Work Requirements and Income Transfers

Abstract

Recent structural changes m the Aid of Families with Dependent Children (AFDC) program brought about by the 1988 Family Support Act mandate work requirements and training for many income transfer recipients. The article uses a theoretical analysis that predicts changes in the level and composition of income transfers resulting from the introduction of these policy changes. The model incorporates the labor supply decision of potential income transfer recipients into a public choice model that describes the process by which the level of income transfer per recipient for each state is determined. The statistical analysis involved the pooling of data on labor force participation, wage rates, and other variables relevant to the labor supply model of potential income transfer recipients with the level of transfers, guarantees, donor and recipient characteristics, and information on the marginal cost of income redistribution from the public choice model. A panel data set of time series for each state was used to estimate how sensitive the income transfer is to changes in the labor supply of welfare recipients. Policy implications of the analysis are offered that focus on the implementation of the requirement that a percentage of income transfer recipients work on the level of AFDC transfer that states provide.