Financial and nonfinancial determinants of unmarried birth and welfare participation: A theoretical model and empirical evidence

Mark Anthony Sarro, Boston College

Abstract

The importance of nonfinancial characteristics, broadly labeled "family values", has been at the center of the policy debate over welfare reform since 1992. Whether and how policies that promote traditional values (e.g., two-parent families and work over welfare receipt) actually can be effective are important empirical questions. This paper presents evidence that unmarried birth and welfare receipt are determined simultaneously by both financial and nonfinancial factors. It provides a theoretical basis for nonfinancial factors to affect a woman's decisions to have a child, marry, work, and participate in a welfare program. Chapter One develops a theoretical model that considers the importance of values by analyzing the potential effect of welfare stigma on these decisions. Chapter Two develops and applies an empirical approach to estimate five AFDC program parameters that have important theoretical effects: a welfare guarantee, incremental payments for up to two children and for three or more children, and implicit tax rates on earned and unearned income. Relative to previous estimates, results estimated for 1991 show that states changed the composition of welfare benefits to offer less assistance to more households. The paper discusses the implications of this result for the welfare reform debate. Chapter Three develops and applies an empirical approach for determining the statistical significance of financial and nonfinancial factors to the four endogenous decisions in the theoretical model (birth, marriage, work, and welfare participation). It estimates a two-stage probit model of these four decisions that includes endogenous explanatory variables, financial variables, personal characteristics, family background variables, and community influences. The results of this estimation support the implications of the theoretical model that nonfinancial factors significantly affect the likelihood of unmarried birth and welfare participation. From a public policy perspective, this implies that policies which target nonfinancial factors may deter welfare-related births and decrease their social cost.

Recommended Citation

Mark Anthony Sarro, "Financial and nonfinancial determinants of unmarried birth and welfare participation: A theoretical model and empirical evidence" (January 1, 2000). Boston College Dissertations and Theses. Paper AAI9995939.
http://escholarship.bc.edu/dissertations/AAI9995939