f e l t t h a t t h e problems o f i n t e r p r e t i n g t h e
J a n u a r y , 1970

d a t a were t o o g r e a t .

(3 ) A f u r t h e r n ar r o w in g o f t h e fo cu s o f t h i s s t u d y i n v o l v e d
s e l e c t i n g female-headed f a m ilie s only .

Most o f t h e AFDC r e c i p i e n t s i n

Michigan a r e , i n f a c t , s i n g l e - p a r e n t f a m i l i e s headed by women.

However,

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i t was e s t i m a t e d t h a t i n J u l y , 1970

t h e r e were a c o n s i d e r a b l e number
4
o f m a le - h e a d e d AFDC-UP and s t e p f a t h e r c a s e s i n Mic hi gan .
Under t h e
p r e s u m p t i o n t h a t t h e f a c t o r s a f f e c t i n g employment i n m a le -h ea d e d
households

a r e i n many ways d i s t i n c t from t h o s e o f t h e m a j o r i t y o f

AFDC r e c i p i e n t s , i t was d e c i d e d t o s i m p l i f y t h e s t u d y o f AFDC employ­
ment and t h e work i n c e n t i v e by c o n s i d e r i n g f e m a l e - h e a d e d ho u se h ol d s
only.

Th ere a r e o b vi o us a d v a n t a g e s t o t h i s .

For e x a m p le , i f t h e male­

headed AFDC component i s e l i m i n a t e d , we can more e f f e c t i v e l y f o c u s on
t h e ki n d s o f j o b s which t h e r e m a in in g r e c i p i e n t s would be l i k e l y t o
take.

T h e r e f o r e , l a b o r m a r k e t d a t a can be more e a s i l y i n t e r p r e t e d f o r

p o s s i b l e i m p a c t on w e l f a r e employment.
e l i m i n a t e s a n o t h e r pro blem .

Looking o n l y a t f e m a l e - h e a d s

During t h e p e r i o d s t u d i e d , AFDC-UP

r e c i p i e n t s (male f a m i l y h e a d s ) were f o r c e d o f f AFDC i f t h e y worked
more t h a n s i x t y - f o u r h ou rs i n any two-week p e r i o d .

T h i s p o l i c y was

f o l l o w e d i r r e s p e c t i v e o f income and w i t h o u t r e g a r d t o t h e work i n c e n ­
tive.

E a r n i n g s and employment o f male headed f a m i l i e s w o u ld , t h e r e f o r e ,

have t o be i n t e r p r e t e d a p a r t from t h o s e o f f e m a l e - h e a d e d f a m i l i e s ,
which d i d n o t have r e s t r i c t i o n s on ho ur s o f employment.
In a d d i t i o n t o f o c u s i n g o u r s t u d y , we improved o u r c a p a c i t y t o
i s o l a t e t h e e f f e c t o f t h e i n c e n t i v e on employment by s e l e c t i n g r e c i p i e n t s
i n a way t h a t al lo w ed an e x a m in a t io n o f g e o g r a p h i c d i f f e r e n c e s i n
employment and c a s e l o a d .

Data samples were s t r a t i f i e d by g e o g r a p h i c

a r e a on t h e r a t i o n a l e t h a t l o c a t i o n was p a r t i c u l a r l y i m p o r t a n t .

We

f e l t t h a t g e o g r a p h i c a r e a s would p r o v i d e a pr oxy f o r u r b a n - r u r a l
d i f f e r e n c e s , d i f f e r e n c e s i n l a b o r m a r k e t s , p o s s i b l e d i f f e r e n c e s i n work
a t t i t u d e s , and d i f f e r e n c e s i n t h e demographic c o m p o s i t i o n o f t h e
caseloads.

85

D e s c r i p t i o n o f t h e Data
One l o n g i t u d i n a l

( f o l l o w e d t h r o u g h ti m e) and two c r o s s s e c t i o n

s e t s o f d a t a on a c t i v e f e m a l e - h e a d e d AFDC f a m i l i e s i n Michigan were
drawn from t h e S t a t e o f M i c h i g a n ' s Department o f S o c i a l S e r v i c e s AFDC
p a y r o l l t a p e s f o r each o f t h e t h i r t e e n g e o g r a p h i c a r e a s shown i n F i g u r e
4.1.

T h a t i s , one c r o s s s e c t i o n sample was drawn i n J u l y , 1969, and

t h o s e c a s e s w ere f o l l o w e d t o J u l y , 1970
longitudinal d ata.

in o rd e r to provide the

A d d i t i o n a l l y , a c o m p l e t e l y new c r o s s s e c t i o n sample

was drawn i n J u l y , 1970

i n o r d e r t o measure t h e employment f o r t h e

c a s e l o a d as a whole a t t h a t t i m e .

In each a r e a , a d i f f e r e n t sampl ing

f r a c t i o n ( p o r t i o n o f c a s e s sampled) was used i n o r d e r t o keep t h e t o t a l
sample s i z e r e l a t i v e l y small

(because o f th e l i m i t a t i o n s o f the d a ta

p r o c e s s i n g equi pm ent ) w h i l e r e t a i n i n g a r e p r e s e n t a t i v e sample from ea c h.
In a r e a s I I and I I I , f o r ex am p le, 100 p e r c e n t o f t h e c a s e s were s e l e c t e d
s i n c e t h e c a s e l o a d s were so s m a l l .

B u t, i n Area XII (Wayne C o u n t y ) ,

which i n c l u d e s D e t r o i t , a f o u r p e r c e n t sample was drawn s i n c e Wayne
County p o s s e s s e s a l m o s t h a l f o f t h e s t a t e ' s t o t a l AFDC c a s e l o a d .
The g e o g r a p h i c a r e a s were s e l e c t e d u s i n g s e v e r a l c r i t e r i a .
e v e r y m a jo r m e t r o p o l i t a n a r e a o f t h e s t a t e was s e l e c t e d .

F irst,

Seco nd, t h r e e

p r e d o m i n a t e l y r u r a l a r e a s o f t h e s t a t e were s e l e c t e d t o r e p r e s e n t r u r a l
Michigan.

T h i r d , B e r r i e n County was s e l e c t e d b e c a u s e a Michigan D e p a r t ­

ment o f S o c i a l S e r v i c e s employment p r o j e c t was i n p r o g r e s s ; t h a t s t u d y
co u l d p r o v i d e d a t a on AFDC f a m i l i e s more d e t a i l e d th a n t h a t a v a i l a b l e
from p a y r o l l r e c o r d s .
The g e o g r a p h i c a r e a s s e l e c t e d f a l l
areas

i n t o t h r e e br oa d c a t e g o r i e s ,

I - I I I and XIII a r e p r i m a r i l y r u r a l and p o o r , a r e a s

X-XII ( i n c l u d i n g

D e t r o i t ) a r e h e a v i l y ur ba n w i t h a lo w er p r o p o r t i o n o f f a m i l i e s w i t h

86

tucc

mum
♦Kv;v

MOt*

J K U I COMMON! OGEMAW IMftCO
I
I AIICNAC .

MCCOSTa I h A M L L ,
MONTCALM

TUSCOLA

Locations of the 13 geographic sample areas
Figure 4.1

87

low inc om es , and a r e a s IV-IX form an i n t e r m e d i a t e gro up .
89 p e r c e n t o f t h e e n t i r e J u l y , 1970

In t o t a l ,

AFDC c a s e l o a d f a l l s i n t o one o f

t h i r t e e n a r e a s from which t h e sample was drawn.

The r e m a in in g 11

percent reside

i n a r e a s s i m i l a r t o t h e r u r a l a r e a s which were i n c l u d e d

i n t h e sample.

(Additional inform ation about th e geographic d is p e r s io n

o f t h e Michigan p o p u l a t i o n and AFDC c a s e l o a d

is

p r e s e n t e d i n Appendix

A of th is th e s is .)
The c r o s s s e c t i o n sample s i z e s were 4 , 6 6 0 f a m i l i e s f o r J u l y ,
1969

and 7,656 f o r J u l y , 1970.

The sa mpling f r a c t i o n s and s i z e s f o r

each a r e a a r e shown i n Appendix B o f t h i s t h e s i s .

The l o n g i t u d i n a l

s am p le , which began w i t h 4 , 6 6 0 f a m i l i e s i n J u l y , 1969, c o n t a i n e d 3,831
i n J u l y , 1970.

The r e m a in in g 829 f a m i l i e s were l o s t as a c t i v e c a s e s

b e c a u s e th e y moved from a sample a r e a o r l e f t AFDC.
In a d d i t i o n t o t h e two c r o s s s e c t i o n and one l o n g i t u d i n a l
samples o f a c t i v e AFDC c a s e s , t h e same d a t a were o b t a i n e d f o r f a m i l i e s
which e n t e r e d o r l e f t AFDC d u r i n g t h e t h i r t y days p r i o r t o J u l y , 1970;

100 p e r c e n t o f t h e s e o p e n i n g s and c l o s i n g s were s e l e c t e d from a l l
g e o g r a p h i c a r e a s , e x c e p t t h e h e a v i l y p o p u l a t e d Area XII where a 20
p e r c e n t sample was t a k e n .

These c a s e s were s e l e c t e d t o d e t e r m i n e how

t h e a c t i v e c a s e l o a d was changed by t h e flow o f pe o p l e th r o u g h AFDC
and t o c o n s i d e r t h e p o s s i b l e e f f e c t s o f t h e work i n c e n t i v e on changes
i n t h e AFDC c a s e l o a d .
Data Problems
The p ri m ar y d a t a problem e n c o u n t e r e d i n t h i s s t u d y was a l a c k
o f i n f o r m a t i o n on some o f t h e v a r i a b l e s .

This problem a r i s e s b e c a u s e

t h e p r i n c i p a l d a t a s o u r c e was t h e r e c o r d s used f o r AFDC payments.

88
These d a t a were c o l l e c t e d by a s t a t e agency f o r a d m i n i s t r a t i v e r a t h e r
th a n r e s e a r c h p u r p o s e s .

The f o l l o w i n g a r e two examples o f t h e kind o f

d a t a m i s s i n g from a d m i n i s t r a t i v e r e c o r d s .
As we have a l r e a d y m e n t i o n e d , t h e r e a r e no co m par abl e e a r n i n g s
and employment d a t a f o r t h e AFDC r e c i p i e n t s p r i o r t o t h e J u l y , 1969,
s t a r t i n g d a t e o f t h e work i n c e n t i v e .

Although s t a t e and f e d e r a l w e l f a r e

a u t h o r i t i e s knew o f t h e i n c e n t i v e s o v e r a y e a r i n a d v a n c e , no b a s e l i n e
d a t a were o b t a i n e d f o r any f u t u r e r e s e a r c h .
As a s ec ond exam ple , gaps e x i s t i n t h e d a t a which were r e c o r d e d
f o r each AFDC f a m i l y d u r i n g t h e work i n c e n t i v e program.

•

Experience

w i t h Michigan d a t a shows t h a t much i n f o r m a t i o n was l o s t b e c a u s e i t
was n o t e s s e n t i a l t o t h e a d m i n i s t r a t i o n o f w e l f a r e c h e c k s .

The p r o c e s s

o f removing t h e f a m i l y ' s op eni ng d a t e and r e p l a c i n g i t w i t h t h e d a t e o f
l a s t , p r e v i o u s , a d m i n i s t r a t i v e a c t i o n (s uch as c o r r e c t i n g t h e s p e l l i n g
o f a name) may a p p e a r r e a s o n a b l e f o r a d m i n i s t r a t i v e p u r p o s e s , b u t i t
e l i m i n a t e s i n f o r m a t i o n on t h e l e n g t h o f t i m e AFDC mo th ers s t a y on w e l f a r e .
T hi s k in d o f p r o c e d u r e e l i m i n a t e d d a t a on some demographic f a c t o r s which
i n f l u e n c e t h e r e s p o n s e o f t h e c a s e l o a d t o t h e work i n c e n t i v e .
The f a i l u r e o f a d m i n i s t r a t o r s t o r e c o g n i z e t h e need f o r more
r e s e a r c h d a t a has l e d t o o t h e r i m p o r t a n t i n f o r m a t i o n g a p s .

While

e d u c a t i o n , h e a l t h , and work h i s t o r y a r e i m p o r t a n t f a c t o r s i n e x p l a i n i n g
t h e p r o b a b l e changes i n work p a t t e r n s b e c a u s e o f t h e i n c e n t i v e , t h i s
i n f o r m a t i o n has n o t been c r u c i a l t o t h e a d m i n i s t r a t i o n o f t h e income
m a in te n a n c e program and i s t h e r e f o r e n o t k e p t i n any c e n t r a l l o c a t i o n .
These d a t a can o n l y be o b t a i n e d th r o ug h s p e c i a l s u r v e y s o r from i n d i v i d u a l
g
c a s e r e c o r d s i n each c o u n t y .

FOOTNOTES

Ja co b M in c e r , "Labor Forc e P a r t i c i p a t i o n o f M ar r ie d Women,"
A sp e ct s o f Labor Economics, A Co n fe re nc e o f t h e U n i v e r s i t i e s ' N a t i o n a l
Bureau Committee f o r Economic R es e a r c h ( P r i n c e t o n : P r i n c e t o n P r e s s ,
19 6 2) ; Glen G. C a i n , M ar r ie d Women i n t h e Labor F o r c e , An Economic
A n a l y s i s (C hicago: U n i v e r s i t y o f Chicago P r e s s , 19 66 ); G. S. B e c k e r ,
"A t h e o r y o f t h e A l l o c a t i o n o f Ti me ," Economic J o u r n a l , LXXV (S e p te m b e r ,
1 9 6 5 ) , 49 3- 51 7; H. G. Lew is, "Hours o f Work and Hours o f L e i s u r e , "
I n d u s t r i a l R e l a t i o n s Resea rc h A s s o c i a t i o n P r o c e e d i n g s #9 ( 1 9 5 6 ); W i ll i am
G. Bowen and T. A l d r i c h F i n e g a n , The Economics o f Labor Force P a r t i c i ­
p a t i o n ( P r i n c e t o n : P r i n c e t o n U n i v e r s i t y P r e s s , 19 6 9 ) ; Marvin K o s t e r s ,
Income and S u b s t i t u t i o n P a r a m e te r s i n a Family Labo r Supply Mod el,"
U np ubl ish ed D oc to ra l d i s e r t a t i o n , U n i v e r s i t y o f C h ic ag o, 1966.
^ E s t i m a t e d from a d j u s t e d d a t a r e p o r t e d by t h e S t a t e o f Michigan
Department o f S o c i a l S e r v i c e s S t a t i s t i c a l R ep o rt s S e c t i o n t o c o i n c i d e
w i t h t h e a c t u a l i n c r e a s e i n t h e AFDC c a s e l o a d .
% a t a o b t a i n e d from t h e Michigan Employment S e c u r i t y Commission,
Division o f S t a t i s t i c s .
^AFDC-UP i s t h e p a r t o f AFDC d e s i g n e d f o r unemployed two p a r e n t
f a m i l i e s . We know t h a t t h e r e were r o u g h l y 3, 6 00 AFDC-UP c a s e s i n
Michigan i n J u l y , 1970. The s t e p f a t h e r c a s e s a r i s e b e c a u s e s t e p f a t h e r s
are n o t f i n a n c i a l l y re s p o n s ib le f o r s te p c h ild re n o f a l a t e r marriage
u n l e s s t h e y a r e l e g a l l y a d o p t e d . T h i s means t h a t s t e p c h i l d r e n i n a
home where t h e s t e p f a t h e r has a h ig h income may s t i l l be e l i g i b l e f o r
some AFDC b e n e f i t s . T h er e i s no r e c o r d o f t h e f a c t t h a t t h e c a s e i s a
s t e p f a t h e r c a s e . Through a c r u d e p r o c e s s o f e l i m i n a t i o n b a s e d on t h e
knowledge t h a t s t e p f a t h e r c a s e s have 2 o r more a d u l t s i n t h e c a s e , we
e s t i m a t e t h a t a b o u t 5, 50 0 o f t h e non AFDC-UP c a s e s a r e headed by
s t e p f a t h e r s ( i n J u l y , 1970).
5Th ere i s an AFDC employment s t u d y headed by Vern Smith c u r r e n t l y
i n p r o g r e s s i n M i c h i g a n ' s Department o f S o c i a l S e r v i c e s which u t i l i z e s
d e t a i l e d c a s e r e c o r d d a t a f o r two c o u n t i e s .
From t h a t s t u d y i t was
l e a r n e d t h a t i t t a k e s an i m p r a c t i c a l l y lo n g t i m e t o g a t h e r t h e d a t a
f o r a statew ide study.

89

Chapter 5
Employment E f f e c t o f t h e Work I n c e n t i v e
Introduction
Data a r e p r e s e n t e d i n t h i s c h a p t e r i n an a t t e m p t t o i s o l a t e t h e
effect of

t h e work i n c e n t i v e on AFDC employment

rates.

We b e g i n w i t h

a b r i e f comment a b o u t employment and e a r n i n g s f o r t h e c a s e l o a d as a
whole (male and f e m a le - h e a d e d f a m i l i e s ) , which i s p r e s e n t e d a s e m p i r i c a l
s u p p o r t f o r t h e use o f o n l y two d a t a c r o s s s e c t i o n s f o r t h e more
d e ta ile d a n a ly sis in t h i s study.
We t h e n p r e s e n t e v i d e n c e t h a t AFDC employment r a t e s
in

all

of

increased

t h e t h i r t e e n g e o g r a p h i c a r e a s we have chos en f o r t h i s s t u d y .

The r e m a i n d e r o f t h e c h a p t e r i s co m pri se d o f e x p l a n a t i o n s o f t h e p r o b a b l e
employment e f f e c t o f t h e v a r i a b l e s l i s t e d i n C h a p t e r 4 .

In t h i s way,

we a t t e m p t t o i s o l a t e t h e e f f e c t o f t h e i n c e n t i v e .
The v a r i a b l e s from C h a p t e r 4 a r e p r e s e n t e d i n t h i s s e q u e n c e :
1.

O u t s i d e f a c t o r s , i n c l u d i n g two me asures o f changes i n l a b o r

m a rk e t c o n d i t i o n s and p o s s i b l e changes i n t h e a t t i t u d e s o f t h o s e on
AFDC tow ard work
2.

The e f f e c t s o f t u r n o v e r on AFDC employment r a t e s * i n c l u d i n g

new c a s e s and changes i n t h e numbers o f f a m i l i e s l e a v i n g w e l f a r e
ca u s ed by t h e i n c e n t i v e
3.

W e l f a r e program v a r i a b l e s , such as i n c r e a s e d AFDC g r a n t

s i z e s and t h e t r a i n i n g a s p e c t s o f t h e Work I n c e n t i v e Program (WIN).

90

The r e m a i n d e r o f t h e c h a p t e r p r o v i d e s a l i s t o f v a r i a b l e s which
have p r o b a b l y l i m i t e d t h e e f f e c t o f t h e work i n c e n t i v e .

Poor h e a l t h ,

l a c k o f an i d e a l l e v e l o f c h i l d c a r e , and e v i d e n c e o f a s e v e r e l a c k
o f knowledge on t h e p a r t o f w e l f a r e r e c i p i e n t s a b o u t t h e work p r o v i s i o n s
a r e a l l p r e s e n t e d as l i m i t i n g f a c t o r s .

Employment and E a r n i n g s Changes f o r
t h e T o t a l AFDC C as el o ad
The f i r s t s t e p i n t h e e m p i r i c a l i n v e s t i g a t i o n was t o p l o t AFDC
employment f o r t h e t o t a l c a s e l o a d (m a l e -h e a d s as w el l as f e m a l e - h e a d s )
f o r each month o f t h e f i r s t y e a r un de r t h e work i n c e n t i v e .

We do t h i s

i n o r d e r t o j u d g e w h e t h e r changes i n AFDC employment f l u c t u a t e i n a
way t h a t w i l l c a u s e problems i n i n t e r p r e t i n g e a r n i n g s and employment
d a t a t a k e n o n l y from J u l y , 1969 ( t h e f i r s t month o f t h e i n c e n t i v e ) and
J u l y , 1970 (one y e a r l a t e r ) .

I f t h e r e a r e wide f l u c t u a t i o n s , i t would

be more i m p o r t a n t t o s t u d y employment d a t a f o r i n t e r v e n i n g p e r i o d s as
w e l 1 as f o r t h e one y e a r i n t e r v a l .
F i g u r e 5.1 shows t h a t , between A u g u s t , 1969 and J u l y , 1970, t h e
number o f AFDC f a m i l i e s w i t h e a r n e d incomes a l m o s t d o u b l e d , r i s i n g
s t e a d i l y from 5, 6 57 t o 10 ,7 43 .

P a rt o f t h i s increase can, o f course,

be a t t r i b u t e d t o an i n c r e a s e i n t h e AFDC c a s e l o a d o v e r t h e same ti m e
period.

However, n o t o n l y has t h e t o t a l number employed i n c r e a s e d , b u t

as shown i n F i g u r e 5 . 2 , t h e employed c a s e s as a p e r c e n t o f t h e t o t a l
c a s e l o a d have a l s o i n c r e a s e d .

Between A u g u st , 1969 and J u l y , 1970,

t h e employed p o r t i o n o f t h e AFDC c a s e l o a d i n c r e a s e d from 1 0 . 0 t o 1 3 .5
p e r c e n t , w i t h most o f t h e i n c r e a s e o c c u r r i n g w i t h i n t h e f i r s t f i v e months
o f t h e s t a r t o f t h e work i n c e n t i v e p r o v i s i o n .

92

Number of AFDC
Cases with earning!

12,000

11,000

10.000

9 .0 0 0

8.000

7.0 0 0

6 .0 0 0

5 ,0 0 0

July
1969

Aug

Sept

Oct

Nov

Dec

Jan
1970

Feb

Mar

Apr

May

June

July

Number of AFDC cases with earnings August 1969a
to July 1979
9 July 1969 data are not available
Sourcei Monthly reports AF - 001, State of Michigan, Department of Social Services

Figure 5.1

93

Percent
14.0

13.5

13.0

12.5

12.0
11.5

11.0

10.5

10.0

July

Aug

S ep t

O ct

1969

Nov

Dec

Ja n

Feb

Mar

Apr

May

Ju n e

July

1970

Percent of the total Michigan AFDC caseload with earned income
for the time period August 1969® to July 1970.
Q
July 1969 d a ta not a v a ila b le

Source : Statistical Reports Sections, M ichigan D epartm ent of Social Services, Division of Research
an d Program A nalysis
Figure 5.2

94

F i g u r e 5 . 3 shows t h a t a v e r a g e e a r n i n g s o f t h e employed AFDC
c a s e s i n c r e a s e d o v e r t h e same time p e r i o d from a b o u t $176 t o $191 p e r
month.
The c o m p a r a t i v e l y s t e a d y i n c r e a s e i n AFDC employment and e a r n i n g s
f o r t h e e n t i r e AFDC c a s e l o a d s u g g e s t s t h a t i t i s r e a s o n a b l e t o examine
d a t a a t o n l y t h e end p o i n t s i n time — J u l y , 1969 and J u l y , 1970.

