This study examines a nonexperimental source of data to determine the effect of higher expected state-level welfare benefits on high school graduation rates for the chief recipients of welfare, single mothers. A nationwide sample of 18 to 25 year-old single mothers is analyzed. The hypothesis that higher welfare levels adversely impact high school graduation rates is confirmed with a high degree of statistical precision. Economists predict that educational levels will decline as welfare levels increase. The reasoning behind this hypothesis is that education is expensive to acquire in both time and money.
Education improves one's future earning capacity.
One invests in education today to receive a higher salary in the future. As the welfare system becomes more generous, the difference between income levels while working and income levels while not working diminishes, thereby reducing the incentive to invest in education. Experiments with the negative income tax, however, consistently dispute this prediction. One could argue that, since the experiments were temporary, participants may have been acting strategically by taking advantage of the temporarily higher support levels to invest in education so as to earn more income when welfare levels were expected to decline on termination of the experiment. This data source is a large, random sample of the United States regularly used by the federal government and analysts in economic studies and forecasts.