The Effect of Pre-PRWORA Waivers on AFDC Caseloads and Female Earnings, Income, and Labor Force Behavior

A recent report of the Council of Economic Advisors (CEA) examined the effect of prePRWORA waiver activity in the early 1990s on the AFDC caseload, and found that waivers made a substantial contribution to the reduction in the AFDC caseload although less than that of the declining unemployment rate. The CEA study used an aggregate state-level caseload model estimated over the period 1976-1996. This paper uses the CEA methodology but applies it to microdata from the Current Population Survey (CPS), where information is available on labor force activity, earnings, and income, as well as on demographic characteristics such as age, sex, and education. The results from the CPS show that less educated women had gains in labor force attachment in the form of increased weeks worked and hours of work as a result of waivers, but no statistically significant increases in earnings or wages. The only statistically significant earnings or wage increases occurred among better-educated women, generally those with at least twelve years of education. The latter result is, however, somewhat sensitive to which historical recession is used to forecast the effect of the business cycle.