Female AFDC Employment Rat es by Ge og ra p hi c Area
i n J u l y , 1969 and J u l y , 1970
As i n d i c a t e d i n C h a p t e r 4 , we s e l e c t e d two c r o s s s e c t i o n samples
and one l o n g i t u d i n a l sample o f t h e f e m a l e - h e a d e d a c t i v e AFDC f a m i l i e s .
One c r o s s s e c t i o n sample was drawn f o r J u l y , 1969 and a n o t h e r one f o r
J u l y , 1970; b o t h were s t r a t i f i e d o v e r t h i r t e e n d i f f e r e n t g e o g r a p h i c
areas of the s ta t e .
1969 sample f a m i l i e s .

The l o n g i t u d i n a l sample i n c l u d e d a l l t h e J u l y ,
We i n c l u d e d b o th t h o s e f a m i l i e s which were on

AFDC i n J u l y , 1970 o r which had l e f t t h e w e l f a r e program between J u l y ,
1969 and J u l y , 1970.

The a r e a s were s e l e c t e d t o p r e s e n t as c o m p le te

a p i c t u r e as p o s s i b l e o f t h e d i f f e r e n t g e o g r a p h i c e n v i ro n m e n ts t o which
t h e AFDC program i s a p p l i e d .

Four p r e d o m i n a t e l y r u r a l a r e a s were

s e l e c t e d t o r e p r e s e n t r u r a l Michigan - - Group 1 ( a r e a s I , I I , I I I , and
X I I I ) , and t h r e e a r e a s were s e l e c t e d t o c o v e r t h e h e a v i l y urban D e t r o i t
a r e a - - Group 3 ( a r e a s X, XI, and X I I ) .

The r e m a in in g s i x a r e a s —

Group 2 — a r e p a r t l y urban and p a r t l y r u r a l b u t i n c l u d e e v e r y r e m a in in g
m a jo r m e t r o p o l i t a n a r e a o f t h e s t a t e .

The J u l y , 1969 sample was i n t e n d e d

t o c a p t u r e t h e AFDC employment s i t u a t i o n im m ed i at el y p r i o r t o t h e i m p l e ­
m e n t a t i o n o f t h e work i n c e n t i v e ; t h e J u l y , 1970 sample was used t o
d e t e r m i n e t h e s i t u t a t i o n one y e a r l a t e r .

A d d i t i o n a l l y , we made a c r o s s

s e c t i o n sample o f c l o s e d and newly-opened w e l f a r e f a m i l i e s f o r t h e

95

A verag e m onthly
gross ea rn in g s

200-

190

/

>

/
/
/

180

170-

1

1601
1969

1

I

1970

Average monthly gross earnings for employed AFDC cases
betw een August 19698 and July 1970
° July 1969 d a ta not av ailab le
Sourcei Monthly rep o rt AF - 001, State of M ichigan, D epartm ent of Social Services.
Figure 5.3

96

t h i r t y day p e r i o d p r i o r t o J u l y , 1970.

The co m b in at i o n o f s a m p l e s ,

t h e r e f o r e , p r o v i d e s a means o f m o n i t o r i n g changes i n fem a le employment
and e a r n i n g s by g e o g r a p h i c a r e a a s w e ll as a means o f m e as u ri n g t h e
d i f f e r e n c e s i n employment due t o changes i n t h e c a s e l o a d i t s e l f .
Ta b l e 5.1 shows t h e AFDC employment r a t e s by g e o g r a p h i c a r e a
f o r t h e c r o s s s e c t i o n s o f c a s e s i n J u l y , 1969 and J u l y , 1970.

The

t a b l e r e v e a l s an i n c r e a s e i n employment o v e r t h e y e a r in a l l t h i r t e e n
a r e a s d e s p i t e p r o b a b l e d i f f e r e n c e s i n ( 1 ) l a b o r m a rk e t c o n d i t i o n s , and
(2 ) t h e k in d s o f f a m i l i e s on AFDC.

Although i n c r e a s e s i n p e r c e n t

employed v a r i e d g r e a t l y by a r e a , a l l i n c r e a s e s a r e s t a t i s t i c a l l y s i g n i f ­
icant.

A o n e - t a i l e d t e s t o f s i g n i f i c a n c e b as ed on d i f f e r e n c e s i n

means was a p p l i e d t o changes i n employment r a t e s i n each a r e a ( u s i n g
a normal a p p r o x i m a t i o n t o t h e binomial d i s t r i b u t i o n ) .
were n o t i n c l u d e d s i n c e t h e y were 100 p e r c e n t s am p l e s .

Areas I I and I I I
Of t h e r em a in in g

e l e v e n a r e a s , t h e d i f f e r e n c e i n employment p e r c e n t a g e s i s s i g n i f i c a n t
a t t h e 95 p e r c e n t c o n f i d e n c e l e v e l i n n i n e c a s e s

and a t t h e 90 p e r c e n t

l e v e l i n t h e rem a in in g a r e a s ( a r e a s VII and X I I I ) .
The l a r g e s t i n c r e a s e i n t h e p e r c e n t em p lo y ed — 9 . 6 t o 19. 5
p e r c e n t - - o c c u r r e d i n Area I , t h e Upper P e n i n s u l a .

Th is i s an a r e a i n

Group 1 which i s r u r a l , w h i t e , p o o r , has a low e d u c a t i o n a l l e v e l r e l a ­
t i v e t o Group 2 and Group 3 , and i s g e n e r a l l y c o n s i d e r e d t o be economi­
c a l l y d e p r e s s e d . The s eco nd l a r g e s t i n c r e a s e — 1 2 .6 p e r c e n t t o 2 1 .4
p e r c e n t — o c c u r r e d i n Area VIII which i s i n t h e i n t e r m e d i a t e Group 2.
The t h i r d l a r g e s t i n c r e a s e — 6 . 5 p e r c e n t t o 14.1 p e r c e n t — o c c u r r e d i n
Area X which i s i n Group 3.

This group i s t h e most u r b a n , has t h e

h ig h e st p o rtio n o f nonwhites, a h ig h e r p o rtio n o f m anufacturing j o b s ,
h i g h e r income, and h i g h e r e d u c a t i o n a l l e v e l s t h a n t h e o t h e r a r e a s .

The

97

Table 5.1
Percent of the Caseload Employed in July 1969 and
July 1970 by Geographic Area

Percent of the caseload employed

Geographic
areasa

July 1969

I

Change in percent
employed

July 1970

9.6

19.5

+9.9

18.2

21.9

+ 3.7

20.0

25.0

+5.0

IV

8.9

15.5

+6.6

V

8.6

14.2

+ 5.6

7.4

10.7

+3.3

VII

10.6

14.3

+ 3.7

VIII

12.6

21.4

+8.8

IX

11.5

17.1

+5.6

6.5

14.1

+ 7.6

9.3

14.6

+ 5.3

4.7

9.1

+4.4

11.1

14.9

+3.8

II

Group 1

III

VI

Group 2

X
XI

Group 3

XII

XIII

Group 1

a These areas are grouped in terms of the geographic categorization out­
lined in Chapter 4 and Appendix A.
Source:

Data obtained from 2 cross section samples of records of the
Michigan Department of Social Services.

98

th r e e geographic areas with the g r e a t e s t in c re a s e s in th e p erce n t o f
t h e AFDC c a s e l o a d employed, t h e r e f o r e , ran ge between t h e demographic
ex tre m es i n t h e sample.
The t h r e e a r e a s showing t h e s m a l l e s t i n c r e a s e s i n t h e p e r c e n t
employed a r e I I ( i n G r o u p 1) and VI and VII ( b o t h i n t h e i n t e r m e d i a t e
g r o u p ) . Once a g a i n , t h e r e i s no c l e a r p a t t e r n o f d i f f e r e n c e i n i n c r e a s e s
i n p e r c e n t employed o v e r t h e groups o f g e o g r a p h i c a r e a s .
So, t h e r e has been a s t a t i s t i c a l l y s i g n i f i c a n t i n c r e a s e i n t h e
AFDC employment r a t e s i n e v e r y one o f a w i d e l y d i v e r g e n t group o f a r e a s
i n M ichi gan.

I f t h i s change c o u l d be a t t r i b u t e d t o t h e work i n c e n t i v e

a l o n e , o u r t a s k would be n e a r l y f i n i s h e d .

But we s p e c u l a t e t h a t any

o n e , o r c o m b i n a t i o n , o f t h e f a c t o r s d e s c r i b e d i n C h a p t e r 4 may have
ca u s ed such an i n c r e a s e .

Now, we must t r y t o i s o l a t e t h e e f f e c t o f

t h e work i n c e n t i v e i n t h e most f e a s i b l e way.
In t h i s d i s c u s s i o n o f changes i n employment r a t e s , we w i l l
a t t e m p t t o e x p l a i n t h e i n c r e a s e d employment r a t e s th r o u g h t h e v a r i a b l e s
found i n C h a p t e r 4.

By i s o l a t i n g such e f f e c t s and by showing t h a t

t h e y a r e n o t l i k e l y t o have c au s ed t h e h i g h e r employment, we w i l l t r y
to determine th e e f f e c t o f th e i n c e n tiv e i t s e l f .

Changes i n AFDC Employment
and t h e Labor Markets
D i f f e r e n c e s i n l a b o r m a rk e ts can have an im pa ct on t h e measured
e f f e c t s o f t h e work i n c e n t i v e .

By l o o k i n g a t v a r i o u s g e o g r a p h i c a r e a s

and comparing t h e changes i n e a r n i n g and employment f o r e a c h , t o g e t h e r
w i t h d i f f e r e n c e s i n l a b o r m a rk e t c o n d i t i o n s , we can a s c e r t a i n w h e th e r
t h e i n c r e a s e i n AFDC employment can be e x p l a i n e d th ro ug h improved l a b o r
m ark et c o n d i t i o n s .

The d e s i r e d measurement o f l a b o r m a r k e t c o n d i t i o n s

99

is nonexistent.

What we need i s a measure o f t h e e x c e s s s u p p l y o r

demand f o r s p e c i f i c t y p e s o f l a b o r and s p e c i f i c t y p e s o f j o b s - - t h a t
i s , t h e p o r t i o n o f t h e e n t i r e l a b o r ma rket a p p l i c a b l e t o AFDC m o t h e r s .
Only two me asures a r e a v a i l a b l e :

(1) t h e c r u d e f i g u r e o f measured

unemployment, which has t h e sh or tc o m in g o f i n c l u d i n g a l l p e r s o n s i n t h e
l a b o r f o r c e as w ell as a l l kin d s o f j o b s , and ( 2 ) t h e e s t i m a t e o f t h e
t o t a l number o f f e m a le s employed i n jo b s which a r e t h e k in d AFDC
mo the rs a r e l i k e l y t o f i l l .

N e i t h e r l a b o r m a rk e t measure i s s a t i s f a c ­

t o r y , b u t bec a us e l a b o r m a rk e t c o n d i t i o n s a p p e a r t o be so i m p o r t a n t t o
AFDC employment, we p r e s e n t both me asures i n o r d e r t o ju d ge t h e e f f e c t
o f employment c o n d i t i o n s on t h e change i n AFDC employment r a t e s .
Unemployment r a t e s as a measure o f
l a b o r m a rk e t c o n d i t i o n s
For a l l AFDC employment
T ab l e 5 . 2 shows unemployment r a t e s f o r J u n e , 1969 and J u n e ,
1970 f o r e l e v e n sample a r e a s and AFDC employment r a t e s f o r J u l y , 1969
and J u l y , 1970 f o r a l l t h i r t e e n sample a r e a s .

The unemployment r a t e s

f o r Ju n e were s e l e c t e d i n p r e f e r e n c e t o t h o s e o f J u l y on t h e pr emise
t h a t , b ec a u se o f a ti m e l a g , r e c o r d e d changes i n t h e l a b o r m a rk e t
i n June w i l l r e g i s t e r on t h e AFDC sample d a t a i n J u l y .

Unemployment

r a t e s a r e a v a i l a b l e f o r o n ly e l e v e n o f t h e g e o g r a p h i c a r e a s unde r
study.

The unemployment r a t e s , i n most c a s e s , a r e f o r SMSA's and

i n c l u d e e i t h e r t h e e n t i r e g e o g r a p h i c a r e a from which t h e samples
were drawn o r even l a r g e r a r e a s .

For example, unemployment d a t a

f o r t h e D e t r o i t SMSA i s used t o r e p r e s e n t t h e l a b o r ma rke t c o n d i ­
t i o n s f o r a l l o f O akland, Macomb, and Wayne c o u n t i e s - - a r e a s X, XI,
and X II .

100

Table 5.2
Unemployment Rates and AFDC Employment Rate
by Geographic Area

Geographic
areas

Unemp. rate
June 1969

AFDC emp.
rate July 1969

Unemp. rate
June 1970

AFDC emp.
rate July 1970

I

3.0

9.6

9.9

II

NA

NA

NA

NA

III

NA

NA

NA

NA

IV

6.4

8.9

8.5

15.5

V

5.7

8.6

8.1

14.2

VI

4.3

7.4

6.8

10.7

VII

3.3

10.6

6.0

1
—1

VIII

4.5

12.6

6.7

21.4

IX

3.6

11.5

6.6

17.1

X

4.8

6.5

7.5

14.1

XI

4.8

9.3

7.5

14.6

XII

4.8

4.7

7.5

9.1

XIII

3.8

11.1

6.3

14.9

00

Source:

19.5

Unemployment rates obtained from the appropriate issues of
Michigan Manpower Review.

101

In a l l o f t h e e l e v e n a r e a s f o r which t h e r e a r e unemployment
d a t a , t h e r e was a s u b s t a n t i a l
J u n e , 1969 t o J u n e , 1970.

i n c r e a s e i n t h e r a t e o f unemployment from

S o , t h e AFDC employment r a t e i n c r e a s e d i n

e v e r y a r e a d e s p i t e t h e i n c r e a s e d unemployment between 1969 and 1970.
At any g iv e n p o i n t i n t i m e , however, t h e r e a p p e a r s t o be l i t t l e
r e l a t i o n between unemployment r a t e s and AFDC employment a c r o s s g e o g r a p h i c
areas.

For exam ple , t h e Upper P e n i n s u l a — Area I — had t h e h i g h e s t

a r e a unemployment r a t e i n b o th J u n e , 1969 and J u n e , 1970.

Y e t , i t had

t h e f i f t h h i g h e s t AFDC employment r a t e i n 1969; had t h e l a r g e s t i n c r e a s e
i n AFDC r a t e o f employment between J u l y , 1969 and J u l y , 1970; and was
ra n k ed second by AFDC r a t e o f employment i n 1970.

Areas V I I , IX, and

X II I had t h e l o w e s t unemployment r a t e s i n 1969 and w ere t h r e e o f t h e
f o u r a r e a s w i t h t h e h i g h e s t AFDC employment r a t e s .

The same a r e a s s t i l l

had t h e lo w e s t r a t e o f unemployment i n 1970; however, o nl y one o f t h e
a r e a s ran k ed among t h e t o p f o u r by AFDC employment r a t e s .
In a d d i t i o n t o comparing r a t e s o f AFDC employment t o unemployment
r a t e s a t a p o i n t i n t i m e , an a t t e m p t was made t o r e l a t e t h e r e l a t i v e
and a b s o l u t e changes i n unemployment r a t e s t o changes i n t h e AFDC
employment p i c t u r e .

Thi s was w i t h o u t much s u c c e s s .

I t appears th a t,

w h i l e t h e t h e o r e t i c a l r e a s o n s f o r b e l i e v i n g t h a t t h e r e l a t i v e demand
f o r l a b o r w i l l a f f e c t AFDC employment a r e t o o s t r o n g t o r e j e c t t h e
i d e a c o m p l e t e l y , t h e e v i d e n c e from t h i s s t u d y does n o t s u p p o r t t h i s
hypothesis.

However, t h e f a c t remains t h a t AFDC employment i n c r e a s e d

i n s p i t e o f i n c r e a s e d unemployment r a t e s .

Labor m a rk e t c o n d i t i o n s

measured by unemployment r a t e s c a n n o t , t h e r e f o r e , e x p l a i n t h e i n c r e a s e
i n AFDC employment.

102

For f u l l - t i m e AFDC employment
One r e a s o n t h a t unemployment r a t e s c a n n o t e x p l a i n AFDC employment
i s t h a t much AFDC employment i s p a r t - t i m e c a s u a l l a b o r .

Demand f o r

p e r s o n s i n t h e s e j o b s may n o t change i n t h e same way as t h e demand f o r
f u l l - t i m e em plo yee s.

In o r d e r t o s e e t h e e f f e c t s o f unemployment

r a t e s on f u l l - t i m e AFDC employment, t h e unemployment r a t e s were compared
t o t h e p o r t i o n s o f t h e AFDC c a s e l o a d e a r n i n g o v e r $199 p e r month.
Because d a t a on h ou rs worked by AFDC mo th ers were n o t a v a i l a b l e ,
some proxy f o r f u l l - t i m e employment was ne ede d.
t h e b e s t proxy a v a i l a b l e .

E ar ni n gs l e v e l was

I t was assumed t h a t anyone e a r n i n g o v e r $199

p e r month was working f u l l time (more t h a n 35 h ou rs p e r w ee k ) .
r a t i o n a l e f o r t h e ass u m p ti o n i s as f o l l o w s :

The

a t t h e S t a t e o f M ic h i g a n ' s

minimum wage ( a s o f J u l y 1, 1970) o f $1 .4 5 p e r h o u r , 1 f u l l - t i m e e a r n i n g s
a r e g r e a t e r t h a n $199 p e r month.

Thi s means t h a t t h o s e f u l l - t i m e

employed mot hers who a r e n o t i n c l u d e d u n d e r t h e above d e f i n i t i o n o f f u l l
ti m e a r e t h o s e employed i n v er y smal l f i r m s and a few exempted i n d u s ­
tries.

Th is may be an i m p o r t a n t s o u r c e o f e r r o r i n t h e e s t i m a t e o f f u l l ­

ti m e employment b ec a u se many mot hers a r e employed i n t h e d o m e s t ic
s e r v i c e i n d u s t r y and may be employed f u l l ti m e b u t e a r n u n d e r $199.
For t h i s r e a s o n , t h e number d e f i n e d as f u l l - t i m e employed by t h e $199
e a r n i n g s proxy t e n d s t o u n d e r s t a t e t h e a c t u a l number.
On t h e o t h e r h an d, i t i s l i k e l y t h a t t h e r e a r e some p a r t - t i m e
employed mo th ers who e a r n more t h a n $199.

For t h i s r e a s o n , t h e number

o f m ot her s c o u n t e d as employed f u l l t i m e t e n d s t o be o v e r s t a t e d .
H o p e f u l l y , t h e above two e r r o r s a r e o f f s e t t i n g .

With t h i s as an assump­

t i o n , t h e number e a r n i n g o v e r $199 p e r month becomes a r e a s o n a b l e
e s t i m a t e o f t h e number o f f u l l - t i m e employed.

103

A comparison o f unemployment r a t e s w i t h f u l l - t i m e employment
r a t e s ( i . e . f u l l ti m e a s a p e r c e n t o f t h e t o t a l employed AFDC c a s e l o a d
i n t h e a r e a ) i s shown i n T a b l e 5 . 3 .

Area VII has t h e l o w e s t r a t e o f

unemployment a n d , by f a r , t h e h i g h e s t p o r t i o n o f t h e employed AFDC
mo the rs working f u l l ti m e i n 1969.

Area I has t h e h i g h e s t unemploy­

ment an d , by f a r , t h e l o w e s t p o r t i o n o f AFDC f u l l - t i m e employment i n
1969.

While t h i s r e l a t i o n s h i p does n o t h o l d p e r f e c t l y f o r t h e r e s t o f

t h e g e o g r a p h i c a r e a s , h ig h unemployment r a t e s a p p e a r t o be g e n e r a l l y
a s s o c i a t e d w i t h a low e s t i m a t e d p o r t i o n o f f u l l - t i m e employment i n
1969.

In 1970, a r e a s V I I , IX, and X I I I have t h e l o w e s t unemployment

r a t e s and t h e h i g h e s t p o r t i o n s o f f u l l - t i m e employed c a s e s .
time, Area I c l e a r l y had t h e h i g h e s t unemployment r a t e

At t h e same

and was t h e

a r e a w i t h t h e l o w e s t p o r t i o n o f f u l l - t i m e AFDC employment.
I t a p p e a r s t h a t unemployment r a t e s were r e l a t e d i n v e r s e l y t o
f u l l - t i m e AFDC employment, o r a t l e a s t t o o u r e a r n i n g s p r o xy .

Because

unemployment r a t e s i n c r e a s e d between J u n e , 1969 and J u n e , 1970 i n a l l
g e o g r a p h i c a r e a s , we s e e a g a i n t h a t even i f unemployment r a t e s a r e
r e l a t e d t o f u l l - t i m e employment - - as T a b l e 5 . 3 s u g g e s t s - - t h i s r e i n ­
f o r c e s o u r e a r l i e r p r o p o s i t i o n t h a t AFDC employment r a t e s a p p e a r t o have
i n c r e a s e d in s p i t e o f , n o t b e c a u s e o f , l a b o r m a rk e t c o n d i t i o n s .

Female employment i n s e l e c t e d o c c u p a t i o n s
as a measure o f l a b o r m a rk e t " c o n d i t i o n s
For a l l AFDC employment
Q u e s ti o n s a b o u t t h e a p p r o p r i a t e n e s s o f u s i n g unemployment r a t e s
as a measure o f l a b o r m a rk e t c o n d i t i o n s l e d t o an a t t e m p t t o e x p l a i n
t h e i n c r e a s e d AFDC employment w i t h a d i f f e r e n t e s t i m a t e o f l a b o r m a r k e t
conditions.

A b e t t e r measure o f changes i n t h e l a b o r ma rk e ts between

T able 5 .3
Unemployment R ates and E stim ate d F ull-T im e AFDC Employment:

By G eographic Areaa

1969
G eographic
Areas

1970

E stim ate d f u ll- tim e
AFDC employment
Unemployment
As p e rc e n t o f
ra te
employed AFDC
c a se lo a d

As p e rc e n t o f
e n t i r e AFDC
c a se lo a d

E stim ate d f u l l - t i m e
AFDC employment
Unemployment
ra te

As p e rc e n t o f As p e r c e n t o f
employed AFDC e n t i r e AFDC
ca se lo ad
c a s e lo a d

8.0

17.7

1 .7

9 .9

23 .6

4.6

II

NA

NA

NA

NA

NA

NA

III

NA

NA

NA

NA

NA

NA

IV

6 .4

29 .3

2 .6

8.5

38.2

5.9

V

5.7

22.1

2 .0

8 .1

37.8

5 .4

VI

4 .3

38.2

2 .8

6 .8

44.9

4 .8

VII

3.3

50.1

5 .3

6 .0

49.3

7 .1

V III

4 .5

34.3

4 .3

6 .7

4 3 .1

9 .2

IX

3.6

35.5

4 .1

6 .6

55.5

9 .5

X

4 .8

4 2.8

2 .8

7 .5

45.9

6 .5

XI

4 .8

37.0

3 .5

7 .5

33.3

4 .9

XII

4 .8

3 2.3

1.5

7 .5

35.5

3 .3

X III

3.8

26.6

3 .0

6 .3

47.5

7 .1

.

a Unemployment r a t e s a r e f o r June w h ile employment r a t e s a r e f o r J u ly ( o f th e g iven y e a r ) .
S ource:

Unemployment r a t e s o b ta in e d from M ichigan Manpower Review.

