Economic Downturns and Welfare Reform: An Exploratory County-Level Analysis

Year: 1999

Research Center: Southern Rural Development Center, Mississippi State University

Investigator: Goetz, Stephan J., Fisseha Tegegne, Julie N. Zimmerman, David L. Debertin, Surendra P. Singh, Safdar Muhammed, and Enefiok Ekanem

Institution: Pennsylvania State University

Project Contact:
Stephan J. Goetz, Professor and Director of NERCRD
Department of Agricultural Economics and Rural Sociology
7 E Armsby Building
The Pennsylvania State University
University Park, PA 16802-5602
814-863-4656, fax 814-863-0586


Over the past 20 years, the U.S. economy has experienced remarkable growth. The combination of rising incomes, low and declining rates of unemployment, low interest rates, and rapid GDP growth have led to a booming stock market. Since new firms are being created and many old firms are expanding, job creation has been rapid. While the strong economy makes it easier for individuals to move off welfare, problems remain. First, not all areas of the United States are sharing equally in the growing economy. Second, certain welfare recipients, primarily younger and less-educated workers, face different and often more limited employment prospects than those of most workers. Third, past welfare recipients still face a variety of barriers to employment that are beyond their control.

In this study, the authors examine the relationship between recipients’ characteristics, local economic conditions, and the decline in welfare program participation in Kentucky counties. They develop a statistical model to quantify the effect of an economic downturn on welfare caseloads, and to separate the effects of welfare recipients’ characteristics from the effect of local economic conditions on changes in welfare caseloads. Their dependent variable is a function of the reduction in county-level adult caseloads between June 1997 and January 1998.

County economic conditions affecting caseload reductions include the unemployment rate, recent job growth, and the number of retail sector jobs per adult welfare recipient. Other factors that may affect transitions into the workforce—and that are beyond the control of individuals—include availability of daycare for children and the presence of Family Resource Youth Service Centers. Whether a welfare recipient lives adjacent to a metro area should also affect the likelihood of transitions. The authors use five variables to capture individual characteristics of adult welfare recipients that affect transitions into the workforce, independent of local county conditions: age of the recipients, average number of children per recipient, previous amount of time on assistance, educational attainment, and previous work experience.

Their results show that an increase in the unemployment rate, a decrease in the availability of retail sector jobs, and rural status of a county each reduce the rate at which caseloads decline. The directions of these effects match theoretical expectations, and the effects are statistically significant. The proportion of recipients who are young, who have been on welfare rolls for longer periods, who have less prior work experience, and who have low levels of educational attainment all had negative effects on caseload decline, everything else being equal. The average education of recipients and the unemployment rate in a county were the most important factors affecting caseload reductions. Thus, the authors suggest that a combination of policies targeted at raising the education attainment of former recipients and stimulating job growth would be more effective than other policies in maintaining caseload reductions during a recession. Overall, they found recipients’ individual characteristics “explained” 33 percent more of the variation in caseload reductions than did county-level economic conditions, even though more variables were included for economic conditions than for individual characteristics.