Instrumental Variable Estimates of the Labor Market Spillover Effects of Welfare Reform

W.E. Upjohn Institute Staff Working Paper No. 02-78

59 Pages Posted: 10 Jun 2002

See all articles by Timothy Bartik

Timothy Bartik

W.E. Upjohn Institute for Employment Research

Date Written: April 2002

Abstract

By increasing the labor supply of welfare recipients, welfare reform may reduce wages and increase unemployment among other less-educated groups. These "spillover effects" are difficult to estimate because welfare caseloads decrease in response to improvements in the economy, which leads caseload reductions to be associated with improvements in labor market outcomes.

This paper corrects for the endogeneity of caseloads by using instruments that reflect policy. The estimates suggest that welfare reform has significant spillover effects: welfare reform reduces employment of male high school dropouts, and reduces wages of single mothers and male high school dropouts.

JEL Classification: J68, J38, I38, J31, H53

Suggested Citation

Bartik, Timothy, Instrumental Variable Estimates of the Labor Market Spillover Effects of Welfare Reform (April 2002). W.E. Upjohn Institute Staff Working Paper No. 02-78, Available at SSRN: https://ssrn.com/abstract=313160 or http://dx.doi.org/10.2139/ssrn.313160

Timothy Bartik (Contact Author)

W.E. Upjohn Institute for Employment Research ( email )

300 South Westnedge Avenue
Kalamazoo, MI 49007-4686
United States

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