104

I

105

J u n e , 1969 and J u n e , 1970 might be t h e change i n t h e t o t a l number o f
f em al es employed i n t h o s e j o b s which a r e l i k e l y t o be f i l l e d by AFDC
mothers ( p e r t i n e n t j o b s ) .

T h i s , however, has t h e obvious d i s a d v a n t a g e

o f n o t a c c o u n t i n g f o r changes i n t h e q u a n t i t y o f l a b o r s u p p l i e d b u t
i n d i c a t i n g o n ly t h e number o f p e r s o n s a c t u a l l y employed.
Ta b l e 5 . 4 shows t h e e s t i m a t e s o f t h e changes i n p e r t i n e n t fema le
employment i n e l e v e n o f t h e t h i r t e e n g e o g r a p h i c a r e a s where d a t a were
available.

(The e s t i m a t i o n p r o c e d u r e i s d e s c r i b e d i n Appendix C.)

A s l i g h t l y d i f f e r e n t p i c t u r e o f t h e a r e a l a b o r m a rk e ts i s
o b t a i n e d from t h e d a t a i n Tabl e 5 . 4 .

While unemployment i n c r e a s e d i n

e v e r y a r e a , t h e e s t i m a t e d t o t a l numbers o f f em a le s employed i n p e r t i ­
nent jobs in c re a s e d in f i v e o f th e eleven a r e a s .

Ac cor din g t o t h i s

m e as ur e , l a b o r m a rk e t c o n d i t i o n s improved i n f i v e o f t h e a r e a s s t u d i e d .
But changes i n t o t a l p e r t i n e n t fema le employment do n o t a p p e a r t o be
p o s i t i v e l y r e l a t e d t o changes i n t h e AFDC employment r a t e s .

The a r e a s

w i t h t h e l a r g e s t i n c r e a s e in fe m a le s employed in t h e p e r t i n e n t j o b s
a r e g e n e r a l l y n o t t h o s e w i t h t h e l a r g e s t i n c r e a s e i n AFDC employment
rates.

Areas VII and X I I I , f o r exam ple , have t h e l a r g e s t i n c r e a s e i n

p e r t i n e n t fema le employment as a p o r t i o n o f t h e t o t a l f em a le work f o r c e
as o f J u l y , 1970.

Those two a r e a s , however, a r e among t h r e e a r e a s

-with t h e l o w e s t i n c r e a s e i n t h e AFDC employment r a t e s .

Area I , on t h e

o t h e r h a n d , had t h e t h i r d g r e a t e s t p r o p o r t i o n a l i n c r e a s e i n p e r t i n e n t
fem al e employment and a l s o t h e l a r g e s t i n c r e a s e i n AFDC employment
rates.

A s i m i l a r l y ambiguous s i t u a t i o n o c c u r r e d i n a r e a s X, XI, and

XII which had t h e g r e a t e s t p r o p o r t i o n a l d ro p i n p e r t i n e n t female employ­
m e n t, a l t h o u g h n o t one o f t h e a r e a s was among t h e l o w e s t i n terms o f
i n c r e a s e d AFDC employment.

106

Table 5.4
Estimated Changes in Female Employment
in Jobs Pertinent to AFDC Mothers and the
Change in Percent of AFDC Employment from 1969 to 1970a

Estimated change in
female employment
Geographic
areas
Change in
number

I

Change in percent
Change as percent of ADC employment
of total female
from 1969 to 1970
work force in
July 1970

+651

+2.8

+9.9

-----

----

-----

-1,094

-1.7

+6.6

V

-492

-1.8

+5.6

VI

-494

-1.3

+ 3.3

+1,639

+4.7

+3.7

VIII

+537

+1.6

+ 8.8

IX

+191

--

+ 5.6

II
III
IV

VII

X

-9,680

-2.5

+7.6

XI

-9,680

-2.5

+5.3

XII

-9,680

-2.5

+4.4

+450

+ 3.4

+ 3.8

XIII

cl

•

See Appendix C for a detailed description of the derivation of these
figures and source of data.

107

For f u l l - t i m e AFDC employment
Somewhat more c o n c l u s i v e r e s u l t s were o b t a i n e d by u s i n g changes
i n p e r t i n e n t fema le employment t o e x p l a i n changes i n t h e p o r t i o n o f
t h e AFDC c a s e l o a d e s t i m a t e d t o be employed f u l l t i m e ( e a r n i n g o v e r
$199 p e r month).

However, Ta bl e 5 . 5 shows t h a t t h e e s t i m a t e d change

i n t h e p e r t i n e n t f e m a le employment i s n o t s t r o n g l y r e l a t e d t o changes
i n t h e r a t e s o f AFDC f u l l - t i m e employment.
All o f t h e t h r e e a r e a s w i t h t h e g r e a t e s t i n c r e a s e i n t h e p o r t i o n
o f AFDC mothers e s t i m a t e d t o work f u l l ti m e ( V I I I , IX, and X I I I )
showed i n c r e a s e d t o t a l f em al e employment i n p e r t i n e n t j o b s .

Two o f

t h e t h r e e a r e a s w i t h t h e l e a s t i n c r e a s e i n t h e AFDC f u l l - t i m e employ­
ment r a t e (XI and X I I) had d e c r e a s e d t o t a l employment i n p e r t i n e n t j o b s .
The t h i r d , however, Area V I I , had t h e l a r g e s t r e l a t i v e i n c r e a s e i n
t o t a l p e r t i n e n t employment (as measured i n t h e m i d d le column o f t h e
table).
The c o n c l u s i o n drawn from t h e l a b o r m a rk e t me asures i s t h a t t h e
r e l a t i o n s h i p between t h e r a t e o f AFDC employment and t h e measurements
o f t h e l a b o r m a rk e t a r e ambiguous a t b e s t .

I f anything, t i g h t e r labor

m a r k e t s , as measured i n t h i s s t u d y , may be r e l a t e d t o h i g h e r AFDC
e a r n i n g s which can be used as a proxy f o r f u l l - t i m e employment.

However,

n e i t h e r measure o f t h e l a b o r ma rke ts can a d e q u a t e l y e x p l a i n th e
i n c r e a s e d AFDC employment r a t e .

In g e n e r a l , t h e me asu re s i n d i c a t e a

d e c l i n e i n l a b o r m a rk e t c o n d i t i o n s ; and t h e r e f o r e , i t a p p e a r s r e a s o n a b l e
t o r e i t e r a t e t h e c l a i m t h a t t h e i n c r e a s e i n AFDC employment r a t e s
o c c u r r e d i n s p i t e o f , n o t b ec a u se o f , changes i n t h e l a b o r ma rket
condi t i o n s .

108

Table 5.5
Estimated Changes in Female Employment in Jobs Pertinent to AFDC
Mothers and the Change in the Percent of the Caseload Earning
$200 or more Per Month Between July, 1969 and July, 1970

Geographic
area

I

Change in the
total number of
females employed
in pertinent jobs

Changes in perti­
nent jobs as per­
cent of total
female work force

Change in percent
of employed AFDC
cases with earn­
ings > 200 per
month

+651

+2.0

2,9

-----

-----

-----

-1,094

-1.7

3.3

V

-492

-1.8

3.4

VI

-494

-1.3

2.0

+1,639

+4.7

1.8

VIII

+537

+1. fa

4.9

IX

+191

-----

5.4

X

-9,680

-2.5

2.7

XI

-9,680

-2.5

1.4

XII

-9,680

-2.5

1.8

+450

+ 3.4

4.1

II
III
IV

VII

XIII

Source:

Data obtained from the records of the Michigan Department of
Social Services.

109

Work A t t i t u d e s , A t t i t u d e s toward
W el far e and AFDC Employment
I t i s p o s s i b l e t h a t an i n c r e a s e d p r e f e r e n c e f o r work o r a
d e c r e a s e d d e s i r e t o be on w e l f a r e c o u l d a c c o u n t f o r t h e i n c r e a s e d AFDC
employment between J u l y , 1969 and J u l y , 1970.
unlikely.

T h i s , however, i s q u i t e

The n e t employment e f f e c t s o f new AFDC f a m i l i e s - - t h e most

l i k e l y p l a c e f o r t h e e f f e c t s o f changes i n a t t i t u d e s t o a p p e a r - - can
be t r e a t e d s e p a r a t e l y .

(See t h e f o l l o w i n g s e c t i o n on c a s e o p e n i n g s . )

However, t h e p o s s i b i l i t y o f any changes i n t h e a t t i t u d e s o f t h e mot hers
who were a l r e a d y on AFDC must be c o n s i d e r e d .

There i s no a p p a r e n t

r e a s o n why t h e a t t i t u d e s o f t h e e x i s t i n g c a s e l o a d s h o u l d h a v e undergone
a pronounced change i n f a v o r o f work between J u l y , 1969 and J u l y , 1970.
In f a c t , i t i s more l i k e l y t h a t any s ti g m a a t t a c h e d t o r e c e i v i n g AFDC
d e c r e a s e d o v e r t h e y e a r b e c a u s e o f changes i n t h e p r o c e d u r e s o f t h e
Michigan Department o f S o c i a l S e r v i c e s and b e c a u s e o f p u b l i c r e l a t i o n s
work by groups such as t h e W el far e R i g h t s O r g a n i z a t i o n .

S elf-support,

t h e r e f o r e , may have become r e l a t i v e l y l e s s d e s i r a b l e .
But no s p e c i f i c i n f o r m a t i o n a b o u t a p o s s i b l e change i n employ­
ment a t t i t u d e s e x i s t s .

O b t a i n i n g such i n f o r m a t i o n would have i n v o l v e d

c o s t l y i n t e r v i e w s b e f o r e and a f t e r t h e work i n c e n t i v e be gan .
was n o t a t t e m p t e d f o r two r e a s o n s .

F i r s t , t h i s s t u d y was s t a r t e d t o o

l a t e t o g e t a t t i t u d i n a l d a t a p r i o r t o J u l y , 1969.
were a v a i l a b l e t o make such a s t u d y .

This

Second, no r e s o u r c e s

D e s p i t e a la c k o f e v i d e n c e ,

we do n o t t h i n k i t u n r e a s o n a b l e t o assume t h a t changes in work a t t i t u d e s
and a t t i t u d e s toward w e l f a r e a r e n o t l i k e l y t o change a p p r e c i a b l y i n
one y e a r . T h e r e f o r e , i t i s u n l i k e l y t h a t t h i s v a r i a b l e c o n t r i b u t e d t o
t h e i n c r e a s e d AFDC employment between J u l y , 1969 and J u l y , 1970.

no
Tu rn o ve r i n t h e AFDC C as el oad
and AFDC Employment
The AFDC c a s e l o a d can change i n t h r e e ways:

th r o u g h c a s e

o p e n i n g s , c a s e c l o s i n g s , and ch an ge s i n t h e a c t i v e c a s e l o a d i t s e l f .
In t h i s s e c t i o n , we w i l l d i s c u s s t h e e f f e c t s on employment o f w e l f a r e
f a m i l i e s which e n t e r and l e a v e AFDC.

L a t e r , we w i l l c o n s i d e r t h e

w e l f a r e program v a r i a b l e s which hav e t h e p o t e n t i a l t o change some o f
t h e c h a r a c t e r i s t i c s o f t h o s e i n t h e e x i s t i n g AFDC c a s e l o a d , and t h e r e ­
f o r e , t h e i r r a t e o f employment.

F a m i l i e s e n t e r i n g w e l f a r e and AFDC
employment r a t e s
New w e l f a r e f a m i l i e s and AFDC
employment r a t e s ( s t a t e - w i d e
fi gures)
Our conc er n i n t h i s s e c t i o n i s t h e manner i n which a l a r g e number
o f new f a m i l i e s c o u l d a f f e c t t h e AFDC employment r a t e s .

Recalling

C h a p t e r 4 , t h e r e w ere an e s t i m a t e d 4 1 , 5 0 0 new AFDC f a m i l i e s i n Michigan
between J u l y , 1969 and J u l y , 1970.

This r e p r e s e n t s n e a rly h a l f o f the

a p p r o x i m a t e l y 8 0 , 0 0 0 t o t a l f a m i l i e s on AFDC i n J u l y , 1970.

I t is th ere­

f o r e q u i t e p o s s i b l e t h a t t h i s r e l a t i v e l y l a r g e number o f new f a m i l i e s
c o u l d cau se s i g n i f i c a n t changes i n t h e AFDC employment r a t e s o v e r t h e
f i r s t y e a r o f th e work i n c e n t i v e .
The f i r s t p l a c e t o lo ok f o r t h e e f f e c t o f new f a m i l i e s on measured
AFDC employment i s t h e employment r a t e s o f f a m i l i e s a c c o r d i n g t o l e n g t h
o f ti m e on AFDC.

T a b l e 5 . 6 — b a s e d on a l l f a m i l i e s which were i n t h e

J u l y , 1970 sample o f a c t i v e f e m a l e - h e a d e d AFDC f a m i l i e s - - shows t h a t
t h e AFDC employment r a t e t e n d s t o r i s e f o r t h e f i r s t y e a r t h e mothers
a r e on AFDC.

Mothers who have been on AFDC f o r p e r i o d s o f t i m e between

one and f o u r y e a r s hav e an a l m o s t c o n s t a n t employment r a t e .

For

Ill

Table 5.6
Percent of the Michigan AFDC Caseload Employed:
By Length of Time on Welfare3

Length of time on
AFDC in months

Percent of the caseload
employed

Sample
size

7

8.6

2,244

7 - 13

11.8

1,332

13 - 25

12.9

1,464

25 - 37

12.7

848

37 - 49

12.9

313

0 -

6,201

a This table is based upon data obtained on 6,201 clients out of a total
of 7,656 in our sample. The discrepancy in sample size is due to the
fact that some cases, mainly those on welfare for a longer time, do
not have an opening date recorded.
Because of this, the figures do
not give a good picture of the distribution of the caseload by length
of time on welfare.
However, since we know of no reason why the re­
maining cases should be biased in favor of more or less employment,
we feel the rates of employment are reasonable estimates.
Source:

Data obtained from records of the Michigan Department of
Social Services.

112

l e n g t h s o f ti m e on AFDC l o n g e r t h a n f o u r y e a r s , t h e d a t a have some e r r o r
and t h e r e f o r e a r e n o t p r e s e n t e d h e r e .
The d a t a i n T a b l e 5 . 6 imply t h a t t h o s e m o th er s who came on AFDC
d u r i n g t h e p e r i o d o f t h e work i n c e n t i v e had a lo w er r a t e o f employment
th a n t h e g e n e r a l c a s e l o a d .

Because t h e number o f new f a m i l i e s i s

r e l a t i v e l y l a r g e , i t seems r e a s o n a b l e t o a s s e r t t h a t t h e new f a m i l i e s
t e n d e d t o d e c r e a s e t h e AFDC employment r a t e s d u r i n g t h e f i r s t y e a r
o f t h e work i n c e n t i v e

and t h a t t h e a c t u a l i n c r e a s e s i n t h o s e r a t e s

o c c u r r e d i n s p i t e o f t h e i n c r e a s e d number o f new f a m i l i e s on AFDC.

Employment r a t e s o f new AFDC m ot he r s
(by g e o g r a p h i c a r e a j
~
“
T a b l e 5 . 7 compares t h e r a t e o f employment f o r a l l a c t i v e AFDC
mo th er s w i t h t h a t o f t h o s e who w ere new w i t h i n t h e 30 day p e r i o d p r i o r
t o J u l y , 1970.

In t w e l v e o f t h e t h i r t e e n g e o g r a p h i c a r e a s , t h e employ­

ment r a t e f o r new mo th ers was l e s s th a n t h a t o f a l l a c t i v e m o t h e r s .
In Area VII, t h e employment r a t e was g r e a t e r .

Co n cl u si o n s drawn from

th e se data a re g e n e r a lly c o n s i s t e n t with our e a r l i e r conclusion based
on a sample o f a l l mo th ers by l e n g t h o f t i m e on AFDC.

But i t does

add more s u p p o r t t o t h e c o n t e n t i o n t h a t t h e employment r a t e s o f AFDC
m o th er s i n c r e a s e d i n s p i t e o f , n o t b e c a u s e o f , t h e high r a t e o f new
openings.
In o r d e r t o co m p lete t h e a n a l y s i s o f t h e work i n c e n t i v e and new
AFDC f a m i l i e s , i t s h o u ld be m e n ti o n e d t h a t t h e i n c e n t i v e i t s e l f c o u l d
c a u s e a drop i n t h e measured AFDC employment r a t e s .

I f the in c e n tiv e

c a u s e d n o n - w e l f a r e m ot her s t o q u i t t h e i r j o b s and t h e n e n t e r AFDC
w i t h t h e i n t e n t o f working (a p o s s i b i l i t y n o te d i n C h a p t e r 2 ) , t h e y

113

Table 5.7
AFDC Employment Rates for All Active and for Newly
Opened Cases, July 1970a

Geographic
area

Percent Employed
Active
cases

Newly opened
cases

Sample sizes,
newly opened
cases

I

19.5

14.8

61

II

21.9

20.0

20

III

25.0

9.1

11

IV

17.5

8.2

208

V

14.2

8.3

204

VI

10.7

6.4

313

VII

14.3

15.2

244

VIII

21.4

11.4

114

IX

17.1

11.0

73

X

14.1

9.0

368

XI

14.6

7.2

83

9.1

1.6

124

14.9

9.5

116

XII
XIII

a Rates for the active cases are from the July
1970 cross section
sample; rates for the newly opened cases are
from special samples of
cases opened in June 1970.
(100% samples for all areas
except Area
XII, when a 20% sample was drawn).
Source:

Data obtained from records of the Michigan Department of
Social Services.

114

may be p i c k e d up i n t h e sample as unemployed.

U nfortunately, th e re is

no e v i d e n c e t o d e t e r m i n e w h e t h e r t h i s o c c u r r e d .

The employment e f f e c t o f new f a m i l i e s —
e v i d e n c e from a l o n g i t u d i n a l samples
Our c l a i m t h a t new f a m i l i e s had an a d v e r s e e f f e c t on changes i n
AFDC employment can be checked th rou gh t h e use o f a l o n g i t u d i n a l sample.
I f t h e same group o f f a m i l i e s i s f o l l o w e d between J u l y , 1969 and J u l y ,
1970, t h e e f f e c t o f new c a s e op eni ngs i s e l i m i n a t e d .

I f the conclusions

o f t h e p r e v i o u s s e c t i o n a r e v a l i d , a g r e a t e r i n c r e a s e i n employment
s h o u l d be d e t e c t e d i n t h e l o n g i t u d i n a l sample t h a n between t h e two
c r o s s s e c t i o n sa mp le s.
Tab le 5 . 8 compares t h e employment r a t e s f o r t h e sample o f 4, 6 6 0
fe m a l e - h e a d e d f a m i l i e s by a r e a , in J u l y , 1969, and o f 3,831 o f t h o s e
r e c i p i e n t s who remained on AFDC th r o u g h J u l y , 1970.

I t a l s o shows t h e

employment r a t e s f o r t h e 1970 c r o s s s e c t i o n sample o f a c t i v e f e m a l e ­
headed fami 1i e s .
The employment r a t e s f o r both t h e l o n g i t u d i n a l and c r o s s s e c t i o n
samples i n 1970 i n c r e a s e d from t h a t i n J u l y , 1969 f o r e v e r y one o f t h e
t h i r t e e n geographic a r e a s .

In a l l b u t t h r e e a r e a s , t h e r a t e o f employ­

ment was h i g h e r f o r t h e l o n g i t u d i n a l sample t h a n t h e J u l y , 1970 a c t i v e
s am pl e.

Thi s i s c o n s i s t e n t w i t h e x p e c t a t i o n s and g i v e s added s u p p o r t

t o t h e a s s e r t i o n t h a t t h e l a r g e number o f new r e c i p i e n t s red uce d t h e
e f f e c t o f t h e work i n c e n t i v e as measured by employment r a t e s o f c r o s s
s e c t i o n s o f t h e f e m a le - h e a d e d AFDC c a s e l o a d .
The e f f e c t o f t h e work i n c e n t i v e on t h o s e who were on AFDC a t
t h e s t a r t o f t h e work i n c e n t i v e can be lo o k e d a t a n o t h e r way.

Of t h e

3,831 sample mot hers who were on AFDC i n b o t h J u l y , 1969 and J u l y , 1970,

115

Table 5.8
Comparison of the Employment Rates of the July 1969 Sample
With the Same Cases in July 1970 and a New Cross
Section Sample of Active Cases in July 1970

Geographic
area

Percent employed July 1969 active, July 1970
longitudinal and July 1970 active
July 1969
active

July 1970
longitudinal

9.6

22.7

19.5

II

18.2

26.5

21.9

III

20.0

30.8

25.0

IV

8.9

14.7

15.5

V

8.6

14.8

14.2

VI

7.4

14.2

10.7

VII

10.6

17.1

14.3

VIII

12.6

25.3

21.4

IX

11.5

19.6

17.1

X

6.5

14.6

14.1

XI

9.3

13.3

14.6

XII

4.7

10.6

9.1

11.1

14.2

14.9

I

XIII

Source:

July 1970
active

Data obtained from records of the Michigan Department of
Social Services.

116

372 were employed i n J u l y , 1969, w h i l e s u b s t a n t i a l l y more — 635 - were employed i n J u l y , 1970.

The o v e r a l l changes i n employment a r e

summarized i n F i g u r e 5 . 4 .
L et us c o n s i d e r t h e f a m i l i e s which were a c t i v e i n J u l y , 1969
and a y e a r l a t e r .

Of t h o s e who were employed i n J u l y , 1969, a b o u t

60 p e r c e n t , o r 215 f a m i l i e s , were employed i n J u l y , 1970.

In a d d i t i o n

t o t h i s , 420 o f t h o s e f a m i l i e s who were unemployed i n J u l y , 1969 w ere
employed i n J u l y , 1970.

The employment i n c r e a s e s ou tw ei gh t h e d e c r e a s e s

by 263 f a m i l i e s f o r a 70 p e r c e n t n e t i n c r e a s e i n t h e number o f f a m i l i e s
employed.
Thus, a m a j o r i t y o f t h e a c t i v e m o th er s employed i n J u l y , 1969,
when t h e work i n c e n t i v e went i n t o e f f e c t , were s t i l l employed i n J u l y ,
1970, w h i l e a s t i l l

g r e a t e r number o f m o t h er s moved from an unemployed

s t a t u s i n 1969 t o employment i n 1970.

I t i s a p p a r e n t t h a t employment

and e a r n i n g s i n c r e a s e d c o n s i d e r a b l y f o r t h o s e who w ere on AFDC p r i o r
t o t h e i m p le m e n ta t io n o f t h e work i n c e n t i v e .

F a m i l i e s l e a v i n g w e l f a r e and
AFDC employment r a t e s
Changes i n t o t a l AFDC c l o s i n g s
As shown by F i g u r e 5 . 5 , t h e i n c r e a s e i n t h e Michigan AFDC c a s e ­
l o a d between J u l y , 1968 and J u l y , 1970 ha s been p r i m a r i l y due t o a
l a r g e i n c r e a s e i n new f a m i l i e s .
During t h e J u l y , 1969 t o J u l y , 1970 p e r i o d , t h e monthly c l o s i n g s
r emained above 1,000 f a m i l i e s i n a l l b u t one month and climbed o v e r
1 , 7 0 0 i n J u l y , 1970.

