Figure 2 : Percentage of Children who have Ever Received Welfare , by Race / Ethnicity

We examine the extent to which children are exposed to the welfare system through their mother’s receipt of benefits and its impact on several developmental outcomes. Using data from the matched mother-child file from the National Longitudinal Survey of Youth (NLSY), we find that children’s welfare exposure is substantial. By age 10 over one-third of all children will have lived in a welfare household; black, non-Hispanic children face a much higher rate of exposure. Simple correlations suggest a strong negative relationship between maternal welfare receipt and children’s outcomes. In this paper we implement three alternative strategies (instrumental variables, sibling difference, and child fixed effects models) designed to identify whether this correlation can be attributed to the mother’s welfare receipt directly or to other characteristics of mothers who receive welfare, regardless of whether or not those characteristics are observable to the researcher. Based on the results of all three estimation strategies, we find little evidence of any causal link between maternal welfare receipt and children’s developmental outcomes. Phillip B. Levine David J. Zimmerman Department of Economics Department of Economics 106 Central Street Fernald House Wellesley College Williams College Wellesley, MA 02481 Williamstown, MA 01267 (781) 283-2162 (413) 597-2192 plevine@wellesley.edudavid. j.zimmerman@williams.edu INTRODUCTION The issue of welfare dependency became a focal point in the recent debate over welfare reform. Indeed, many policy makers pointed to dependency as a compelling reason to completely overhaul the nation’s system for transferring income to poor mothers. The new emphasis on work brought about by the sweeping welfare reform legislation of 1996, they argued, would promote selfsufficiency among the mothers (Mead, 1992; Rector, 1997). Others have criticized these reforms because they may exacerbate already disturbing levels of child poverty, which tends to be linked to inferior outcomes for children (Bane, 1997; Edelman, 1997; and Duncan and Brooks-Gunn, 1997). If welfare expenditures necessitate a difficult tradeoff between parental dependency and child poverty, it is critical to know the terms of the tradeoff. Although a large body of scholarly research has considered the impact of welfare on adult recipients (c.f. Moffitt, 1992), relatively little research has considered the issue of how maternal welfare receipt impacts the well-being of children. This paper addresses the question, is children’s development affected by their mothers’ welfare receipt? The main methodological problem that any research in this area faces is determining causality. Differences in children’s outcomes are the result of a myriad of factors, many of which may be correlated with the family’s welfare history. The identification of a causal link between the mother’s welfare receipt and the child’s outcomes requires the researcher to carefully control for these other factors. Neglecting to do so would result in an estimated welfare effect that was, in fact, an amalgam of both welfare influences and the influences of variables correlated with welfare receipt. This research uses three distinct methods that can control for differences among families, including those that cannot be observed by the researcher, which could confound the estimation of a welfare effect. First, we implement an instrumental variables estimator where parameters of state welfare systems and local labor market conditions represent the instruments. Second, we consider differences in outcomes between siblings, who have the same fixed family background, but who may have been exposed to different amounts of maternal welfare receipt during their childhood. Finally, we use repeated observations on children to estimate individual fixed effects models that identify changes in outcomes over time for an individual child as a function of changes in the degree to which the child has been exposed to welfare. Data matched between mothers and children from the National Longitudinal Survey of Youth (NLSY) enable us to implement these strategies. These data follow 6,283 women initially between the ages of 14 and 21 in 1979 and have subsequently tracked all of the children born to these women. Importantly, these data provide an event history of welfare receipt going back to January of 1978 that encompasses most of these women’s adult lives and virtually all of their children’s lives. We use these event histories to calculate the extent to which each child in the sample was exposed to the welfare system. In addition, these data provide biannual assessments of these children’s development beginning in 1986 that are the focus of much of this analysis. We find that children’s welfare exposure is extensive. By age 10 over one-third of all children will have lived in a household in which their mothers received welfare at some point in their lives. For those whose mothers have received some welfare, these children will have spent one-third of their lives on welfare. Statistics for black, non-Hispanic children are considerably higher than that. Moreover, we find a strong negative correlation between maternal welfare receipt and these children’s outcomes in the raw data. However, introducing statistical controls for both observable and unobservable differences between mothers completely eliminates this differential. BACKGROUND Although the effects on children of maternal welfare receipt have received considerable attention in the literature, the vast majority of this research focuses on children's outcomes in adulthood or nearing adulthood. These papers examine issues such as whether children from welfare households are more likely to become teen mothers (c.f. An, Haveman, and Wolfe, 1993), acquire fewer years of education (c.f. Butler, 1990), or receive welfare themselves (c.f. Duncan, et al. 1988, Gottschalk, 1990; Antel, 1992; and Levine and Zimmerman, 1996). In this literature, the link between maternal welfare receipt and children’s outcomes is typically hypothesized to stem from two sources. First, children reared in a household that received welfare may come to attach less stigma to participating in the welfare system. Second, their exposure to the welfare system may make the children more aware of how it functions, thus reducing the transaction costs associated with participation. Both of these effects could make children exposed to maternal welfare receipt more likely to participate in the welfare system or less likely to invest in human capital than children who were not exposed to welfare participation in their home. Notice that both of these effects are possible in an environment where other things (particularly household income) are held constant. Far less research has considered the impact of welfare on children while they are still very young. Since these years are critical in their subsequent development (c.f. Duncan, et al., 1994), identifying whether maternal welfare receipt has any effect on children's outcomes during these years becomes an important research question. Yet, the mechanism by which maternal welfare receipt may affect children when they are young is somewhat different from the mechanism linking maternal welfare receipt and the children’s outcomes when they are adults. In this case, reductions in stigma or transaction costs are less plausible. Instead, the connection could stem from the impact welfare receipt has on the environment in which the child is reared. If, for example, maternal welfare receipt reduces the motivation of parents to invest in the human capital or developmental needs of their children then we may see effects in any children's outcomes sensitive to these parental inputs. Suppose that children’s behavior and early success in school are determined by such character traits as self control, the ability to defer gratification, curiosity, etc. If these traits in adults are adversely affected by welfare participation and are transmitted across generations then we would expect to see a negative connection between parental welfare receipt and children’s outcomes.1 Alternatively, parental welfare participation could benefit younger children. In particular, it could allow the mother to spend more time with her child or it could help smooth transitory fluctuations in the family’s income and help stabilize consumption (c.f. Gruber, 2000). In this paper we do not attempt to distinguish between competing theories on the mechanisms underlying any potential link between parental welfare receipt and children’s outcomes. Rather, we focus on providing a causal reduced form estimate of any correlation that might exist. 1 In simple terms, it is sometimes alleged that welfare participation breeds a kind of complacency in parents that is reflected in the home environment (c.f. Rector and Fagan, 1999). Empirically, this complacency would exhibit itself in through reduced investments in the human capital of the child by way of reductions in time spent reading versus watching television, etc. Again, these effects may occur even holding constant differences in family income. Although research regarding the impact of welfare on children is limited, we were able to identify three papers on the topic. Currie and Cole (1993) examine the intergenerational linkage between maternal welfare receipt and children's birth weight. The paper applies an instrumental variables model and sibling differences in much the same manner we do here to control for the fact that AFDC families are different from other families in ways which are often unobservable to the researcher. In the IV models, parameters of states’ welfare systems are used as the excluded instruments in these models, as suggested by Moffitt (1992). In both sets of results, they find that the observed raw differential in the probability of low birth weight by maternal welfare receipt disappears once they control for unobse