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Why Did the Welfare Caseload Decline?

Danielson, C. and J.A. Klerman


July 1, 2009

A substantial literature has considered the effects of welfare reform policies on the aggregate caseload but has been less successful in disaggregating the effects of specific policies. Using monthly caseload data from October 1989 through June 2003, we estimate a flexible model for the dynamic response of the welfare caseload to the econo my and to the three major welfare reform policies: Financial incentives to combine work and welfare, sanctions for noncompliance with work-related requirements, and time limits on the receipt of cash assistance. Our results are consistent with the predictions of economic theory and indicate the importance of carefully specifying the intensity and dynamics of policy changes and of including a rich set of measures of the economy. Simulations of the implied effect of each of our preferred model’s components on the national welfare caseload indicate that sanction and time limits policies played a role, as did the economy, although an undifferentiated reform bundle had a larger impact.
North America