I t a p p e a r s t h a t t h e work i n c e n t i v e

has n o t

d e c r e a s e d t h e number o f f a m i l i e s l e a v i n g AFDC as c o u l d be e x p e c t e d from
t h e a n a l y s i s i n C h a p t e r 2; how eve r, t h e r a t e o f c l o s i n g s has f a l l e n

117

Cases employed in
July, 1969

Cases unemployed in
July, 1969

372

3,459

/
Unemployed
July, 1970

157

/

\
Employed
July, 1970

Employed
July, 1970

215

\

420

Unemployed
July, 1970

3,039

Total employed
July, 1970

635

Number of AFDC Cases Employed in 1969 and 1970:
A Longitudinal Sample
Source:

Figure 5.4 was prepared from data obtained from the records
of the Michigan Department of Social Services.
Figure 5.4

118

Number of cases
per month
4000

3500

3000

2500
o p en ed cases

2000

1500
clo sed cases

1000

500

J

A S

1968

O

N

D

J

F M A M J

J

A S O N D J

1969

F

M

A

M

J

J

1970

Michigan AFDC case openings and closings between July 1968
and July 1970.
Source: Statistical Reports Section, Michigan D epartm ent of Social Services, Division of Research
an d Program Analysis
Figure 5.5

)

119

b e c a u s e t h e c a s e l o a d moved s h a r p l y h i g h e r .

Furthermore, th e average

p o r t i o n o f t h o s e c l o s i n g s which were r e p o r t e d — as c l o s e d b e c a u s e o f
employment r e a s o n s — f e l l

from a b o u t 33 p e r c e n t f o r t h e p e r i o d o f J u l y ,

1968 t o J u n e , 1969 t o a b o u t 23 p e r c e n t f o r t h e p e r i o d o f S ep te m b er ,
1969 t o J u l y , 1970.

(Data f o r J u n e and J u l y , 1969 a r e n o t a v a i l a b l e . )

I s o l a t i n g t h e employment e f f e c t
o f a reduction in closings
The i m p o r t a n t q u e s t i o n h e r e i s as f o l l o w s .

Has t h e work i n c e n ­

t i v e e n c o u r a g e d f a m i l i e s , who m ig h t o t h e r w i s e have l e f t AFDC t o se ek
employment, t o rema in?

In o t h e r w o r d s , has t h e work i n c e n t i v e , by e n ­

c o u r a g i n g employed mo th ers t o remain on w e l f a r e , c au s ed p a r t o f t h e
measured i n c r e a s e i n AFDC employment?
t h a t i t would.

Our a n a l y s i s o f C h a p t e r 2 i m p l i e s

To answer t h i s , we must i s o l a t e t h i s e f f e c t which we

sh all call the negative e f f e c t o f the incentive.
While t h e r e i s no way o f a c c u r a t e l y d e t e r m i n i n g t h e number o f
p e r s o n s who would have e a r n e d enough t o l e a v e w e l f a r e in t h e abs en ce
o f t h e work i n c e n t i v e ( a d e q u a t e pr e- w or k i n c e n t i v e d a t a w i t h which t o
g e n e r a t e p r o j e c t i o n s a r e u n a v a i l a b l e ) , t h e f o l l o w i n g rough e s t i m a t e has
2
been d e v e l o p e d .
For t h e e n t i r e J u l y , 1970 s a m p l e , a c o m p u ta ti o n was made o f t h e
number o f mot hers who had e a r n i n g s n e t o f work e x pe n s es which were a t
l e a s t equal t o t h e g r a n t t h e mo th er would have r e c e i v e d i f no one i n t h e
f a m i l y were wor king a t a l l .

Thi s i s t h e number o f r e c i p i e n t s who were

e a r n i n g enough t o have been f o r c e d o f f o f w e l f a r e i f i t had n o t been
f o r t h e work i n c e n t i v e .

In t h e a b s e n c e o f t h e work i n c e n t i v e , a l l o f

t h e s e mo thers would have l o s t up t o t h e t o t a l o f c h i l d c a r e , M e d ic a id ,
and Food Stamps by e a r n i n g t h i s much.

An a d d i t i o n a l c o m p u ta ti o n

120

was made o f t h e number w i t h n e t e a r n i n g s eq u al t o an a r b i t r a r i l y
s e l e c t e d amount o f a t l e a s t f i f t y d o l l a r s g r e a t e r t h a n t h e non-work
grant.

These mot hers would l o s e c h i l d c a r e , M ed ica id and t h e Food

Stamp b o n u s , l e s s t h e amount by which f i f t y d o l l a r s exc e ed s work
e x p e n s e s , which makes l e a v i n g AFDC somewhat more r e a s o n a b l e s i n c e
t h e i r economic l o s s i s l e s s .
The s i m p l i s t i c a s s u m p ti o n was t h e n made t h a t p e r s o n s w ith
e a r n i n g s above t h e s e two c r i t i c a l p o i n t s were t h e ones who would have
e a r n e d enough t o l e a v e w e l f a r e v o l u n t a r i l y i n t h e a b s e n c e o f t h e work
incentive.

We f e e l t h a t t h i s p r o c e d u r e p r o v i d e s c o n s e r v a t i v e e s t i m a t e s

o f t h e number o f p e o p l e t h a t t h e work i n c e n t i v e en c o u r a g e d t o remain
on w e l f a r e .

The number o f r e c i p i e n t s i n each e s t i m a t e was t h e n s u b ­

t r a c t e d from b o th t h e t o t a l sample and t h e number employed i n each
a r e a i n J u l y , 1970.

In o t h e r w o r d s, a l l t h o s e who e a r n e d enough t o

have been f o r c e d o f f AFDC w i t h o u t t h e work i n c e n t i v e and t h o s e e a r n i n g
a t l e a s t f i f t y d o l l a r s p e r month more t h a n t h a t amount were o m i t t e d .
T h i s as s u m p ti o n p r o b a b l y o v e r s t a t e s t h e n e g a t i v e e f f e c t s o f t h e work
i n c e n t i v e , s i n c e some o f t h o s e e a r n i n g t h e s e h i g h e r amounts p r o b a b l y
d i d so b e c a u s e o f t h e p o s i t i v e e f f e c t s o f t h e i n c e n t i v e .

The r e s u l t

is t h a t the e s tim a tio n procedure is l i k e l y to u n d e r s ta t e th e p o s iti v e
e ffe c ts of the incentive.

T a b l e 5 . 9 shows t h e r e s u l t i n g c o n s e r v a t i v e

e s t i m a t e o f t h e p o s i t i v e employment e f f e c t o f t h e work i n c e n t i v e .
T h i s i s e x p r e s s e d i n te rm s o f employment r a t e s which have been a d j u s t e d
f o r t h e e x p e c t e d n e g a t i v e e f f e c t o f t h e i n c e n t i v e (which i s a r e d u c t i o n
i n AFDC c l o s i n g s ) .
The b a s i c c o n c l u s i o n drawn from t h e t a b l e i s t h a t w h i l e a d j u s t ­
ments n a t u r a l l y r e d u c e t h e i n c r e a s e s i n employment p e r c e n t a g e s i n a l l

121
Table 5.9
Portion of the AFDC Caseload Which Was Employed in July 1969 and
July 1970 (1970 Figures Adjusted to Account for Possible
Negative Effects of the Work Incentive)

Geographic
area

AFDC employment
rate July 1969

July 1970 AFDC em­
ployment rate
assuming those
with net earnings
at least equal to
the non-work
grant leave AFDC

Adj usted
percent employed
I

July 1970 AFDC
employment rate
assuming those
with net earnings
at least equal to
$50 more than the
non-work grant
leave AFDC
Adjusted
percent employed

9.6

17. 3a

18. 8a

II

18.2

19.1°

22.6°

III

20.0

20.8°

22.2C

IV

8.9

13. la

14.9a

V

8.6

12.5a

13. 3a

7.4

9.3

9.9b

VII

10.6

13.0

13.5

VIII

12.6

18.4a

20.6a

IX

11.5

13.0

14.83

VI

1

X

6.5

CM
r—1

13.13

XI

9.3

12.4b

13. lb

XII

4.7

7.7a

8.3a

XIII

11.1

13.0

14.3

a The change from July 1969 is significant at 95% level.
b The change from July 1969 is significant at 90% level.
Q

100% sample; therefore, any difference is meaningful.
Source:

Data obtained from records of Michigan Department of Social •
Services.

122

a r e a s , even t h e a d j u s t e d p e r c e n t a g e s a r e , i n most g e o g r a p h i c a r e a s ,
c o n s i d e r a b l y h i g h e r th a n t h e J u l y , 1969 f i g u r e s .

Many o f t h e i n c r e a s e s

are s t i l l s t a t i s t i c a l l y s ig n if i c a n t.
I t t h e r e f o r e appears t h a t , d e s p i t e th e e stim ated e f f e c t o f the
work i n c e n t i v e on r e d uc e d numbers o f p e r s o n s l e a v i n g w e l f a r e , i t
remains r e a s o n a b l e t o b e l i e v e t h a t t h e work i n c e n t i v e may have a l s o
a c c o u n te d f o r a p o s i t i v e i n c r e a s e i n AFDC employment by e n c o u ra g in g
m o t h e r s , who would o t h e r w i s e n o t have w orked, t o f i n d employment.

AFDC G r a n t Change and AFDC Employment
In J u l y , 1969, t h e AFDC b e n e f i t l e v e l i n Michigan i n c r e a s e d by
a b o u t t h r e e d o l l a r s p e r p e r s o n p e r month.
f o u r g a i n e d t w e l v e d o l l a r s p e r month.

In o t h e r w o r d s , a f a m i l y o f

Under normal a s s u m p t i o n s , an

a p p l i c a t i o n o f economic t h e o r y would s u g g e s t t h a t t h i s i n c r e a s e i n
w e l f a r e payments would te n d t o d e c r e a s e AFDC employment b e c a u s e o f an
3
income e f f e c t l e a d i n g t o t h e consumption o f more l e i s u r e .
But w h i l e
even a tw el v e d o l l a r p e r month change i n income would n o t be l i k e l y t o
a p p r e c i a b l y a f f e c t employment, t h e s i z e o f t h a t i n c r e a s e was a c t u a l l y
l e s s i n r e a l te r m s .

Between J u l y , 1969 and J u l y , 1970, t h e g r a n t s i z e

f o r a f a m i l y o f f o u r w i t h no n o n - w e l f a r e income

f e l l by r o u g h ly s i x t e e n

d o l l a r s p e r month i n r e a l terms due t o r i s i n g p r i c e s , as measured by
t h e D e t r o i t Consumer P r i c e I n d e x . ^

The n e t e f f e c t i s a l o s s o f a b o ut

f o u r d o l l a r s p e r month i n r e a l income f o r t h e f a m i l y o f f o u r on AFDC,
which can be assumed t o have had a n e g l i g i b l e e f f e c t on employment.
S i m i l a r l y , a l l AFDC f a m i l i e s had a small d e c l i n e i n r e a l w e l f a r e income.
The a c t u a l amount depends p r i n c i p a l l y on t h e g r a n t s i z e which i s a
f u n c t i o n o f f a m i l y s i z e and n o n - w e l f a r e income.

I t i s n o t f e l t , however,

123

t h a t t h e s e ch ang es i n AFDC r e a l income a r e l a r g e enough t o e x p l a i n a
s i g n i f i c a n t p o r t i o n o f t h e i n c r e a s e i n AFDC employment.

The WIN T r a i n i n g Program
and AFDC Employment
The 1967 S o c i a l S e c u r i t y Amendments a t t e m p t e d t o e n c o u r a g e AFDC
employment, f i r s t , th r o u g h work i n c e n t i v e s a n d , s e c o n d , by p r o v i d i n g
t r a i n i n g and o t h e r s u p p o r t s e r v i c e s

( r e f e r r e d t o as WIN i n t h i s t h e s i s ) .

What p a r t , i f a n y , o f t h e i n c r e a s e i n t h e measured AFDC employment r a t e s
o v e r t h e f i r s t y e a r , un d er t h e work i n c e n t i v e , i s due t o t h e t r a i n i n g and
s u p p o r t s e r v i c e s i s e x t r e m e l y d i f f i c u l t t o a ns w er du e, p a r t i a l l y , t o
u n s a t i s f a c t o r y c r i t e r i a a v a i l a b l e t o measure t h e e f f e c t s o f WIN.

The

o n l y way WIN can i n c r e a s e t h e AFDC employment r a t e s i s i f t h o s e who g e t
j o b s th ro ugh WIN remain on AFDC.

The tough j o b i s t o i d e n t i f y t h o s e

who f i n d j o b s b e c a u s e o f t h e pr ogram.

One e s t i m a t e o f t h e s e p e r s o n s

assumes t h a t o n l y t h o s e who g r a d u a t e from WIN can be cl a im e d as s u c c e s s e s
by t h e program.

I f i t i s assumed t h a t a WIN g r a d u a t e i s a p e r s o n who

has found a j o b th r o u g h WIN and i s employed a t l e a s t n i n e t y days ( t h e
Michigan Employment S e c u r i t y Commission d e f i n i t i o n o f t h o s e c o m p l e t i n g
an e m p l o y a b i l i t y p l a n ) , the n i t i s e s t i m a t e d t h a t t h e r e were a b o u t
n i n e t y - f i v e g r a d u a t e s who were fe m a le - h e a d s o f h o u s eh ol d s i n J u l y , 1969
and a b o u t 515 i n J u l y , 1 9 7 0 . 5

We w i l l assume t h a t a l l t h e s e p e o p l e

s t a y e d on w e l f a r e , which i s h i g h l y u n l i k e l y , and t h a t a l l were employed
i n J u l y , 1970, which i s a l s o u n l i k e l y ; th e n we can e s t i m a t e t h a t
r o u g h l y n in e WIN g r a d u a t e s may have been i n c l u d e d i n t h e J u l y , 1969
sample o f 449 employed AFDC m o t h e r s , and 56 may have been i n c l u d e d i n
t h e J u l y , 1970 sample o f 1 , 1 6 8 .

While t h i s measure o f t h e p o s s i b l e

e f f e c t o f WIN c a n n o t e n t i r e l y be i g n o r e d , i t h a r d l y e x p l a i n s t h e t o t a l

124

i n c r e a s e i n measured f e m a le AFDC employment.
The WIN program c o u l d have a f f e c t e d o u r measure o f AFDC employ­
ment o t h e r t h a n t h r o u g h i t s g r a d u a t e s .

Some WIN e n r o l l e e s a s s i g n e d t o

Phase I t r a i n i n g (on t h e j o b t r a i n i n g ) may have r e c e i v e d e a r n e d income
o b t a i n e d t h r o u g h some WIN r e l a t e d work.

In J u l y , 1969 , a c c o r d i n g t o

t h e S t a t e o f Michigan Department o f S o c i a l S e r v i c e s r e c o r d s , f o u r
m ot her s i n t h i s s t u d y ' s AFDC sample were d e t e r m i n e d t o be employed an d,
a t t h e same t i m e , e n r o l l e d i n Phase I t r a i n i n g .

S i x t e e n p e o p l e were

e n r o l l e d i n Phase I and employed i n J u l y , 1970.

Even i f t h e employ­

ment o f a l l t h e s e mo th ers was a t t r i b u t e d e x c l u s i v e l y t o WIN, t h e number
i s n o t l a r g e r e l a t i v e t o t h e t o t a l numbers o f employed AFDC mot hers i n
t h e s am pl e.
WIN c o u l d have had o t h e r p o s i t i v e i n f l u e n c e s on AFDC employment.
WIN e n r o l l e e s who d i d n o t g r a d u a t e from WIN may have been p l a c e d i n
j o b s by WIN, o r t h e i r t r a i n i n g may have been h e l p f u l i n f i n d i n g employ­
ment d e s p i t e t h e f a c t t h a t i t was n o t c o m p le te d .

The mere f a c t t h a t

many m ot her s were f o r c e d t o e n r o l l i n WIN may have i n f l u e n c e d some o f
them t o f i n d employment.
The n e g a t i v e a s p e c t s o f WIN which would t e n d t o d e c r e a s e AFDC
employment have t o be weighed a g a i n s t t h e p o s i t i v e c o n t r i b u t i o n s .

It

i s p o s s i b l e t h a t some AFDC mot hers d i d n o t seek employment b e c a u s e th e y
were bus y p a r t i c i p a t i n g i n t h e WIN program.

Some o f t h e th o u s a n d s

o f AFDC f a m i l i e s t h r o u g h o u t Michigan,who were p u t i n a h o l d i n g s t a t u s
( e n r o l l e d i n WIN b u t n o t r e c e i v i n g s e r v i c e s ) d u r i n g t h e f i r s t y e a r o f
t h e work i n c e n t i v e ( 5 , 3 1 5 c a s e s o r 88.6 p e r c e n t o f a l l WIN e n r o l l e e s
i n J u l y , 1970),® might have found work e x c e p t f o r t h e WIN t r a i n i n g
program.

125
We c o n s i d e r t h e mot hers who a r e a c t i v e l y i n v o l v e d i n t r a i n i n g
b u t n o t employed as unemployed.

So, a t a p o i n t i n time n e a r t h e

b e g i n n i n g o f a manpower pr ogram, such as WIN, t h e program may a c t u a l l y
have a t e m p o r a r y n e g a t i v e i n f l u e n c e on employment measured th r o u g h a
c r o s s s e c t i o n sample o f c a s e s .

I f t h i s were t h e c a s e , WIN would have

had a n e g a t i v e i n f l u e n c e on o u r measure o f AFDC employment, and t h e r e ­
f o r e , i t would u n d e r s t a t e t h e e f f e c t o f t h e work i n c e n t i v e .
C o n c l u s i o n s a b o u t t h e e f f e c t o f WIN must be ambiguous.

v
Our

e s t i m a t e , however, i s t h a t WIN c o n t r i b u t e d a t b e s t on ly i n a minor way
t o t h e measured i n c r e a s e s i n AFDC fem a le employment o v e r t h e f i r s t y e a r
o f t h e work i n c e n t i v e .
Reasons Why t h e Measured E f f e c t
o f t h e Work I n c e n t i v e i s a
P o s s i b l e U n d e r s ta te m e n t
H e a l t h - M e d i c a i d and AFDC employment
For t h e p u r p o s e s o f t h i s s t u d y , we wan t t o d e t e r m i n e i f t h e h e a l t h
o f t h e AFDC p o p u l a t i o n a p p r e c i a b l y changed and t h u s p o s s i b l y a f f e c t e d
t h e r a t e o f AFDC employment.
There i s no r e a s o n f o r us t o b e l i e v e t h a t t h e h e a l t h o f t h e
e s t a b l i s h e d AFDC p o p u l a t i o n would have changed o v e r t h e y e a r , e x c e p t f o r
t h e p o s s i b l e e f f e c t o f t h e Medicaid program o r some o t h e r o u t s i d e f a c t o r .
But s i n c e t h e Medicaid program was e s t a b l i s h e d i n t h e f a l l o f 1966, we
would n o t e x p e c t i t s e f f e c t on t h e h e a l t h o f t h e AFDC p o p u l a t i o n t o
d i f f e r e n t i a l l y a f f e c t AFDC employment in f i s c a l 1969 -70, b u t r a t h e r i n
1967-68.
program.)

(We assume no s i z a b l e b a r r i e r t o communication a b o u t t h e
S i n c e t h e e f f e c t s o f Medicaid do n o t f a l l i n o u r p e r i o d o f

s t u d y , we w i l l o m i t i t and a d i f f e r e n t i a l h e a l t h l e v e l as an e x p l a n a t o r y

126

v a r i a b l e f o r changed AFDC employment.
While t h e r e i s no r e a s o n t o b e l i e v e t h a t t h e r e has been an
a p p r e c i a b l e change i n AFDC h e a l t h , i t i s p o s s i b l e t h a t p oor h e a l t h may
have h i n d e r e d AFDC r e a c t i o n t o t h e work i n c e n t i v e .

7

To t h e e x t e n t t h a t

i t h a s , t h e measured i n c r e a s e in AFDC employment has u n d e r s t a t e d t h e
e f f e c t s o f a f i n a n c i a l i n c e n t i v e t o work.

Thi s may be i m p o r t a n t t o

i n c e n t i v e s a p p l i e d t o income m a in te n a nc e programs which a r e d e s i g n e d
f o r a l l f a m i l i e s - - n o t o n l y t h o s e on AFDC.

Day c a r e
The re i s no e v i d e n c e o f s u b s t a n t i a l l y improved day c a r e p r o v i ­
s i o n s f o r mo thers between J u l y , 1969 and J u l y , 1970.

T herefore, the

day c a r e v a r i a b l e i s l i k e l y t o have t e n d e d t o r e d u c e t h e p o t e n t i a l
i m p a c t o f t h e work i n c e n t i v e .
care arrangements.

Most m o th er s must make t h e i r own c h i l d

There a r e few day c a r e c e n t e r s , and many mot hers

a r e unaware t h a t c h i l d c a r e w i l l be p a i d f o r by t h e s t a t e .

About 20

p e r c e n t o f a s p e c i a l sample o f 255 AFDC r e c i p i e n t s i n g e o g r a p h i c
O

Area X II I w e r e unaware t h a t day c a r e would be p a i d f o r by t h e s t a t e .
Knowledge o f t h e work i n c e n t i v e and
AFDC employment
We hav e o n ly i n c o m p l e t e i n f o r m a t i o n o f what Michigan AFDC mot hers
know a b o u t t h e work i n c e n t i v e p r o v i s i o n s .

To t h e e x t e n t t h a t AFDC

m ot her s do n o t know what t h e i n c e n t i v e means, m i s u n d e r s t a n d i t , o r
u n d e r e s t i m a t e i t s b e n e f i t s , t h e measured e f f e c t o f t h e i n c e n t i v e on
employment w i l l be u n d e r s t a t e d .
T here i s e v i d e n c e t h a t AFDC m o th er s do n o t , g e n e r a l l y , know much
about the in c e n tiv e p ro v isio n s.

A s t u d y , made by t h e Research D i v i s i o n

127

o f M i c h i g a n ' s Department o f S o c i a l S e r v i c e s o f AFDC r e c i p i e n t s i n
B e r r i e n County i n September and O c to b e r o f 1970 ( o v e r one y e a r a f t e r
t h e s t a r t o f t h e work i n c e n t i v e ) , p r o v i d e s an i d e a o f t h e d e g r e e to
which t h i s i s t r u e .

For ex am pl e, o f a sample o f a b o u t 225 mo th ers - -

i n c l u d i n g a b o u t 185 r e c e i v i n g i n t e n s i v e s o c i a l s e r v i c e s on an e x p e r i ­
mental b a s i s — more th a n 15 p e r c e n t d i d n o t know t h a t th e y c o u l d work
and r e c e i v e a w e l f a r e check a t t h e same t i m e .

The e f f e c t s o f t h i s l a c k

o f knowledge on t h e measured im p act o f t h e work i n c e n t i v e a r e o b v i o u s .
Of t h o s e who knew t h a t t h e y c o u l d work and s t i l l

receive w elfare checks,

most d i d n o t know t h a t t h e r e was no l o n g e r a 100 p e r c e n t t a x on e a r n i n g s .
Only 3 3 . 5 p e r c e n t knew t h a t t h e s i z e o f t h e w e l f a r e check would n o t
change i f t h e y e a r n e d t h i r t y d o l l a r s p e r month.

