Academic journal article The American Journal of Economics and Sociology

AFDC Payments and Illegitimacy Ratios

Academic journal article The American Journal of Economics and Sociology

AFDC Payments and Illegitimacy Ratios

Article excerpt

FRANKLIN G. MIXON [*]

A Reappraisal of Endogeneity Using Panel Data

ABSTRACT. This paper develops a rational choice model of the fertility of single women in the presence of government transfers. Evidence is presented which suggests that real AFDC (Aid to Families with Dependent Children) benefits leads to higher rates of illegitimacy. In fact, the unbiased parameter estimate which we present is six times larger than those estimates using OLS (Caudill and Mixon 1993). Also, the point elasticity estimate of real public benefit levels with respect to changes in the illegitimacy rate produced in this study is very robust, approximately +1.4. Our result, which encompasses all fertility of single women in the U.S., is quite encouraging because it falls within an elasticity range of +1.3 to +2.1 produced by a recent study (Clarke and Strauss 1998) for black and white teen fertility (for single women), respectively.

I

Introduction

THE NUMBER OF ILLEGITIMATE BIRTHS per 1,000 single women of childbearing age in the United States has nearly tripled during the last 40 years (Clarke and Strauss 1998). As recent research suggests, it is commonly asserted that the increase in illegitimacy has been caused by welfare benefits which allow single women to bear children out of wedlock. The outcome of this rational choice model is the finding that responsiveness of the marginal child to the level of welfare benefits is large and robust. The objection to this conjecture is that, in real terms, the welfare benefits available to single mothers have not grown continuously over this period (Clarke and Strauss 1998: 829). Many recent studies have examined the relationship between illegitimacy and Aid to Families with Dependent Children (AFDC) programs across the 50 states, using both individual and aggregate data. Although individual data have several advantages (e.g., individual controls, family background controls, neighborhood effects, etc.), the larger sample sizes available with aggregate data offer justification for this data's use as well (see Clarke and Strauss 1998). Below, we detail previous work in this area with a brief literature review.

II

Literature Review

EMPIRICAL WORK using either type of data mentioned above has been inconclusive at best in recent years. Winegarden (1988) employs time-series data and Granger causation to find evidence which positively links AFDC payments to the rise in illegitimacy rates. The Winegarden study also suggests that similar findings using cross-sectional data would be impossible to present, and therefore advocates its "new approach" to the problem. Other studies, however, such as Ozawa (1989), Caudill and Mixon (1993), and Gauthier and Hatzius (1997) do find positive results regarding the illegitimacy rates (across states) and real AFDC payments. The evidence presented by these researchers supports the hypothesis and findings of Bane and Ellwood (1994) and Murray (1993). Their theoretical (rational choice) foundation is explained in a recent study by Kaestner (1998):

Others have suggested that the cause of out-of-wedlock births is public assistance. One line of reasoning ... is that the availability of public assistance decreases the attractiveness of marriage and consequently increases the incidence of out-of-wedlock birth. Bane and Ellwood label this the rational choice model ... [which is] the theoretical foundation behind recent welfare reform legislation ... Murray puts forth a somewhat broader view of the rational choice model by incorporating incentive-driven behavior ... with a loosely argued theory about the determinants of preferences ... (Kaestner 1998: 395-396).

The study by Caudill and (1993) has, however, come under much scrutiny in the literature (see Hsing 1995; Stevans 1996; Clarke and Strauss 1998) for (1) improperly using single-equation techniques when AFDC is inherently endogenous as suggested by the public choice model developed by Orr (1976), (2) the inclusion of Washington, D. …

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