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THE LABOR SUPPLY OF SINGLE MOTHERS

1069

as demographic variables and characteristics of state welfare waivers, training programs, and child care programs. This speci-

  • cation also allows xed costs of work which vary across demo-

graphic groups. Under the normality assumption (3) can be re- written as

(4)

{ (E[Yw]

Ynw)

(E[Lw]

Lnw

)

(E[Pw]

Pnw)

X }.

We make the simplifying assumption that nonworking single mothers participate in welfare and that working single mothers participate if their earnings are low enough to qualify them for aid. This assumption is clearly a simplication as some women who qualify for aid will not participate because of the transaction costs or stigma of doing so. Past work on program takeup sug- gests that about 75 percent of those eligible for AFDC and about 50 percent of those eligible for Food Stamps participate (for a recent review of past work see Blank and Ruggles [1996]). How- ever, AFDC takeup rates between 80 and 90 percent are probably closer to the truth given the underreporting of welfare receipt in standard data sets (see Bavier [1999]). We also assume that all single women without children do not participate in welfare pro- grams. 10

We generalize (4) by allowing the coefcients on the different components of income to differ, since income from different sources may be valued differently. For example, we allow the effect of welfare income (AFDC plus Food Stamps) to differ from that of labor income, taxes paid, and Medicaid coverage. Welfare income may be valued less than labor income because of a vari- able component to the transaction costs or stigma of welfare participation (see Moftt [1983]). Medicaid may be valued at less than our calculated cost because it is an in-kind transfer, or more than cost because of its insurance component. These separate coefcients on different income terms allow for additional tests of the hypothesis that increases in the return to work make work more likely, and they allow an approach that is less restrictive, i.e., less likely to yield biased estimates.

We assume that all single mothers face the same pretax wage

10. The primary program for which single women without children would be eligible is Food Stamps. Single adults with children are more than ten times as likely to receive Food Stamps as single adults without children (authors’ calcula- tions and U. S. Department of Agriculture [1995]). Furthermore, since the Food Stamp program has not changed much over time and does not differ much by state except for interactions with AFDC, our control variables below (particularly year and number of children dummies) should account for most of these differences.

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