T hr ee o f t h e r e c i p i e n t s

a c t u a l l y t h o u g h t t h e g r a n t would i n c r e a s e ; a b o u t 3 1 . 0 p e r c e n t "di d n o t
know"; and a b o u t 2 5 . 0 p e r c e n t s a i d t h a t t h e s i z e o f t h e w e l f a r e check
would f a l l .

They o b v i o u s l y d i d n o t know t h a t t h e f i r s t t h i r t y d o l l a r s

o f mon thly e a r n i n g s were exempt from any w e l f a r e t a x .
S i m i l a r l y , many p e rs o n s i n t e r v i e w e d i n t h e sample f e l t t h a t t h e y
would have no more money t o spend i f t h e y e a r n e d o n e- hu nd re d d o l l a r s .
Almost h a l f o f t h o s e who knew t h e y c o u l d work and remain on w e l f a r e
b e l i e v e d t h a t a f t e r t h e r e q u i r e d g r a n t r e d u c t i o n had been made, th e y
would have no more money t o spend th a n th e y would had th e y e a r n e d
nothing.

About a n o t h e r 1 5 .0 p e r c e n t " d i d n o t know."

o f t h o s e r e c i p i e n t s who knew t h e y co u l d work and s t i l l

Only 3 8 . 0 p e r c e n t
r e c e i v e an AFDC

payment r e a l i z e d t h a t t h e y would g a i n f i n a n c i a l l y from e a r n i n g onehundred d o l l a r s .

So o f a l l t he 255 p e o p l e i n t e r v i e w e d , o n ly a b o u t o n e -

t h i r d knew t h a t t h e y c o u ld s t a y on w e l f a r e , e a r n money, and g a i n
f i n a n c i a l l y th r o u g h t h o s e e a r n i n g s .

128

There a p p e a rs t o be g e n e r a l
provisions.

i g n o r a n c e o f t h e work i n c e n t i v e

C e r t a i n l y , t h i s must have a f f e c t e d t h e measured r e s u l t s o f

t h e work i n c e n t i v e .

An oth er f i n d i n g o f t h i s s t u d y emph asi zes t h e e f f e c t

o f i g n o r a n c e on t h e a c t u a l e f f e c t o f t h e i n c e n t i v e .

Almost 80 p e r c e n t

o f t h o s e t o whom t h e i n t e r v i e w e r e x p l a i n e d t h e work i n c e n t i v e s a i d t h a t
th e y f e l t i t would c a u s e more AFDC r e c i p i e n t s t o work.

And o f t h o s e

who a l r e a d y knew a b o u t t h e i n c e n t i v e , o v e r 50 p e r c e n t s a i d t h a t i t had
a l r e a d y ca us ed them t o work more o r s e e k more t r a i n i n g .
In g e n e r a l t h e n , i f t h e m ot he rs answered a c c u r a t e l y , and i f i t
i s p o s s i b l e t o g e n e r a l i z e from one Michigan coun ty t o a l l c o u n t i e s , i t
i s e a s y t o b e l i e v e t h a t l a c k o f i n f o r m a t i o n s u b s t a n t i a l l y reduced t h e
measured i m p a c t o f t h e work i n c e n t i v e program r e l a t i v e t o i t s p o t e n t i a l
im p a c t.
There i s one p o s s i b l e e x c e p t i o n t o t h i s .

The work i n c e n t i v e

r e d u c e s t h e f i n a n c i a l c o s t t o t h e w e l f a r e mo th er o f r e p o r t i n g e a r n e d
income.

I f t h e r e w er e employed AFDC mothers who d i d n o t r e p o r t e a r n i n g s

p r i o r t o t h e i n c e n t i v e , and i f t h e y knew a b o u t t h e red uc e d c o s t o f r e ­
p o r t i n g e a r n i n g s , t h e i n c e n t i v e may l e a d t o an i n c r e a s e i n r e p o r t e d
earnings.

In t h i s c a s e , o u r d a t a would r e f l e c t t h i s change in r e p o r t ­

in g an i n c r e a s e in employment.
I t i s v i r t u a l l y i m p o s s i b l e t o d e t e r m i n e how much o f t h e measured
i n c r e a s e i n AFDC unemployment was c a u s e d by an i n c r e a s e i n t h e r e p o r t i n g
o f p reviously undeclared e arn in g s.

However, an i m p r e s s i o n g ai ne d from

c as e w o r k e r s t h r o u g h o u t Michigan i s t h a t an i n c r e a s e i n t h e r e p o r t i n g o f
e a r n i n g s was n o t s i g n i f i c a n t .

This i s the b e s t a v a i la b l e evidence t h a t

a change i n r e p o r t i n g i s n o t r e s p o n s i b l e f o r a s i g n i f i c a n t p o r t i o n o f
t h e i n c r e a s e in measured AFDC employment.

129
Concluding Remarks a b o u t t h e Employment
E f f e c t o f t h e Work I n c e n t i v e
T her e has been a s t a t i s t i c a l l y s i g n i f i c a n t i n c r e a s e i n AFDC
employment r a t e s i n each o f t h e t h i r t e e n a r e a s sampled between J u l y ,
1969 and J u l y , 1970, t h e f i r s t y e a r o f t h e work i n c e n t i v e .

The d i f f i ­

c u l t problem i s i n a t t r i b u t i n g t h a t i n c r e a s e t o any one f a c t o r o r group
of factors.

In t h i s s e c t i o n , w e have a t t e m p t e d t o i s o l a t e t h e e f f e c t

o f t h e work i n c e n t i v e on AFDC employment from t h a t o f t h e v a r i a b l e s
i n t r o d u c e d i n C h ap t er 4.

A fte r accounting f o r th e o t h e r f a c t o r s , i t

a p p e a r s t h a t t h e work i n c e n t i v e has caus ed an i n c r e a s e d AFDC employment
rate.
AFDC employment r a t e s i n c r e a s e d d e s p i t e a f a l l i n g demand f o r
l a b o r , as measured i n t h i s s t u d y ; t h i s would te n d t o r e d u c e t h e w e l f a r e
employment r a t e .

S im ila rly , i t increased d esp ite the la rg e in crease

i n new AFDC f a m i l i e s d u r i n g t h e y e a r ; t h i s te n d e d t o r e d u c e t h e employ­
ment r a t e f o r t h e c a s e l o a d as a who le.
health

D e s p i t e t h e problems o f p o o r

and l i m i t e d c h i l d c a r e , b ot h l i k e l y f a c t o r s t e n d i n g t o l i m i t

t h e p o s i t i v e e f f e c t s o f t h e i n c e n t i v e , AFDC employment r a t e s i n c r e a s e d .
F u r t h e r , s i n c e i t a p p e a r s t h a t t h e m a j o r i t y o f AFDC r e c i p i e n t s do n o t
know a b o u t t h e work i n c e n t i v e p r o v i s i o n s , t h e measured e f f e c t o f i n c e n ­
t i v e i s q u i t e l i k e l y an u n d e r s t a t e m e n t o f t h e p o t e n t i a l e f f e c t .

I t is,

i n f a c t , r e m a r k a b l e t h a t AFDC employment r a t e s i n c r e a s e d a t a l l g iv e n
a l l o f t h e above.
On t h e o t h e r h an d , t h e work i n c e n t i v e a p p e a r s t o have had a n eg a­
t i v e e f f e c t on AFDC c l o s i n g s ; t h i s may e x p l a i n p a r t o f t h e i n c r e a s e d
r a t e o f AFDC employment.
still

The t o t a l

i n c r e a s e in AFDC employment can

be a t t r i b u t e d t o t h e i n c e n t i v e , b u t i t c a n n o t be cla im e d t h a t

t h i s i n c r e a s e was a l l due t o a p o s i t i v e i n c e n t i v e t o work.

Rather,

130

p a r t o f i t may have been due t o an i n c r e a s e d i n c e n t i v e t o s t a y on
w e l f a r e once employed r a t h e r t h a n l e a v e , as was t h e c a s e b e f o r e t h e
incentive.
The WIN t r a i n i n g program may o r may n o t have ca u se d an i n c r e a s e
in o u r measured AFDC employment r a t e s .

However, even i f we assume

t h e g r e a t e s t p o s s i b l e p o s i t i v e employment e f f e c t o f WIN, t h i s can o n l y
e x p l a i n a minor p o r t i o n o f t h e i n c r e a s e d employment r a t e s .
The re m a in in g v a r i a b l e s o f AFDC g r a n t s i z e

and work and w e l f a r e

a t t i t u d e s a r e , i n o u r j u d g m e n t , n e u t r a l , o r have had no p e r c e p t i b l e
e f f e c t on AFDC employment o v e r t h e f i r s t y e a r o f t h e work i n c e n t i v e .

FOOTNOTES

^Act No. 3 6 , amending t h e Michigan Minimum Wage Law, Act 154 o f
P u b l i c Acts o f 19 64 .
2
The e s t i m a t i o n p r o c e d u r e was d e v i s e d by Dr. Robe rt S c h l e n k e r ,
S u p e r v i s o r , Income Ma intenance and Employment Research Group, Michigan
Department o f S o c i a l S e r v i c e s .
3
C h r i s t o p h e r G r e e n , " N e g a ti v e Taxes and Monetary I n c e n t i v e s t o
Work: The S t a t i c T h e o r y , " J o u r n a l o f Human R e s o u r c e s , I I I (Summer,
1 9 6 8 ) , 280-288.
^The D e t r o i t CPI was 12 7 .6 i n J u l y , 1960 and 135. 5 i n J u l y , 1970.

5

E s t i m a t e s made i n t h i s way. T o t a l fem a le WIN g r a d u a t e s = 2 / 3
to ta l graduates.
(The 2 / 3 f i g u r e i s an e s t i m a t e o b t a i n e d from t h e
Michigan Employment S e c u r i t y Commission Researc h and S t a t i s t i c s
D i v i s i o n . ) T o t a l f e m a l e - h e a d e d AFDC c a s e s = 90% o f t o t a l c a s e s (an
e s t i m a t e from S t a t e o f M i c h i g a n ' s Department o f S o c i a l S e r v i c e s ) .
T o t a l female WIN g r a d u a t e s / t o t a l f e m a le - h e a d e d AFDC c a s e s = a h ig h e s t i ­
mate o f t h e p o r t i o n o f a l l a c t i v e AFDC c a s e s i n J u l y , 1969 o r 1970,
which ma^ have been g r a d u a t e d from WIN. Thi s p o r t i o n t i m e s t h e sample
s i z e o f o u r AFDC s t u d y (which comes m a in ly from WIN a r e a s ) y i e l d s a
r e a s o n a b l e maximum e f f e c t o f WIN g r a d u a t e s on o u r measured employment.
6Nancy F e l d e r , The Work I n c e n t i v e Program J u l y , 197 0, Michigan
Employment S e c u r i t y Commission (R e s e a r c h and S t a t i s t i c s D i v i s i o n
Management R e l e a s e No. 40 , August 20, 197 0) .
7This i s an i m p r e s s i o n g a i n e d by t h e w r i t e r from an i n c o m p l e t e
employment s t u d y b e i n g done by t h e S t a t e o f Michigan Department o f
S o c i a l S e r v i c e s , D i v i s i o n o f R e s e a r c h , i n Area X I I I . Th is i s one o f
t h e few s o u r c e s o f h e a l t h d a t a on s p e c i f i c Michigan AFDC c a s e s .
O

Data o b t a i n e d from t h e S t a t e o f M i c h i g a n ' s Department o f S o c i a l
S e r v i c e s B e r r i e n County Work D em o n s tr at io n P r o j e c t , 1970.

131

Chapter 6
E a r n i n g s E f f e c t o f t h e Work I n c e n t i v e
The s t u d y o f t h e e f f e c t s o f t h e work i n c e n t i v e c a n n o t be c o n f i n e d
t o employment r a t e s

b u t must i n c l u d e changes i n e a r n i n g s l e v e l s as

w e l l ; u n f o r t u n a t e l y , t h i s i s even more d i f f i c u l t t o me as ur e .

We found

i n C h a p t e r 2 t h a t t h e e x p e c t e d e f f e c t o f t h e i n c e n t i v e on a v e r a g e AFDC
e a r n i n g s i s ambiguous.

The work i n c e n t i v e i s , however, e x p e c t e d t o

i n c r e a s e t h e p o r t i o n o f c a s e s e a r n i n g low and high e a r n i n g s w i t h a
red u ce d p o r t i o n i n t h e i n t e r m e d i a t e e a r n i n g s r a n g e .

In t h i s c h a p t e r ,

we w i l l f i r s t c o n s i d e r a v e r a g e e a r n i n g s and e a r n i n g s d i s t r i b u t i o n s .
We w i l l t h e n use t h e e a r n i n g s d a t a to d e t e r m i n e t h e f i n a n c i a l b e n e f i t s
and c o s t s t o t a x p a y e r s

and t o t h o s e on w e l f a r e .

E m p ir ic a l Problems
T he r e a r e v i r t u a l l y no d a t a on changes i n a v e r a g e e a r n i n g s f o r
n o n - w e l f a r e fem a le employees i n Michigan o v e r t h e f i r s t y e a r o f t h e
work i n c e n t i v e .

Th is l a c k p r e c l u d e s an e f f e c t i v e a c c o u n t i n g o f e a r n i n g s

changes ca u s ed by changes i n l a b o r ma rket c o n d i t i o n s .
In s p i t e o f t h i s pr o bl em , some i n t e r e s t i n g i n f o r m a t i o n can be
o b t a i n e d from t h e e a r n i n g s d a t a c o l l e c t e d i n o u r s t u d y .

F i r s t , the

e a r n i n g s d a t a o b t a i n e d from t h e c r o s s s e c t i o n samples w i l l be p r e s e n t e d .
Then t h e changes i n e a r n i n g s f o r t h e l o n g i t u d i n a l sample w i l l be shown.

132

133

E a r n i n g s - - Cross S e c t i o n Samples
Average e a r n i n g s
Average e a r n i n g s by g e o g r a p h i c a r e a f o r t h e c r o s s s e c t i o n samples
i n J u l y , 1969 and J u l y , 1970 a r e shown i n Ta b l e 6 . 1 .
The changes i n av e r a g e e a r n i n g s p r o v i d e a d i f f e r e n t p i c t u r e o f
AFDC employment t h a n do t h o s e changes i n r a t e s o f employment which we
c o n s i d e r e d i n C h a p t e r 5.
in average e a rn in g s.

Areas I I , VI, and IX had t h e g r e a t e s t i n c r e a s e

I t i s i n t e r e s t i n g t h a t n o t one o f t h e s e had a

l a r g e i n c r e a s e i n r a t e s o f employment.^

( T h i s em pl o y m en t - ea r n in g s

r e l a t i o n s h i p does n o t a p p e a r t o h ol d f o r a r e a s w i t h t h e s m a l l e s t
i n c r e a s e s i n e a r n i n g s s i n c e t h e y a l s o had c o m p a r a t i v e l y small i n c r e a s e s
i n employment.)

In g e n e r a l , however, high i n c r e a s e s i n employment

r a t e s a r e a s s o c i a t e d w i t h r e l a t i v e l y small i n c r e a s e s i n a v e r a g e
e a r n i n g s which may i n d i c a t e t h a t t h e i n c e n t i v e c a u s e s more mothers t o be
employed b u t a t low e a r n i n g s o r in p a r t - t i m e employment.

The f o l l o w i n g

s e c tio n explores t h i s p o s s i b i l i t y f u r t h e r .

E ar ni n g d i s t r i b u t i o n
A more d e t a i l e d look a t e a r n i n g s i s u s e f u l t o f u r t h e r i n t e r p r e t
t h e a v e r a g e e a r n i n g s d i f f e r e n c e s by g e o g r a p h i c a r e a .

T a b l e 6 . 2 shows

t h e d i s t r i b u t i o n s o f AFDC e a r n i n g s f o r each g e o g r a p h i c a r e a f o r J u l y ,
1969 and J u l y , 1970.

Some s u b s t a n t i a l g e o g r a p h i c d i f f e r e n c e s show up

i n t h e t a b l e and p r o v i d e i n s i g h t i n t o why t h e a v e r a g e e a r n i n g s changed.
For e xa m pl e, Area I I had t h e g r e a t e s t i n c r e a s e i n a v e r a g e e a r n i n g s o v e r
t h e y e a r b e c a u s e o f a l a r g e d e c l i n e i n t h e p o r t i o n o f wor king mothers
e a r n i n g unde r $100 and a l a r g e i n c r e a s e i n t h e p o r t i o n e a r n i n g o v e r $ 100 .
The m o st i m p o r t a n t r e a s o n f o r t h e i n c r e a s e i n a v e r a g e e a r n i n g s was due

Table 6 .1
Average Earnings of Cross Section Samples of Female-Headed
AFDC Cases by Geographic Area in July 1969 and July 1970

Geographic
areas

Number
with
earnings

Average earnings
of those employed
in July 1969

Number
with
earnings

Average earnings
of those employed
in July 1970

Change in
average
earnings

I

17

$112

51

$127

$+15

II

47

91

94

160

+69

III

12

127

28

127

0

IV

41

141

115

176

+35

V

52

130

145

168

+38

VI

21

144

49

205

+61

VII

28

195

75

204

+9

VIII

64

163

160

192

+29

IX

62

183

162

229

+46

X

14

201

61

216

+15

XI

27

203

63

185

-18

XII

34

150

104

166

+16

XIII

30

150

61

176

+26

3 He did not report the significance tests which were applied, to these differences since the earnings dis­
tributions for each area were so peculiar. The changes in earnings are not large in relation to the
variance in earnings and we make no claim that the changes are statistically significant except for
Areas II and III which were 100 percent samples.

Source:

Data obtained from the records o f the Michigan Department o f S o c ia l S e r v ic e s.

Table 6 .2
Portion of the Employed in Different Gross Earnings Intervals
of Each Geographic Area for July 1969 and July 1970

Geographic
areas

$1-99 per month

$300+ per month

$100-299 per month

July 1969

July 1970

July 1970

July 1969

July 1970

I

58.8%

47.0%

35.3%

49.0%

5.9%

4.0%

II

68.6

38.3

27.5

53.1

4.1

8.6

III

33.3

39.3

58.3

53.6

8.3

7.1

IV

51.2

28.7

36.6

39.1

12.2

12.2

V

46.. 4

39.3

48.0

45.4

5.7

15.1

VI

52.4

26.4

38.1

42.9

9.6

30.6

VII

28.6

26.7

46.4

49.3

24.9

24.0

VIII

45.3

30.6

40.6

47.4

14.0

21.9

IX

32.2

22.8

51.5

43.2

16.1

33.9

X

42.8

24.6

28.6

44.2

28.5

31.1

XI

22.2

33.3

51.8

46.0

25.9

20.7

XII

41.2

49.0

50.0

27.9

8.8

23.0

XIII

36.7

36.1

56.7

49.2

6.6

14.7

Source:

Data obtained from the records o f the Michigan Department o f S o c ia l S e r v ic e s.

135

July 1969

136

t o t h e s u b s t a n t i a l i n c r e a s e i n th e p o r t i o n o f mothers e a r n i n g between
$100-$299 p e r month.

In Area VI, which had t h e second l a r g e s t i n c r e a s e

i n a v e r a g e e a r n i n g s , t h e r e a l s o was a l a r g e drop i n t h e p o r t i o n o f
working mot hers e a r n i n g l e s s th a n $100.

But i n t h i s c a s e t h e p o r t i o n

e a r n i n g between $100-$299 was a l m o s t c o n s t a n t w h i l e t h e p o r t i o n i n t h e
o v e r $300 c a t a g o r y more th a n t r i p l e d t o a l m o s t 31 p e r c e n t .
There was a l s o a d e c l i n e in t h e p o r t i o n o f working mothers
e a r n i n g un d e r $100 i n Area IX, t h e a r e a w ith t h e t h i r d h i g h e s t i n c r e a s e
in average e a rn in g s.
areas.

This d e c l i n e was l e s s t h a n in t h e two p r e v i o u s

But c o n t r a r y t o t h e s i t u a t i o n i n Area I I and Area VI, t h e r e was

a d e c l i n e i n t h e p o r t i o n e a r n i n g between $100-$299. The r e a s o n f o r t h e
i n c r e a s e d a v e r a g e e a r n i n g s was ma inl y due t o t h e l a r g e i n c r e a s e i n t h e
p o r t i o n o f mothers e a r n i n g o v e r $300.
So i t a p p e a r s t h a t i n t h e t h r e e a r e a s w i t h r e l a t i v e l y l a r g e
i n c r e a s e s i n a v e r a g e e a r n i n g s t h a t t h e i n c r e a s e came th ro ugh a combina­
t i o n o f a r e du ce d p o r t i o n o f employed mothers w i t h low e a r n i n g s and
either

a l a r g e i n c r e a s e i n t h e p o r t i o n e a r n i n g between $100-$299 (Area

II) or

t h e p o r t i o n e a r n i n g o v e r $300 ( a r e a s VI and IX).
Contrary to the areas with r e l a t i v e l y la rg e in c re a s e s in e a r n i n g s ,

a r e a s XI, I I I , and VII - - which had t h e l e a s t i n c r e a s e i n a v e r a g e
e a r n i n g s (Area XI a c t u a l l y f e l l and Area I I I had no change) - - a l l had
a d e c l i n e i n t h e p o r t i o n o f mothers e a r n i n g o v e r $300 p e r month.

In

two o f t h e s e a r e a s , t h e p o r t i o n o f working mo th ers e a r n i n g u n d er $100
p e r month i n c r e a s e d
and XI

while

i n the t h i r d i t f e l l s l i g h t l y .

Areas I I I

were t h e o n l y a r e a s b e s i d e s Wayne County (Area XII) which had

an i n c r e a s e d p o r t i o n o f t h e employed mothers e a r n i n g un der $100.

In

Area X I I , which had o n l y a s l i g h t i n c r e a s e i n a v e r a g e e a r n i n g s , t h e

137

p o r t i o n o f mothers i n th e h i g h e a r n i n g s c a t e g o r y a l m o s t t r i p l e d , b u t
t h e p o r t i o n e a r n i n g under $100 i n c r e a s e d a t t h e same t i m e .
F u rth er a n a ly sis o f earning
distribution
The most i n t e r e s t i n g d i f f e r e n c e s i n e a r n i n g d i s t r i b u t i o n

among

g e o g r a p h i c a r e a s a r e t h e u n d e r $100 o r o v e r $299 e a r n i n g c a t e g o r i e s .
As we showed in F o o t n o t e 14 i n C h ap t er 2 , t h e work i n c e n t i v e e l i m i n a t e s
any w e l f a r e t a x f o r a p p r o x i m a t e l y t h e f i r s t f o r t y - e i g h t d o l l a r s o f
gross e a rn in g s.

In terms o f ma rg in al f i n a n c i a l r e t u r n s t o work, t h e r e

i s a g r e a t e r i n c e n t i v e to work p a r t t i m e and e a r n u n d e r $100 th a n t o
ea rn above t h a t amount.

The d i f f e r e n t c h a n g e s , by g e o g r a p h i c a r e a , i n

t h e p o r t i o n o f th e mothers e a r n i n g u n d e r $100 may r e f l e c t d i f f e r e n t
r e a c t i o n s t o t h e work i n c e n t i v e .

I t is possible t h a t the incentive

e n co u ra ge d enough p a r t - t i m e employment i n some a r e a s t o r ed u ce av e r a g e
earnings.

