Association for Public Policy Analysis & Management

The past three decades have witnessed dramatic changes to cash safety net programs – changes which disproportionately impacted single females with children.  Welfare reform legislation in 1996 ended the entitlement nature of cash welfare, imposed lifetime time limits and work requirements, established benefit formulas with stronger work incentives, and replaced federal matching funds with block grants to states.  Expansions in the Earned Income Tax Credit (EITC) in 1986, 1993, 2001, and 2009 also contributed to the shift from welfare to “workfare.” 

Our research studies whether this shift to a more work-oriented system of cash transfers has altered the cyclicality of material wellbeing for single mother families.  In related research, Bitler and Hoynes (2010) find evidence that poverty increases more with the unemployment rate after welfare reform; however, standard poverty measures miss many of the most important parts of the safety net (e.g., in-kind transfers and the EITC).

The primary focus of our work is on changes in the cyclicality of household consumption expenditures of single mothers. Using data from the Consumer Expenditure Survey (CEX) from 1980 to 2013, we study how variation in local macroeconomic conditions (proxied by the state unemployment rate) impacts the level and composition of household consumption for single females with children. In doing so, we extend upon the evidence in Charles and Stephens (2006), which demonstrates that household consumption is counter-cyclical for lower quintiles of the income distribution, and especially counter-cyclical for single mother families.   We also supplement our evidence on consumption with evidence on pre- and post-tax household income, using data from the Current Population Survey (CPS) over the same time period.

We ask whether the relationship between single mothers’ consumption and the business cycle differs across five periods delineated by different welfare/workfare regimes (1980-1986, 1987-1995, 1996-2000, 2001-2008, and 2009-2013).  To tease out the role of cash transfer programs, in particular, we use difference-in-differences approach, estimating the impact of the unemployment rate on consumption for single mother families, relative to that of single childless women.  We find that increases in unemployment led to significantly larger drops in consumption for single mothers during the period of EITC expansion and welfare experimentation (1987-1995) and the period immediately following welfare reform (1996-2000), and had smaller negative impacts in the pre-TANF years (1980-1986) and in the wake of the Great Recession (2009-2013).  Our evidence suggests that the shift to work-oriented cash safety net programs left the safety net less able to protect the material wellbeing of single mothers from deteriorating macroeconomic conditions.