However, t h e c o n t e n t i o n d ev el op ed i n C h a p t e r 2 t h a t t h e

i n c e n t i v e e n co u r a ge s p a r t - t i m e employment most i s n o t g e n e r a l l y
s u p p o r t e d by t h e d a t a .
The s h i f t upward in t h e p o r t i o n o f t h e mothers e a r n i n g $300 o r
more w i l l t e n d t o r e d u c e w e l f a r e c o s t s b e c a u s e t h e s e mot hers a r e most
l i k e l y t o become more s e l f - s u f f i c i e n t i n t h e s e n s e o f r e d u c i n g t h e
t o t a l amount o f w e l f a r e s u b s i d y th e y r e c e i v e .

In s i x o f t h e t h i r t e e n

g e o g r a p h i c a r e a s , t h e p o r t i o n o f working mothers e a r n i n g o ve r $299
d o u b l e d , and only t h r e e a r e a s showed a d e c l i n e i n h ig h e a r n e r s .

Only

one a r e a had more t h a n a two p e r c e n t a g e p o i n t drop i n t h e p o r t i o n o f
mothers i n t h e high e a r n i n g s c a t e g o r y .

As we s u g g e s t i n C h a p t e r 2 , t h i s

i n c r e a s e i n t h e p o r t i o n o f m o t h er s w i t h high e a r n i n g s may i n p a r t be a
r e f l e c t i o n o f the f a c t th a t h ig h e r earnings a re p o s s ib le f o r w elfare

138

f a m ilie s because o f th e in c e n tiv e .

Th is p o s s i b i l i t y i s a n a l y z e d below.

T a b l e 6 . 3 shows t h e number o f f a m i l i e s i n t h e J u l y , 1970 c r o s s
s e c t i o n sample which had e a r n i n g s high enough t o have ca us ed t h e i r
removal from AFDC p r i o r t o t h e work i n c e n t i v e .

Thi s i s i m p o r t a n t

b e c a u s e i t g i v e s a c r u d e e s t i m a t e o f t h e i n c r e a s e d AFDC employment
r a t e s caus ed by t h e n e g a t i v e a s p e c t s o f t h e i n c e n t i v e .

These f i g u r e s

w ere o b t a i n e d by f i r s t c a l c u l a t i n g t h e s i z e o f t h e non-work AFDC g r a n t
f o r each AFDC f a m i l y i n t h e sample and t h e n comparing t h i s f i g u r e t o
e a r n i n g s n e t o f a c t u a l work expe ns es , as r e p o r t e d t o t h e Michigan D e p a r t ­
ment o f S o c i a l S e r v i c e s .

The f i g u r e s , t h e r e f o r e , r e f l e c t b o th high

e a r n i n g s as w ell as low non-work g r a n t s .

Small g r a n t s c o u l d o c c u r i f

t h e f a m i l y r e c e i v e d income i n t h e form o f a l im o n y , c h i l d s u p p o r t p ay ­
m e n t s , o r o t h e r o u t s i d e income.

The f i g u r e s a r e o n l y a p p r o x i m a t i o n s o f

t h e number o f f a m i l i e s which would have had e a r n i n g s high enough t o
remove them from AFDC w i t h o u t t h e work i n c e n t i v e , s i n c e i t i s n o t known
what t h e y would have e a r n e d in t h e a b s en ce o f t h e i n c e n t i v e .
T a b l e 6 . 4 shows t h e same f a m i l i e s as i n T a b l e 6 . 3 b u t as a p e r c e n t
o f a l l employed AFDC f a m i l i e s i n each o f t h e g e o g r a p h i c a r e a s i n J u l y ,
1970.
I t a p p e a r s t h a t i n J u l y , 1970, a r e l a t i v e l y high p o r t i o n o f t h e
employed mothers were e a r n i n g enough t o have f o r c e d them o f f AFDC p r i o r
t o t h e work i n c e n t i v e .

There a l s o i s a c o n s i d e r a b l e v a r i a t i o n i n t h e

p o r t i o n o f f a m i l i e s , by a r e a , e a r n i n g enough t o be p u t i n t h i s c a t e g o r y .
Areas IX and I I I have by f a r t h e h i g h e s t p o r t i o n o f such f a m i l i e s w it h
2 7 . 8 and 2 1 . 4 p e r c e n t , r e s p e c t i v e l y .

Area IX had one o f t h e l a r g e s t

i n c r e a s e s i n t h a t p o r t i o n o f AFDC f a m i l i e s e a r n i n g $300, which may be
p a r t l y e x p l a i n e d by t h e h i g h e r e a r n i n g s e l i g i b i l i t y caus ed by t h e

Table 6 .3
Number of AFDC Cases in our July, 1970 Cross Section Sample Which. Would Have
Been Ineligible for AFDC Without the Work Incentive

I

II

III

IV

V

7

15

6

20

20

VI

VII

VIII

IX

X

XI

XII

8

28

45

8

11

18

9

XIII

Areas

Source:

7

Data obtained from records of the Michigan Department of Social Services.

Table 6.4
Portion of the Employed AFDC Cases in our July 1970 Cross
Section Sample Which Would Have Been Ineligible
for AFDC Without the Work Incentive

I

II

III

IV

V

VI

VII

VIII

IX

X

XI

XII

XIII

13.7%

15.9

21.4

17.4

13.8

14.9

10.7

17.5

27.8

13.1

17.5

17.3

14.7

Areas

Source:

Data obtained from records of the Michigan Department of Social Services.

140

incentive.

Area I I I , on t h e o t h e r h a n d , began w i t h a r e l a t i v e l y low

p o r t i o n o f h ig h e a r n i n g p e o p l e , had a d e c l i n e i n t h a t p o r t i o n d u r i n g
t h e work i n c e n t i v e , and y e t had a l a r g e p o r t i o n o f f a m i l i e s e a r n i n g
enough t o have been f o r c e d o f f AFDC p r i o r t o t h e work i n c e n t i v e .

Thi s

s u g g e s t s t h a t t h e r e a r e low AFDC g r a n t s i z e s i n Area I I I d u e , p o s s i b l y ,
t o al im o n y , c h i l d s u p p o r t , o r o t h e r o u t s i d e income.
We a r e c o nv in ce d t h a t t h e r a i s e d e a r n i n g s maximums and t h e
c o n s e q u e n t r e d u c t i o n i n employed f a m i l i e s who l e a v e w e l f a r e b e c a u s e o f
t h e work i n c e n t i v e have c o n t r i b u t e d t o t h e r i s e i n t h e number o f AFDC
f a m i l i e s w ith high e a r n i n g s ; n o n e t h e l e s s , t h e above d a t a do n o t pr ov e
t h a t t h e h i g h e r maximums a l o n e were t h e cau se o f t h e h i g h e r e a r n i n g s .
I t may be t h a t many o f t h e s e mot hers would n o t have e a r n e d t h i s much
p r i o r to the in c e n tiv e .

E a r n i n g s o f t h e L o n g i t u d i n a l Sample
We can examine t h e changes i n t h e e a r n i n g s o f AFDC r e c i p i e n t s
s i n c e t h e im p l e m e n t a t i o n o f t h e work i n c e n t i v e program by f o l l o w i n g a
sample o f r e c i p i e n t s o v e r t i m e .

In t h i s way, we can e l i m i n a t e t h e e f f e c t s

which new f a m i l i e s may have had on a g g r e g a t e d a t a f o r t h e e n t i r e c a s e ­
lo a d .
T h e r e f o r e , as we mention ed i n o u r e a r l i e r d i s c u s s i o n o f AFDC
employment r a t e s ( C h a p t e r 5 ) , a sample o f AFDC mothers was drawn f o r
J u l y , 1969

and d a t a o b t a i n e d on them as o f J u l y , 1970.

There were

4 , 6 6 0 f e m a le - h e a d e d AFDC f a m i l i e s i n t h e J u l y , 1969 s am pl e.

Only 4 , 5 8 8

o f t h e s e f a m i l i e s were i n t h e sample as o f J u l y , 1970; 757 f a m i l i e s
had l e f t AFDC; and 3,831 remained as a c t i v e c a s e s .

The 72 f a m i l i e s

l o s t from t h e sample moved t o a r e a s o u t s i d e o f t h e s t u d y .

For

141

c o nv en ie nc e t h e d a t a which w ere o b t a i n e d f o r each o f t h e t h i r t e e n
g e o g r a p h i c a r e a s have been combined i n t o a s i n g l e group o f d a t a f o r
the following p re se n ta tio n .
Table 6 . 5 summarizes t h e e a r n i n g s changes between J u l y , 1969
and J u l y , 1970 f o r t h e 3,831 mot hers who were on AFDC a t both t i m e s .
This t a b l e shows a l l t h e changes in employment and e a r n i n g s f o r t h e
l o n g i t u d i n a l sample.
rows and columns.
J u l y , 1969.
f o r example:

The t a b l e i s r e a d by comparing f i g u r e s i n t h e

All t h e rows show t h e e a r n i n g s d i s t r i b u t i o n f o r

The columns show t h e same f o r J u l y , 1970.

Take row one

r e a d i n g from l e f t t o r i g h t , 3,03 9 mothers were unemployed

( z e r o e a r n i n g s ) in J u l y , 1969 and J u l y , 1970; t h e r e were 170 mothers
who had ze r o e a r n i n g s i n J u l y , 1969 and $1-99 e a r n i n g s i n J u l y , 1970;
t h e r e were 91 mothers who had no e a r n i n g s i n J u l y , 1969

b u t who

e a r n e d between $100 and $199 i n J u l y , 1970, and so on.
The t a b l e a l s o can be r e a d by t a k i n g a p a r t i c u l a r column and
working back t o t h e a p p r o p r i a t e row.

Th is w i l l g i v e t h e number o f

mothers w ith c e r t a i n J u l y , 1970 e a r n i n g s which can be compared t o t h e
J u l y , 1969 e a r n i n g s .

For ex am pl e, t a k i n g t h e $300 t o $399 column,

56 p e r s o n s e a r n e d between $300 and $399 i n J u l y , 1970

b u t had ze r o

e a r n i n g s i n J u l y , 1969.
The number o f f a m i l i e s between t h e d i a g o n a l l i n e s a r e t h o s e which
had no change i n e a r n i n g s .

Those above t h e d i a g o n a l l i n e s i n c r e a s e d

e a r n i n g s from J u l y , 1969 to J u l y , 1970, w h i l e t h e r e was a drop i n
e a r n i n g s f o r t h o s e below th e d i a g o n a l .

In u s i n g t h e t a b l e i n t h i s

f a s h i o n , n o t i c e t h a t t h e number o f m ot he r s who i n c r e a s e d t h e i r e a r n i n g s
(490, i n c l u d i n g 420 newly employed) f a r ou tw ei ghs t h e number w it h
e a r n i n g s d e c r e a s e s - - ( 1 7 9 , i n c l u d i n g 157 who s t o p p e d w o r k i n g ) .

142

Table 6.5
Earnings of the Female-Headed AFDC Families on
Welfare in both July, 1969 and July, 1970

Earnings in 1970
Earnings in 1969
300399

400 £
above

Total

91

75

56

28

3,459

6 6 s\ 1 7

13

4

1

170

\13

8

2

93

3

64

s3,039sS170

$0
1-99

6?N.

100-199

34

3N

200-299

28

2

6 s\ 2 1

300-399

17

0

2

2 ^ s.5

\ 5

9

0

0

1

1

\

3,196

246

144

125

78

4-00 and above
Total

Source:

200299

1-99 100199

$0

\ 28

\ 4

31
3 ^

X

.

14

42 ^ S.3,83lN.

Data obtained from records of the Michigan Department of Social
Services.

143

The e a r n i n g s c a t e g o r i e s in T a b l e 6 . 5 a r e q u i t e

broad, allowing

f o r as much as a hundred d o l l a r s h i f t i n monthly e a r n i n g s b e f o r e
changing t h e e a r n i n g s c a t e g o r y .

A more d e t a i l e d p i c t u r e o f t h e

e a r n i n g s ch ang es f o r t h e a c t i v e c a s e s can be o b t a i n e d by forming tw en t yd o l l a r c a t e g o r i e s o f e a r n i n g s , and examining i n c r e a s e s and d e c r e a s e s
measured i n terms o f t h e s e s m a l l e r c a t e g o r i e s .
With t h i s p r oce dur e, we f i n d t h a t o f t h e 372 m o t h er s employed i n
J u l y , 1969, 112 had h i g h e r e a r n i n g s (moved i n t o a h i g h e r twenty d o l l a r
e a r n i n g c a t e g o r y ) , 59 had a b o u t t h e same e a r n i n g s , 44 had lo w er e a r n i n g s
b u t were s t i l l

employed, and 157 had no e a r n i n g s i n J u l y , 1970.

In

a d d i t i o n , a s n o te d above, t h e r e were a n o t h e r 420 c a s e s t h a t had no
e a r n i n g s i n J u l y , 1969

b u t had e a r n i n g s i n J u l y , 1970.

Therefore,

t h e t o t a l c a s e s which had s u f f i c i e n t i n c r e a s e d e a r n i n g s t o move t o a
h i g h e r $20 e a r n i n g s c a t e g o r y number 532 (420 + 112) , w h i l e t h o s e w ith
d e c r e a s e s number o n ly 201 (157 + 4 4 ) .
Concl ud ing Comments a b o u t Changes
i n AFDC Ea r n i n g s
We c a n n o t p r e d i c t t h r o u g h r e a s o n a l o n e what w i l l l i k e l y happen t o
a v e r a g e AFDC e a r n i n g s u n d e r a work i n c e n t i v e .

Hig her maximum e a r n i n g s

a r e p o s s i b l e which would t e n d t o i n c r e a s e t h e a v e r a g e .

But t h e r e i s an

i n c e n t i v e t o work p a r t t i m e which w i l l t e n d t o d e c r e a s e th e a v e r a g e .
E m p i r i c a l l y , a v e r a g e e a r n i n g s have i n c r e a s e d i n t e n o f t h e
t h i r t e e n g e o g r a p h i c a r e a s o f t h e s am p le , b u t i t i s u n c l e a r w h e t h e r t h i s
i s a s i g n i f i c a n t i n c r e a s e c a u s e d by t h e work i n c e n t i v e .

A more d e t a i l e d

loo k a t AFDC e a r n i n g s by e a r n i n g s c a t e g o r y shows t h a t t h e p o r t i o n o f .
t h e employed AFDC mothers e a r n i n g u n d er $100 p e r month f e l l i n most
a r e a s , and t h e r e f o r e . i t does a p p e a r t h a t p a r t - t i m e employment i s n o t

144

enc ouraged s t r o n g l y by t h e work i n c e n t i v e .
In m os t a r e a s t h e p o r t i o n o f t h e employed c a s e l o a d e a r n i n g o v e r
$300 p e r month i n c r e a s e d between J u l y , 1969 and J u l y , 1970.

I t is

u n c l e a r w h e t h e r t h i s was due t o th e i n c r e a s e d e a r n i n g s maximum o r t h e
p o s i t i v e e f f e c t o f t h e work i n c e n t i v e .

I t i s i n t e r e s t i n g , however, t o

observe t h a t in th r e e o f the t h i r t e e n areas

30 p e r c e n t o r more o f t h e

employed m o th er s e a r n ov er $300 p e r month, and i n seven o f t h e t h i r t e e n
areas

20 p e r c e n t o r more e a r n o v e r $300 p e r month.
In most g e o g r a p h i c a r e a s , t h e r e i s a s u b s t a n t i a l p o r t i o n o f t h e

employed AFDC mot hers who e a r n enough t o have been f o r c e d o f f AFDC i f
t h e r e were no work i n c e n t i v e .

In one a r e a , a l m o s t 28 p e r c e n t f i t t h i s

c a t e g o r y , w h i l e t h e p o r t i o n r an g ed from a bo ut 11 p e r c e n t t o 21 p e r c e n t
in t h e rem a in in g a r e a s .
The e a r n i n g s d a t a o b t a i n e d from t h e l o n g i t u d i n a l sample show
t h a t e a r n i n g s o f some o f t h e mothers employed i n both J u l y , 1969 and
J u l y , 1970 i n c r e a s e d , w h i l e t h e e a r n i n g s o f a b o u t h a l f a s many f e l l .
B e n e f i t s and Costs o f AFDC Employment
t o R e c i p i e n t s and Taxpayers
According to t h e work i n c e n t i v e p r o v i s i o n s o f t h e AFDC program,
i f an AFDC m ot he r w o r k s, t h e e a r n i n g s r e s u l t i n an i n c r e a s e d d i s p o s a b l e
income f o r h e r , as w e l l as a r e t u r n t o t h e n o n - w e lf a r e t a x p a y e r
form o f a r e d u c t i o n i n t h e g r a n t p a i d t o t h e AFDC f a m i l y .

2

in the

However, t h e

AFDC program a l s o p r o v i d e s f o r f u l l y p a i d c h i l d c a r e f o r t h e working
m o t h e r , and t h e t a x c o s t s o f such c a r e may outweigh t h e f i n a n c i a l g ai n s
3
from t h e g r a n t r e d u c t i o n .
Using t h e d a t a o b t a i n e d from t h e J u l y , 1970 c r o s s s e c t i o n s am pl e,
we d et e r m in e d t h e magnitude o f t h e monetary b e n e f i t s and c o s t s o f AFDC

145

employment t o t h e n o n - w e l f a r e t a x p a y e r .

For ea ch o f t h e t h i r t e e n a r e a s

i n t h e s t a t e i n c l u d e d i n t h e sa m p l e , t h e working m ot her s have been
grouped i n t o two c a t e g o r i e s - - t h o s e r e c e i v i n g and t h o s e n o t r e c e i v i n g
payments f o r c h i l d c a r e .
have bee n o b t a i n e d f o r :

For t h e two gr ou p s i n each a r e a , a v e r a g e s
(1) r e c i p i e n t i n c r e a s e s i n incomes n e t o f

work ex p e n s e s and g r a n t r e d u c t i o n s ( t h e r e c i p i e n t g a i n from employment),
and (2) t h e n e t b e n e f i t ( i f p o s i t i v e ) o r c o s t ( i f n e g a t i v e ) t o t h e non­
w e l f a r e t a x p a y e r , measured h e r e as s im p l y g r a n t r e d u c t i o n s minus c h i l d
care c o s ts .

Th is measure o f t a x p a y e r g a i n i s a c o n s e r v a t i v e f i g u r e

i n t h e s e n s e t h a t i t i g n o r e s t h e t a x e s p a i d by t h e employed w e l f a r e
m other,so the actual fin a n c ia l gain to th e non-welfare taxpayer is
p r o b a b l y g r e a t e r th a n i n d i c a t e d below.

Average AFDC g r a n t r e d u c t i o n
T a b l e 6 . 6 p r e s e n t s t h e a v e r a g e AFDC g r a n t r e d u c t i o n in each a r e a
c au s ed by r e c i p i e n t e a r n i n g s .

In terms o f s h o r t - r u n f i n a n c i a l b e n e f i t s

t o t h e t a x p a y e r , t h e g r a n t r e d u c t i o n s a r e o f f s e t by t h e amount p a i d by
th e s t a t e to cover c h ild care.
fo r the ch ild care costs

The l a s t column o f Ta bl e 6 . 6 a c c o u n ts

and t h e r e f o r e p r o v i d e s an i n d i c a t i o n o f th e

n e t a v e r a g e g a i n o r c o s t o f each employed AFDC mo th er t o t h e n o n - w e l f a r e
taxpayer.

In e l e v e n g e o g r a p h i c a r e a s , t h e n o n - w e l f a r e t a x p a y e r

r e c e i v e d an a v e r a g e n e t ga i n p e r

working AFDC m o t h e r ; i n t h e re m a in in g

two a r e a s , t h e r e was a sm all n e t c o s t .
B e n e f i t s and c o s t s — f o r f a m i l i e s
receiving ch ild care
T a b l e 6 . 6 mixes employed AFDC m ot he r s who r e c e i v e c h i l d c a r e
s u b s i d i e s w i t h t h o s e who do n o t .

A more r e v e a l i n g p i c t u r e o f t h e

146

Table 6 .6
Earnings, Grant Reductions and Taxpayer Gain or Loss:
Averages by Area for the Month
of July 1970

Areas

I

Average earnings
(same as in Table
5.1)

Average grant
reduction

Average taxpayer
gain (or cost if
negative) per
employed AFDC casea

$127

$33

-$10

II

160

57

+27

III

127

66

+37

IV

176

49

-6

V

168

45

+3

VI

205

63

+21

VII

204

57

+9

VIII

192

58

+12

IX

229

75

+14

X

216

64

+44

XI

185

58

+19

XII

166

62

+2

XIII

176

51

+16

Defined as all grant reductions minus all child care costs, averaged
for all those working.
Source:

Data obtained from records of the Michigan Department of
Social Services.

147

b e n e f i t s and c o s t s o f employment i s

o b t a i n e d when t h e s e two groups a r e

separated.

fo r those receiving c h ild care

T ab l e 6 . 7 p r e s e n t s d a t a

payments w h i l e T a b l e 6 . 8 p r e s e n t s s i m i l a r d a t a f o r t h o s e who do n o t .
The f i r s t t h r e e columns o f t h e two t a b l e s p r e s e n t t h e same i n f o r m a t i o n
on t h e two g r o u p s .

Column 4 o f Ta b le 6 . 7 p r o v i d e s t h e a d d i t i o n a l d a t a

on c h i l d c a r e c o s t s , w h i l e column 5 o f t h a t t a b l e shows t h e a v e r a g e
taxpayer gain o r lo s s .

Column 5 o f

Ta b l e 6 . 7 and column 3 o f T a b l e 6 . 8

p r o v i d e s i m i l a r i n f o r m a t i o n on n o n - w e l f a r e t a x p a y e r g a i n o r l o s s f o r
f a m i l i e s w i t h and w i t h o u t c h i l d

care, respectively.

Column 6 i n T a b l e 6 . 7 shows t h a t t h e p o r t i o n o f t h e working
mo the rs who r e c e i v e c h i l d c a r e s u p p o r t v a r i e s c o n s i d e r a b l y o v e r g e o ­
g r a p h i c a r e a - - from 20 t o 50 p e r c e n t .
n o t known.

Why t h i s v a r i a t i o n o c c u r s i s

I t may be a r e f l e c t i o n o f t h e d e g r e e o f f u l l - t i m e v e r s u s

p a r t - t i m e employment i n t h e a r e a s .
Column 7 o f Ta b l e 6 . 7 and column 4 o f Tabl e 6 . 8 show t h e e s t i 4
mated a v e r a g e work e x p e n s e s .

B e n e f i t s and c o s t s — f a m i l i e s w i t h
and w i t h o u t c h i l d c a r e compared
A comparison o f t a b l e s 6 . 6 and 6 . 8 r e v e a l s s e v e r a l i n t e r e s t i n g
points.

F i r s t , the average earnings of th o se receiv in g c h i ld care are

h i g h e r i n a l l b u t one a r e a t h a n a r e t h e a v e r a g e e a r n i n g s o f t h o s e
w ithout c h ild care.

This i s c o n s i s t e n t w i t h t h e i d e a t h a t day c a r e and

f u l l - t i m e employment may be p o s i t i v e l y r e l a t e d .

Both t h e i n c r e a s e i n

d i s p o s a b l e income ( d e f i n e d h e r e as n e t o f employment exp en s es and g r a n t
r e d u c t i o n s ) o b t a i n e d by t h e r e c i p i e n t and t h e redu ce d c o s t caused by
t h e g r a n t r e d u c t i o n o b t a i n e d by t h e n o n - w e l f a r e t a x p a y e r a r e , on t h e
average, s u b s t a n t i a l l y h ig h e r f o r those w ith c h ild care.

The one

T ab le 6 .7
AFDC Employment Costs and Benefits For
Those Receiving Child Care Subsidies

(1 )

A reas

■Average
e a rn in g s

(2 )
A verage
c lie n t net
income i n ­
cre ase

(3 )
A verage
g ran t
r e d u c tio n

(4 )
A v erag e•
c h i l d c a re
cost

(5 )
A verage t a x ­
p a y e r g a in
(o r c o st i f
n e g a tiv e )
Column 3
m inus Column
4

(6 )
P erce n t o f
th o s e work­
in g r e c e i v ­
in g c h i l d
c a r e pay­
m ents

(7 )
A verage e s ­
tim a te d
ex p e n se s o f
employment

I

$174

$77

$56

$123

-$67

II

199

83

77

98

-2 1

30 .9

39

III

170

76

94

117

-23

2 5 .0

0

IV

204

85

58

111

-53

4 9 .6

61

V

222

91

64

101

-37

4 1 .4

67

VI

263

108

80

98

-1 8

4 2 .9

75

V II

227

92

63

133

-70

3 6.0

72

V III

218

90

66

112

-46

4 0 .6

62

IV

266

108

84

137

-5 3

4 4 .4

74

X

246

102

85

100

-15

1 9 .7

59

XI

186

77

47

102

-55

3 8 .1

62

XII

212

90

73

133

-60

3 7.5

49

X III

213

86

62

112

-50

3 1 .1

65

S o u rc e:

D ata o b ta in e d from r e c o rd s o f th e M ichigan D epartm ent o f S o c ia l S e r v ic e s .

35.3%

$41

149

Table 6 .8
AFDC Employment Costs and Benefits for
Those Without Child Care Subsidies

Areas

(1)
Average
earnings

(2)
Average client
net income
increase

(3)
Average grant
reduction,
taxpayer gain

(4)
Average
estimated
expenses of
employment

I

$99

$46

$21

$32

II

139

63

49

27

III

113

55

57

1

IV

148

64

40

44

V

129

55

31

43

VI

174

75

51

48

VII

188

79

54

55

VIII

172

72

52

48

IX

200

84

68

48

X

208

87

59

62

XI

185

78

65

42

XII

136

61

39

36

XIII

160

67

46

47

Source:

Data obtained from records of the Michigan Department of
Social Services.

150

e x c e p t i o n i s Area XI i n which a v e r a g e e a r n i n g s a r e a l m o s t t h e same f o r
both g r o u p s .
H ig he r g r a n t r e d u c t i o n s f o r t h o s e w i t h c h i l d c a r e a r e r e f l e c t e d
in column 3 i n t a b l e s 6 . 7 and 6 . 8 .

The r e a s o n f o r t h i s d i f f e r e n c e in

g r a n t r e d u c t i o n i s t h a t working r e c i p i e n t s who r e c e i v e c h i l d c a r e pay­
ments have h i g h e r a v e r a g e e a r n i n g s and t h e r e f o r e "pay back" a l a r g e r
p o r t i o n o f t h e i r g r a n t th a n do t h o s e r e c i p i e n t s who r e c e i v e no c h i l d
c a r e payments.

However, f o r t h o s e r e c e i v i n g c h i l d c a r e , t h e t a x p a y e r ' s

g a i n , which shows up as a g r a n t r e d u c t i o n , i s o f f s e t by t h e a d d i t i o n a l
t a x c o s t i n c u r r e d i n t h e form o f c h i l d c a r e .
Tabl e 6 . 7 show t h e i m p a c t o f t h i s f a c t .

Columns 4 and 5 o f

Average c h i l d c a r e c o s t s a r e

high enough t o o f f s e t more t h a n t h e a v e r a g e g r a n t r e d u c t i o n s i n a l l
th irteen areas.

The r e s u l t i s a n e t c o s t t o t h e t a x p a y e r ( o v e r t h e ta x

c o s t which would be i n c u r r e d i f t h e r e c i p i e n t were n o t working a t a l l )
p e r wor king r e c i p i e n t o f from f i f t e e n t o s e v e n t y d o l l a r s p e r month.

It

must be n o te d t h a t t h e s e a r e p o i n t - o f - t i m e o r s h o r t - r u n c o s t s ; t h e
d a t a t e l l n o th i n g a b o u t t h e l o n g e r - r u n dynamics i n v o l v e d .

Child care

may be c o n s i d e r e d an i n v e s t m e n t i n c h i l d r e n and i n t h e i n c r e a s e d employ­
a b i l i t y o f t h e m ot her .
but fu tu re re tu rn s.

Such an i n v e s t m e n t may y i e l d n o t o n ly p r e s e n t

T h i s f a c e t o f human c a p i t a l i s i n no way r e f l e c t e d

in the d ata.
We s h o u l d a l s o n o t e t h a t , i n each o f t h e t h i r t e e n a r e a s , t h e
i n c r e a s e d a v e r a g e t a x p a y e r c o s t i s l e s s tha n t h e i n c r e a s e d n e t income
o f t h e m ot h er .

(Compare columns 2 and 5 o f T a b l e 6 . 7 . )

Thus, i f one

o b j e c t i v e o f a work i n c e n t i v e s y st e m i s t o i n c r e a s e w e l f a r e r e c i p i e n t
incomes i n a c o m p a r a t i v e l y low c o s t ma nner, t h e work i n c e n t i v e a p p e a rs
to be a s t e p i n t h a t d i r e c t i o n .

Each added t a x p a y e r d o l l a r s p e n t on

151

c h i l d c a r e y i e l d s i n c r e a s e d n e t income t o t h e r e c i p i e n t o f from $1.15
($77/$67) i n g e o g r a p h i c Area I , t o $ 6. 8 0 ($102/$15) i n Area X.

So even

though t h e n o n - w e l f a r e t a x p a y e r ' s s h o r t - r u n c o s t i n c r e a s e d f o r employed
AFDC f a m i l i e s w it h c h i l d c a r e , t h e work i n c e n t i v e may be c o n s i d e r e d
s u c c e s s f u l , i f t h e o b j e c t i v e i s t o i n c r e a s e r e c i p i e n t income i n a
c o m p a r a t i v e l y low c o s t manner.
The l a s t columns o f t a b l e s 6 . 7 and 6.8 i n d i c a t e t h e a v e r a g e work
expen ses o f employed r e c i p i e n t s in each a r e a .

A c a s e can be made t h a t

a s i g n i f i c a n t p o r t i o n o f t h e s e e x pe n s es r e p r e s e n t a b e n e f i t t o t h e non­
w elfare taxpayer.

T h i s i s b e c a u s e t h e bulk o f employment e x pe ns es

r e p r e s e n t v a r i o u s f e d e r a l and s t a t e income and s o c i a l s e c u r i t y t a x e s .
I f i t i s assumed t h a t t h e a d d i t i o n a l t a x e s r e p r e s e n t a n e t i n c r e a s e i n
ta x r e v e n u e s , w h i c h w i l l u l t i m a t e l y b e n e f i t t h e n o n - w e l f a r e t a x p a y e r in
t h e form o f e i t h e r more s e r v i c e s o r reduced t a x pay ments, the n t h e s e
employment ex pe ns es a r e , i n p a r t , a n e t g a i n t o t h e t a x p a y e r .

In t h i s

case ,w e s h o u l d c o n s i d e r t h a t t h e y p a r t i a l l y o f f s e t t h e t a x c o s t s shown
in Table 6 .7

o r augment t h e t a x g a i n s shown i n Ta bl e 6 . 8 .

In term s o f a v e r a g e r e c i p i e n t b e n e f i t s n e t o f g r a n t r e d u c t i o n and
work ex pen se c o s t s , t h e r e l e v a n t columns o f t a b l e s 6 . 7 and 6.8 show
t h a t t h e s e b e n e f i t s a r e g e n e r a l l y w e ll under o n e - h a l f o f e a r n i n g s .

This

means t h a t , on t h e a v e r a g e , t h e employed AFDC r e c i p i e n t ' s e a r n i n g s a r e
a t such a l e v e l t h a t t h e a v e r a g e t o t a l ta x r a t e i s a b o u t 50 p e r c e n t
(where t o t a l t a x r a t e i s h e r e d e f i n e d t o i n c l u d e both g r a n t r e d u c t i o n
and work e x p e n s e s ) , a high r a t e b u t s t i l l w el l under t h e 67 p e r c e n t
margi nal r a t e w r i t t e n i n t o t h e work i n c e n t i v e program.

This i s b e c a u s e

e a r n i n g s a r e low enough t h a t t h e h i g h e r t a x r a t e a p p l i e s t o o n l y a small
portion o f to t a l earnings.

152
Co nc lu d in g remarks a b o u t b e n e f i t s
and c o s t s o f AFDC employment
In g e n e r a l , t h e b e n e f i t - c o s t r e s u l t s i n d i c a t e t h a t f o r t h o s e
r e c e i v i n g t h e c h i l d c a r e s u b s i d y i n J u l y , 1970

a n e t t r a n s f e r takes
5
p l a c e from t h e n o n - w e l f a r e t a x p a y e r t o t h e AFDC f a m i l i e s .
The t r a n s f e r
i s n o t t o t h e e n t i r e AFDC group b u t t o a smal l segment o f t h e group
which b o th works and r e c e i v e s c h i l d c a r e .

Assuming a b u d g e t c o n s t r a i n t

f o r t h e AFDC program as a w h o le , t h e working AFDC r e c i p i e n t who r e c e i v e s
c h i l d c a r e g a i n s a t t h e ex pe ns e o f both t h e non-working r e c i p i e n t s and
t h e wor king r e c i p i e n t who does n o t r e c e i v e c h i l d c a r e .

Th is s h o u l d be

c o n s i d e r e d b e f o r e f u r t h e r AFDC employment i s e n c o u r a g e d .
While c h i l d c a r e payments r e p r e s e n t p r i m a r i l y an i n - k i n d t r a n s f e r ,
i n some i n s t a n c e s t h e t r a n s f e r can t a k e t h e form o f a d i r e c t income
in c re a s e to th e fam ily .

For exam ple , t h e r e i s no r e a s o n why an o t h e r ­

w i s e unemployed g r a n d m o t h e r , a u n t , o r o t h e r member o f t h e f a m i l y c o u l d
n o t p r o v i d e t h e c h i l d c a r e and r e c e i v e payment f o r i t .

The m o t h e r ' s

employment g a i n s n o t o n l y h e r n e t income f o r t h e f a m i l y b u t may c r e a t e
a p a i d j o b f o r a n o t h e r member o f t h e f a m i l y ; t h e r e f o r e , t h e f a m i l y g a i n s
f i n a n c i a l l y i n two ways.

As a m a t t e r o f f a c t , t h e c h i l d c a r e income

would ex ce ed t h e m o t h e r ' s n e t e a r n i n g s i n many s i t u a t i o n s .

The t a x p a y e r

e x p e n d i t u r e on c h i l d c a r e f o r AFDC employment t h e r e f o r e has an added
g a i n o f c r e a t i n g one more j o b f o r wag es .
The r o l e o f c h i l d s u b s i d y i s i n t e r e s t i n g from y e t a n o t h e r p o i n t
o f view.

When an AFDC mot her o b t a i n s employment and pays someone e l s e

f o r t h e c a r e o f h e r c h i l d r e n , t h e c h i l d c a r e a c t i v i t y i n which she
f o r m e r l y engaged has s im p l y s h i f t e d from a n o n -m a r k e t t o a m a rk e t
activity.

Ignoring d iffe re n c e s in q u a l it y o f th e c h i ld c a r e , l e i s u r e

has become p r o d u c t i v e e f f o r t , i n terms o f t h e t r a d i t i o n a l economic
model.

Few mot hers would s u p p o r t t h e i d e a t h a t c h i l d c a r e i s s.ynonomous

w i t h l e i s u r e ; however, no n -m ar ke t work i s n o t even i n c l u d e d i n t h e GNP
a c c o u n t s and t h e r e f o r e t e n d s t o be t h o u g h t o f as u n p r o d u c t i v e .

Regard­

l e s s o f t h i s problem o f d e f i n i t i o n , i t i s n o t c l e a r t h a t t h e employment
o f a f e m a le head o f h o u s e h o l d , i n a wage pay in g j o b , y i e l d s an economic
g a i n i n t h e t r u e s e n s e o f t h e word.

T h a t i s , t h e s h i f t o f an AFDC

mother from p r o v i d i n g c h i l d c a r e f o r h e r own c h i l d r e n t o p a i d employ­
ment may be c o u n t e r b a l a n c e d by t h e s h i f t o f some o t h e r p e r s o n from
another a c t i v i t y to providing care f o r th e ch ild ren .
and magnitude o f t h e change i n t o t a l

The n e t d i r e c t i o n

"production" is in d e term in ate

u n l e s s t h e p e r s o n who p r o v i d e s t h e c h i l d c a r e f o r t h e w e l f a r e mot her
was d o in g n o t h i n g p r o d u c t i v e b e f o r e .

FOOTNOTES

The a r e a s which ranked o n e , two, and t h r e e i n changes in a v e r a g e
e a r n i n g s ranked 1 1 . 5 , 13, and 5 . 5 by r e l a t i v e i n c r e a s e i n r a t e s o f
employment ( s e e T a b l e 5 . 1 ) .

2

The need f o r t h e te rm n o n - w e l f a r e t a x p a y e r as opposed t o t a x ­
p a y e r was de v el o p ed i n C h a p t e r 2.
3
I t s h o u ld be n o t e d t h a t s uch c a r e i s n o t l i m i t e d t o p r e s c h o o l
c h ild re n but i s a v a i l a b l e to c h i ld r e n under fo u rtee n y ears o f age.
4
The e a r n i n g s a r e s p l i t between t h e r e c i p i e n t , t h e g r a n t
r e d u c t i o n , and work e x p e n s e s . The g r a n t r e d u c t i o n e q u a l s a l l income in
e x c e s s o f $20 p l u s 1/3 income, p l u s work e x p e n s e s . The c a s e d a t a
i n c l u d e d e a r n i n g s and t h e g r a n t r e d u c t i o n , so t h e amount which work
ex pe ns es must have been can be c a l c u l a t e d .
5
I t s h o u ld be emphasized t h a t t h e s e b e n e f i t - c o s t f i g u r e s a r e
q u i t e narr ow i n t h e i r f o c u s . For exam ple , no ti m e h o r i z o n i s i n c l u d e d .
In a d d i t i o n , no c o n s i d e r a t i o n i s g i v e n t o t h e p o s s i b i l i t y t h a t i n c r e a s e d
AFDC employment may mean d e c r e a s e d employment f o r someone e l s e ( t h i s i s
e s p e c i a l l y r e l e v a n t i n a s i t u a t i o n o f o v e r a l l e x c e s s s u p p ly i n t h e l a b o r
m a r k e t , as was t h e c a s e d u r i n g t h e y e a r o f t h i s s t u d y ) . Costs and
b e n e f i t s may be c o n s i d e r a b l y d i f f e r e n t i n t h i s b r o a d e r c o n t e x t .

154

Chapter 7

Success o f t h e Work I n c e n t i v e Program
and Concluding Comments
D et er m in in g Whether t h e I n c e n t i v e i s a Succ es s
The s u c c e s s o f any program must be measured in terms o f t h e o b j e c ­
t i v e s o f t h a t program.

The o s t e n s i b l e o b j e c t i v e o f a work i n c e n t i v e

a p p l i e d t o w e l f a r e r e c i p i e n t s i s t o e n c o u r a g e employment.

But f o r what

s p e c i f i c p u r po s e and a t w ha t c o s t ?
The p o s s i b l e o b j e c t i v e s o f a work i n c e n t i v e program which we have
c o n s i d e r e d in t h i s s t u d y a r e :

( l ) ~ a r e d u c t i o n i n AFDC c a s e l o a d , (2) a

redu ce d w e l f a r e c o s t p e r employed f a m i l y , (3) lowe r t o t a l w e l f a r e c o s t s ,
and (4) i n c r e a s e d AFDC incomes w i t h a gi v e n t a x p a y e r e x p e n s e .

In t h i s

c h a p t e r , we w i l l e v a l u a t e t h e work i n c e n t i v e i n terms o f each o f t h e s e
objectives.

The c o n c l u s i o n p r o v i d e s a g e n e r a l a n a l y s i s o f employment f o r

w e l f a r e r e c i p i e n t s and i t s c o s t = J m p l i c a t i o n s .

O b j e c t i v e o f r e d u c i n g t h e AFDC
easeload
The a n a l y s i s i n C h a p t e r 2 p r o v i d e s a s t r o n g ca s e f o r b e l i e v i n g
t h a t t h e i n c e n t i v e w i l l i n c r e a s e , n o t d e c r e a s e , t h e AFDC c a s e l o a d .

If i t

i s assumed t h a t a n y t h i n g which makes w e l f a r e r e l a t i v e l y more a t t r a c t i v e
w i l l i n c r e a s e t h e number o f AFDC r e c i p i e n t s , t h e n t h e work i n c e n t i v e w i l l
u n d o u b te d ly i n c r e a s e t h e s i z e o f t h e c a s e l o a d .

Non-AFDC f a m i l i e s w i l l be

more a p t t o come on w e l f a r e and w e l f a r e f a m i l i e s w i l l be more l i k e l y t o
s t a y on b ec a u se i t i s f i n a n c i a l l y more b e n e f i c i a l t o do s o , a t l e a s t f o r
t h o s e who work.

T h e r e f o r e , t h e work i n c e n t i v e i s i n c o n s i s t e n t w i t h t h e
155

156
o b j e c t i v e o f a lo w er c a s e l o a d .
th a t a question a r is e s :
incentive provision?

In f a c t , t h e i n c o n s i s t e n c y i s so obvious

Would anyone e v e r c o n s i d e r i t a goal o f t h e work

P o s s i b l y some may f e e l t h a t i f t h e program c o u l d

in d uc e mot hers t o work a t a l l

i t would i n c r e a s e t h e l i k e l i h o o d o f t h e i r

working more and e v e n t u a l l y l e a v i n g w e l f a r e v o l u n t a r i l y .

This c o u l d

happen, b u t i t would r e q u i r e an i n c o n s i s t e n t r e a c t i o n on t h e p a r t o f AFDC
m o t h e r s ; t o l e a v e w e l f a r e , t h e y would have t o d i s r e g a r d t h e i r o r i g i n a l
m otive f o r b e g i n n i n g work — f i n a n c i a l g a i n .
There a r e o t h e r , l e s s d i r e c t r e a s o n s why t h e work i n c e n t i v e may
t e n d t o i n c r e a s e t h e AFDC c a s e l o a d .

I f t h e work i n c e n t i v e c au s es mothers

t o work, t h i s i m p l i e s t h a t t h e i n c e n t i v e has s t i m u l a t e d t h o s e mot hers t o
work f o r wages which were p r e v i o u s l y u n a c c e p t a b l e (wages t o o low t o be a
reasonable a l t e r n a t i v e to w e lfa re ).

While a l l t h e mo thers i n t h i s s t u d y

were n o t asked why t h e y d i d n o t work p r i o r t o t h e i n c e n t i v e , i t i s r e a s o n ­
a b l e t o b e l i e v e t h a t some d i d n o t b e c a u s e t h e a v a i l a b l e j o b s p a i d to o
l i t t l e r e l a t i v e to w elfare b e n e fits .

Thus, t h e mot her ch o s e w e l f a r e in

p r e f e r e n c e t o w o r k , and once on w e l f a r e , t h e r e was no f i n a n c i a l i n c e n t i v e
t o seek a s i m i l a r low paying j o b .
With t h e i n c e n t i v e , however, t h e w e l f a r e mother may f e e l t h a t th e
low p a y i n g j o b pays enough t o s u p p le m en t h e r AFDC income; i t now becomes
acceptable.

The i n c e n t i v e i s t h u s a means o f s u b s i d i z i n g low wage employ­

e r s an d, i n t h i s s e n s e , i s a l a t t e r - d a y Speenhamland s y s t e m .

To t h e e x ­

t e n t t h a t AFDC m ot her s do work a t low payi ng j o b s , th e y w i l l te n d t o d r i v e
down a l r e a d y low wa ges; t h e r e f o r e , t h e y w i l l c o n t r i b u t e t o a r e d u c t i o n
in t h e e a r n i n g s c a p a c i t y o f n o n - w e l f a r e mothers who work i n s i m i l a r j o b s .
This w i l l make w e l f a r e f i n a n c i a l l y more a t t r a c t i v e t o t h e s e n o n - w e l f a r e
mothers an d, i n d i r e c t l y , l e a d t o an i n c r e a s e i n t h e w e l f a r e c a s e l o a d .

157

O b j e c t i v e o f r e d u c i n g t h e p e r ca se
w elfare costs
The work i n c e n t i v e can cau se t h e w e l f a r e c o s t p e r employed c a s e t o
f a l l , i f t h e mothers e a r n a s i z a b l e amount.
f i c am o u n ts .)

(See C h a p t e r 2 f o r t h e s p e c i ­

I f the o b je c tiv e is to reduce per case c o s ts , then the i n ­

c e n t i v e s h o u l d en co u ra g e e a r n i n g s high enough t o y i e l d a n e t f i n a n c i a l
r e tu r n to the taxpayer.

Yet, th e in c e n tiv e i s designed to encourage p a r t -

t i m e employment and low e a r n i n g s , s i n c e i t p l a c e s a z e r o w e l f a r e t a x on
low e a r n i n g s .

Such an i n c e n t i v e mi gh t en co u r a g e employment i f t h e r e i s

some i n e r t i a which must be overcome i n o r d e r t o in d u c e t h e m o t h e r t o work
at all

and i f , t h e r e a f t e r , a s m a l l e r f i n a n c i a l i n c e n t i v e i s r e q u i r e d t o

i n c r e a s e t h e amount o f work f o r wages.

However, as Perlman^ p o i n t s o u t ,

i t i s a l s o p o s s i b l e t o d e v e l o p an i n c e n t i v e pl a n which w i l l p r o v i d e added
f i n a n c i a l i n c e n t i v e s as more hours a r e worked.

This may y i e l d a g r e a t e r

per case r e tu r n to the taxpayer.

C e r t a i n l y , going t h e o t h e r d i r e c t i o n by

d e s t r o y i n g t h e ma rg in al f i n a n c i a l

i n c e n t i v e t o e a r n more makes no s e n s e ,

i f the o b je c tiv e is to reduce per case c o s ts .
The e m p i r i c a l e v i d e n c e p r e s e n t e d i n t h i s s t u d y shows t h a t low e a r n ­
in g s h a v e , i n g e n e r a l , become l e s s p r e v a l e n t among employed AFDC r e c i p i ­
e n t s d e s p i t e t h e ze r o w e l f a r e t a x on low e a r n i n g s .

Th is i n c r e a s e in

e a r n i n g s was n o t enough, however, f o r most o f t h e employed m o t h e r s ' g r a n t s
t o f a l l by an amount equal t o t h e i r i n c r e a s e d av e r a g e c o s t o f c h i l d c a r e .
Thi s l e d t o an i n c r e a s e d w e l f a r e c o s t f o r t h o s e employed m o t h e r s .

For

t h o s e who worked and d i d n o t r e c e i v e c h i l d c a r e , t h e r e was a s l i g h t r e ­
d u c t i o n in w e l f a r e c o s t s .

For employed r e c i p i e n t s as a w h o le , t h e r e was

a l s o a small r e d u c t i o n in f i n a n c i a l w e l f a r e c o s t s b e c a u s e c o m p a r a t i v e l y
few f a m i l i e s r e c i e v e d c h i l d c a r e .
The p o i n t i s , however, t h a t t h e i n c e n t i v e can r e d u c e p e r ca s e

158

c o s t s s i g n i f i c a n t l y o n ly i f t h e m o t h e r s e a r n more.

In f a c t , i t w i l l

i n c r e a s e w e l f a r e c o s t s p e r ca se i f more f a m i l i e s t a k e a d v a n t a g e o f t h e
c h i l d c a r e p r o v i s i o n s o f t h e AFDC program.
e n c o u r a g e AFDC mot hers t o work.

The i n c e n t i v e c a n , a t b e s t ,

B ut, in o rd e r to reduce per case w elfare

c o s t s b e c a u s e o f employment, i t i s n e c e s s a r y t o p r o v i d e AFDC mothers w i t h
j o b t r a i n i n g o r some o t h e r means o f r a i s i n g t h e i r e a r n i n g s power, as t h e
e a r n i n g s d a t a in t h i s s t u d y show.
O b j e c t i v e o f a r e du ce d t o t a l
w elfare cost
Based on t h e ab ove , we c o n c l u d e t h a t t h e work i n c e n t i v e has p r o b ­
a b l y c au s ed an i n c r e a s e i n th e t o t a l c a s e l o a d w h i l e a t t h e same time w e l ­
f a r e c o s t p e r employed r e c i p i e n t f e l l o n l y s l i g h t l y .

Thus , t h e work i n ­

c e n t i v e , as p r e s e n t l y c o n s t r u c t e d , d i d n o t f u l f i l l t h e o b j e c t i v e o f a
r e d u c e d t o t a l w e l f a r e c o s t o ve r t h e f i r s t y e a r o f i t s o p e r a t i o n in M ic h i­
gan.

In f a c t , t h e o p p o s i t e seems t r u e .

This h i g h e r c o s t w i l l p r ob ab ly

c o n t i n u e u n l e s s t h e e a r n i n g s o f t h e AFDC m ot her s can be s u b s t a n t i a l l y
increased.

O b j e c t i v e o f r a i s i n g AFDC income a t
low t a x p a y e r c o s t s
I f t h e o b j e c t i v e i s t o r a i s e a v e r a g e AFDC f a m i l y incomes a t a low
a d d i t i o n a l p e r c a s e c o s t , the n t h e work i n c e n t i v e has been e f f e c t i v e .
The e v i d e n c e p r e s e n t e d i n t h i s p a p e r shows t h a t t h e working AFDC r e c i p i ­
e n t ' s f i n a n c i a l g a i n i s g r e a t e r t h a n t h e added t a x p a y e r c o s t .

In o t h e r

w o r d s , t h e t a x p a y e r can p u r c h a s e more th a n a d o l l a r s i n c r e a s e i n AFDC
income f o r a d o l l a r s i n c r e a s e i n h i s t a x c o s t .

The more t h e mothers e a r n

t h e g r e a t e r t h e r e l a t i v e t a x p a y e r g a i n , which a g a i n s u g g e s t s t h a t - from t h e cru de f i n a n c i a l p o i n t o f view — i t may be w i s e t o i n v e s t in

159
AFDC t r a i n i n g in o r d e r t o o b t a i n a f i n a n c i a l r e t u r n from b o th lo w er w e l­
f a r e c o s t s and h i g h e r AFDC incomes.

Concl ud ing Comments
Th is s t u d y was i n t e n d e d t o p r o v i d e e v i d e n c e a b o u t t h e e f f e c t o f
work i n c e n t i v e s on w e l f a r e employment and e a r n i n g s .

We f e e l t h a t t h e

d a t a and a n a l y s i s i n t h i s s t u d y p r o v i d e a r e a s o n a b l y c o n v i n c i n g argument
t h a t t h e i n c e n t i v e has c o n t r i b u t e d t o i n c r e a s e d employment o f AFDC
m ot her s i n M ic hi ga n, and l e d t o h i g h e r incomes f o r t h o s e employed.

It

a p p e a r s , however, t h a t t h e s e two r e s u l t s were g a i n e d th r o u g h h i g h e r s h o r t run w e l f a r e c o s t s .
There a r e immense e m p i r i c a l problems a s s o c i a t e d w i t h a t t e m p t s such
as o u r s t o i s o l a t e t h e e f f e c t s o f s p e c i f i c changes i n e x i s t i n g w e l f a r e
prog ram s; t h e work i n c e n t i v e i s no e x c e p t i o n .

But t h e r e s u l t s o f t h e s e

s t u d i e s a r e u s e f u l and t h e s u b j e c t i s o f such g r e a t im p o r ta n c e t o w e l f a r e
r e fo rm t h a t f u r t h e r r e s e a r c h i s w a r r a n t e d .
Added s t u d i e s on work i n c e n t i v e s c o u l d be made in o t h e r s t a t e s t o
r e i n f o r c e o r c o n t r a d i c t t h e Michigan e x p e r i e n c e .

But in a d d i t i o n t o

r e p l i c a t i n g t h i s s t u d y , we f e e l t h a t more r e f i n e d work s h o u l d be done in
an a t t e m p t t o i d e n t i f y why some w e l f a r e mothers work more b e c a u s e o f t h e
i n c e n t i v e w h i l e o t h e r s do n o t .

More r e s e a r c h i s needed t o ju d g e t h e

e f f e c t i v e n e s s o f work i n c e n t i v e s u n d e r d i f f e r e n t l a b o r m a rk e t c o n d i t i o n s ,
w i t h d i f f e r e n t i n c e n t i v e f o r m u l a s , w i t h d i f f e r e n t w e l f a r e program admin­
i s t r a t i o n , and o v e r l o n g e r p e r i o d s o f t i m e .
t o s e e how v a r i o u s

F u r t h e r work i s a l s o needed

manpower p ro g r a m s , such as t r a i n i n g , a f f e c t t h e s u c ­

c e s s o f u s i n g work i n c e n t i v e s .
research in th e se a r e a s .

We hope t h a t t h i s s t u d y s t i m u l a t e s f u r t h e r

FOOTNOTES

^ Ric har d P erlman, "A N e g a ti v e Income Tax P l a n f o r M a i n t a i n i n g
Work I n c e n t i v e s , " J o u r n a l o f Human R e s o u r c e s , I I I (Summer, 1968),
289-299.

160
i

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U. S. C on gr es s. S e n a t e . P r o c e e d i n g s o f t h e Confe ren ce On t h e Care
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B o s k i n , Michael J a y .
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529-549.
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~
C o l l , Bl anche D. " P e r s p e c t i v e s in P u b l i c W e l fa re : C o l o n i a l Times
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(Summer, 1 9 6 8 ) , 280-288.
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Department o f H e a l t h , E d u c a t i o n , and W el f ar e.
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U n i v e r s i t y o f C h ic ag o, 1966.
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709-7. Washington: The Urban I n s t i t u t e , 1971.
S m it h , Vern. Un pu bl ish ed s t u d y o f AFDC employment i n two c o u n t i e s
in Mich ig an. S t a t e D epartment o f S o c i a l S e r v i c e s , L a n s i n g ,
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APPENDICES

APPENDIX A

SAMPLE SIZES AND PORTION OF THE STATEWIDE AFDC CASELOAD
FOUND IN EACH GEOGRAPHIC AREA

Percent of
actual caseload
in each region
in July 1970

Longitudinal
sample of
active cases
in July 1970
by region

177

262

2.3%

141

II

258

429

.7

170

60

112

.3

39

IV

461

744

7.2

388

V

604

1023

5.1

481

VI

283

459

6.8

246

VII

263

523

3.9

216

VIII

509

747

CO

399

IX

540

945

448

X

215

434

5.5

164

XI

289

431

2.6

195

XII

731

1138

45.0

672

XIII

270

409

3.0

233

4660

7656

III

Total

CO

I

ro
00

Area

Cross section active samples
sample sizes by region
1969 and 1970
July 1969
July 1970

89.0%a

3792

The remaining 11% of the total caseload is in areas which were not
sampled. The omissions are generally rural areas, similar to areas
I-III and XIII.

165

APPENDIX B

SAMPLE FRACTION AND SAMPLE SIZES FOR EACH GEOGRAPHIC AREA

I

II

III

IV

1/5

1/1

1/1

1969 active

177

258

1970 active

262

1970
longitudinal*

Area
Sample
fraction

IX

X

XI

XII

XIII

V

VI

VII

VIII

1/7

1/4

1/10

1/5

1/3

1/2

1/8

1/4

1/25

1/5

60

461

604

283

263

509

540

215

289

731

270

4660

429

112

744

1023

459

523

747

945

434

431

1138

409

7656

141

170

39

388

481

246

216

399

448

164

195

672

233

3792

61

20

11

208

204

313

244

114

73

368

83

124

116

1939

119

26

13

241

142

264

140

148

85

221

113

681

102

2295

Total

Sample Sizes

1970 opening**
1970 closing
*

We had data on 39 additional cases which were active in July 1969 and July 1970 but had moved out of one
the 13 study areas over the year.

**

This is a 100% sample of all the cases which we could tell were recent openings.
opened cases had no data reported on opening dates.

Many of the newly

APPENDIX C

E s t i m a t i o n P r o c e d u r e s Used t o Determine Changes i n
t h e Number o f P e r s o n s Employed in Jo bs L i k e l y
t o be F i l l e d by AFDC Mothers
The e s t i m a t i o n was s t a r t e d by u s i n g t h e d e t a i l e d p o p u l a t i o n c h a r a c t e r i s t i c d a t a from t h e 1960 census f o r Michigan.

Using t h e

t a b l e s on o c c u p a t i o n by s e x and i n d u s t r y , a c a l c u l a t i o n was made o f t h e
p o r t i o n o f fe m a le s employed in c e r t a i n j o b s which AFDC mot hers a r e
l i k e l y to hold.

C l e r i c a l , o p e r a t i v e , and s a l e s and s e r v i c e j o b s were

chosen as p e r t i n e n t b e c a u s e a s t u d y , done by t h e Michigan Department o f
S o c i a l S e r v i c e s i n 1968, i n d i c a t e s t h a t t h e s e c a t e g o r i e s c o v e r t h e usual
o c c u p a t i o n s o f r o u g h l y 80 p e r c e n t o f t h e AFDC c l i e n t s .

(See Research

P ap er No.2, " P r o f i l e o f Michigan AFDC C a s e l o a d , " Michigan Department o f
S o c i a l S e r v i c e s , O c to b e r 196 9.)
A c a l c u l a t i o n was t h e n made o f t h e r a t i o s o f p e r t i n e n t female
employment t o t o t a l employment by t h e i n d u s t r i a l breakdown - - d u r a b l e ,
n o n - d u r a b l e , p r i v a t e , and governmental j o b s .

The c a t e g o r i e s were used

e x a c t l y as t h e y a p p e a r i n t h e c e n s u s t a b l e s , e x c e p t medical and e d u c a ­
t i o n a l s e r v i c e s were p l a c e d i n t h e governmental s e c t o r .

I t was p o s s i b l e

t o make t h e s e c a l c u l a t i o n s f o r t h e s t a t e a s a whole and f o r t h e s p e c i f i c
SMSAs o f D e t r o i t , L a n s i n g , F l i n t , and Grand Rapids.

Thi s c o v e r e d t h e

s i x a r e a s o f o u r s t u d y - - X, XI, X I I ; V I I ; VI; and IV; r e s p e c t i v e l y .
The n e x t s t e p was t o e s t i m a t e t h e ch ang es i n t o t a l employment
f o r each o f t h e a r e a s

f o r the fo u r i n d u s t r i a l c a te g o r ie s .

Labor f o r c e

and employment e s t i m a t e s f o r e l e v e n o f t h e t h i r t e e n a r e a s i n o u r s t u d y
were o b t a i n e d from t h e Michigan Employment S e c u r i t y Commission (MESC)
B/M s e r i e s 3-69 f o r June o f 1969 and 1970.

I t was f e l t t h a t t h e June

f i g u r e s would be b e t t e r f o r t h e p u r p o s e s o f t h i s s t u d y th a n t h e J u l y
167

168
Table Cl

E s t i m a t e d R a t i o s o f Females Employed i n C l e r i c a l , S a l e s
O p e r a t i v e , and S e r v i c e Jo bs Compared t o
T o t a l Employment by I n d u s t r y

Area
Job

Michigan

D etroit

Lansi ng

Flint

Grand
Rapids

M f g.- D ur abl e

13.56

12.72

10 . 9 3

1 4. 8 8

18.5 5

Mfg.
Non-Durable

21.08

20 .2 3

17 .0 0

15.6 5

25 .0 5

Private
Non-Mfg.

31.68

32.78

33 . 3 4

34.05

30 .9 0

Government

29. 1 0

28.76

32.43

31.3 4

26 . 8 8

S o u r ce :

F i g u r e s d e r i v e d from d a t a o b t a i n e d from t h e i9 60 U.S. Census
d e t a i l e d p o p u l a t i o n c h a r a c t e r i s t i c s f o r Michigan.

d a t a , s i n c e t h e J u l y AFDC d a t a more a c c u r a t e l y r e f l e c t s t h e J un e employ­
ment e x p e r i e n c e .

Tabl e C2 g i v e s t h e raw employment f i g u r e s us ed from

t h e MESC r e p o r t .
All t h a t remained t o do t o g e t an e s t i m a t e o f t h e change i n p e r ­
t i n e n t fema le employment, by a r e a , was t o m u l t i p l y each a p p r o p r i a t e em­
ployment f i g u r e by t h e p r e d e t e r m i n e d r a t i o o b t a i n e d from t h e c e n s u s d a t a .
For t h e a r e a s w i t h no s p e c i f i c r a t e s ( f i v e o f e l e v e n ) , t h e L ans in g r a t i o
was a p p l i e d .

We f e l t i t wou ld, i f a n y t h i n g , w e i g h t t h e f i g u r e s i n f a v o r

o f a l a r g e r t h a n a c t u a l i n c r e a s e i n female employment b e c a u s e i t would
w e i g h t governmental employment more h e a v i l y ; governmental employment i n
Michigan i n c r e a s e d between J u l y , 1969 and J u l y , 1970.

Thus, t h i s g i v e s

a c o n s e r v a t i v e b i a s i n t h e s e n s e t h a t i t i n f l a t e s any i n c r e a s e o r de­
f l a t e s any d e c r e a s e i n o u r measured change i n AFDC t y p e employment.
Thi s p r o v i d e s t h e more f a v o r a b l e p i c t u r e o f t h e l a b o r m a r k e t c h a n g e s .

169

T a b le C2

Total Number of Persons Employed in Certain Industries in
June 1969 and June 1970 for Specific SMSAs
VTTT

X,XI,XII

VII

IV

Battle
Creek

Lansing

Muskegon

Grand
Rapids

Michigan

Detroit

Kala­
mazoo

909,200

985,200

13,100

15,900

36,200

22,200

55,100

213,900

90,900

15,200

9,700

3,800

3,500

18,900

Non-MFG

1382,900

718,300

31,100

25,000

51,300

18,800

95,200

Govern­
ment

521,700

215,800

13,100

10,700

96,200

6,900

20,800

Durable

977,000

520,600

19,100

17,000

37,100

23,900

59,200

Non­
durable

223,200

95,300

15,700

9,700

3,500

3,300

18,800

Private

1397,000

733,600

29,700

25,100

50,800

19,100

97,300

Govern­
ment

503,100

213,500

12,000

10,600

92,000

6,100

19,000

June 1970
MFG
durable
MFG Non­
durable

June 1969

xr

Saginaw

Bay
City

I
XIII
Benton
Upper
Harbor Peninsula

VI
Flint

TV

Jackson

Ann
Arbor

June 1970
MFG
durable

80,900

29,000

8,000

20,200

8,500

19,500

31,200

MFG Non­
durable

9,100

3,200

2,000

7,300

9,600

3,100

3,600

Non-MFG

53,800

32,000

13,900

23,900

99,100

21,100

32,700

Govern­
ment

27,700

9,200

9,900

7,200

23,700

7,800

36,300

86,300

29,900

10,800

23,900

9,300

16,000

39,200

9,900

3,200

2,000

7,200

9,700

3,200

3,500

Private

56,800

33,500

19,500

22,300

93,500

20,600

31,100

Govern­
ment

23,700

7,900

9,300

6,500

22,200

7,300

33,700

June 1969
Durable
Non­
durable

Source:

Michigan Employment Security Commission B/M Series 3-69

170

The r e s u l t i n g f i g u r e s h o u l d p r o v i d e a r e a s o n a b l y a c c u r a t e e s t i m a t e
o f changes i n f e m a l e employment i n t h e p e r t i n e n t j o b s , i f t h e 1960 ce ns u s
r a t i o s a r e v a l i d f o r 1970.

An a t t e m p t was made t o a c c o u n t f o r p o s s i b l e

changes i n t h e s e r a t i o s by l o o k i n g a t t r e n d s i n j o b t y p e as a p o r t i o n o f
t o t a l j o b s by i n d u s t r y .

For exam ple, t h e p o r t i o n o f c l e r i c a l w o rk er s i s

p r o j e c t e d t o f a l l between 1960 and 1975 i n t h e governmental s e c t o r .
( O cc u pa ti o n Employment P a t t e r n s f o r 1960 and 1975, U.S. Department o f
L a b o r , Bureau o f Labor S t a t i s t i c s B u l l e t i n #1599, December, 1968, p. 1 7 7 . )
The problem w i t h t h i s was t h a t changes i n t h e p o r t i o n o f males t o f em al es
c o u l d n o t be a c c o u n t e d f o r i n t h e same o c c u p a t i o n s .
T h e r e f o r e , i n o r d e r t o come up w i t h a c o n s e r v a t i v e

AFDC l a b o r mar­

k e t e s t i m a t e (one t h a t would l i k e l y make t h e AFDC l a b o r ma rket

look b e t t e r

t h a n i t a c t u a l l y w a s ) , t h e r a t i o s d e v e l o p e d from t h e ce ns us f i g u r e s were
i n c r e a s e d by 10 p e r c e n t whenever t h e r e was a s u b s t a n t i a l i n c r e a s e i n
t o t a l employment o v e r t h e y e a r (200 o r more j o b s ) and l e f t unchanged f o r
no change o r employment d e c r e a s e s .

I t is f e l t t h a t t h i s understates the

a c t u a l number o f fe m a le s employed i n t h e s e l e c t e d j o b s i n i n d u s t r i e s and
a r e a s w i t h f a l l i n g employment, and o v e r s t a t e s t h e same employment in
i n d u s t r i e s and a r e a s w i t h r i s i n g employment.

The f i n a l e s t i m a t e o f t h e

changes i n employment — i n j o b s l i k e l y t o be f i l l e d by AFDC mo th ers - would t h e r e f o r e show more o f an a c t u a l i n c r e a s e , i f i t e x i s t s , o r l e s s
o f a decrease, i f i t e x i s t s .

In t h i s way, t h e d a t a r e f l e c t a h i g h l y

o p t i m i s t i c view o f t h e l a b o r

m a rk e t p i c t u r e , which can be

used t o e x p l a i n

i n c r e a s e s i n AFDC employment

o v e r t h e J u l y , 1969 t o J u l y ,

1970 p e r i o d .

T a b l e C3 shows t h e r e s u l t i n g e s t i m a t e s .
The p o r t i o n o f t h e t o t a l p e r t i n e n t fema le employment ( r e p r e s e n t e d
by t h e numbers i n T ab l e C3) was d e t e r m in e d by d i v i d i n g each o f t h e

171

f i g u r e s by t h e e s t i m a t e s o f t o t a l fem a le employment i n J u l y , 1969 —
o b t a i n e d by m u l t i p l y i n g t h e r a t i o s from t h e 1960 c e n s u s d a t a by t h e
t o t a l employment f i g u r e s from MESC.

172
T a b le C3

Difference of 1969 and 1970 Estimates of the Female
Employed in the Job Clerical, Operative, Sales, and Services
X,XI,XII
Michigan

Detroit

VII
Lansing

VTTT
Battle
Kala­
mazoo
Creek

T

XIII
Benton
Harbor

Upper
Peninsula

Durable

-9,194

-4,503

-98

-109

-175

-404

-87

Non­
durable

-2,066

-890

56

-85

0

17

-17

Private
Non-MFG
Govern­
ment

-4,625

-5,015

183

513

-33

.587

220

5.954

728

1.498

392

32

250

535

Total

-9,931

-9,680

1,639

711

-174

450

651

Source:

Tables Cl and C2.

------- IX-----Jackson
Durable
Non­
durable
Private
Non-MFG
Govern­
ment
Total
Source:

Arbor

V-------

VI
Flint

Saginaw

^

-IV------Grand
Rapids

Muskegon

-164

-328

-804

-134

-298

-761

-315

-17

17

-47

0

0

-100

55

183

587

-1022

-511

-204

-649

-93

178

927

1379

448

207

532

237

191

1203

-494

-197

-295

-978

-116

Tables Cl and C2.

APPENDIX D

DESCRIPTION OF THE DATA AVAILABLE FOR
EACH AFDC CASE IN THE SAMPLE
The b a s i c d a t a s o u r c e was t h e c e n t r a l p a y r o l l d a t a k e p t on
each c a s e by t h e Michigan Department o f S o c i a l S e r v i c e s . The AFDC
c a s e d a t a al lo w ed an i d e n t i f i c a t i o n o f each c a s e by g e o g r a p h i c
a r e a ( c o u n t y ) , s ex o f t h e g r a n t e e o r head o f h o u s e h o l d , and w h e t h e r
o r n o t t h e c a s e was r e c e n t l y opened o r c l o s e d .

In a d d i t i o n , t h e

f o l l o w i n g i n f o r m a t i o n was a v a i l a b l e f o r each AFDC c a s e as r e p o r t e d
t o t h e Department o f S o c i a l S e r v i c e s by c a s e w o r k e r s :
1.

Race

2.

Number o f p e r s o n s i n t h e f a m i l y ( i n t h e g r a n t )

3.

Age o f c h i l d r e n

4.

Age o f t h e g r a n t e e

5.

Gross e a r n e d income o f t h e g r a n t e e

6.

OASDI and o t h e r income r e c e i v e d by t h e AFDC f a m i l y

7.

Net income — which e q u a l s t h e OASDI, p l u s o t h e r income, p l u s

t h e amount by which t h e g r a n t i s red uce d as t h e r e s u l t o f e a r n i n g s
8.

The t o t a l amount o f g r a n t t h e f a m i l y would r e c e i v e in t h e

abs en ce o f any e a r n i n g s o r o t h e r o u t s i d e income
9.
10.

Actual g r a n t payment
Expenses o f employment — a l l o w e d e x p e n s e s pl u s t h e t w e n t y -

d o l l a r minimum
11.

Employment code — which a c a s e w o r k e r a s s i g n s i n an at te m D t

t o j u d g e b a r r i e r s t o p a r t i c i p a t i o n i n t h e t r a i n i n g a s p e c t s o f t h e WIN
program.

173