Income maintenance alternatives and family composition: an analysis of price effects

There is some current public concern about the effects of welfare programs on participants' decisions about marriage and divorce or having children. This paper discusses one way in which family composition may be affected by income maintenance program benefits, through what are called effects. After discussing price incentives hypothetically, the paper presents measures of the price incentives in our current welfare system and in the cash component of President Carter's welfare-reform proposal. No income maintenance program can be entirely marriage-neutral, but it is found that the reform generally reduces the destabilizing incentives of the current system. There has been extensive discussion recently in academic circles and in policy pronouncements of the likely effects of welfare programs on participants' decisions about marriage and divorce or having children. The increasing number of female-headed families with children and the rising AFDC caseload have stimulated concern that the generosity of welfare payments, largely restricted to single-parent families with children, may be destabilizing marriages, reducing the rate of remarriage, and encouraging illegitimate births. The welfare-reform proposal recently set forth by President Carter includes as one of its major themes the promotion of family [15, p. 2], presumably partially in response to these public concerns. The author is Research Associate, The Brookings Institution. * Research described in this paper was supported by funds granted to the Institute for Research on Poverty, University of Wisconsin-Madison, by the U.S. Department of Health, Education, and Welfare pursuant to provisions of the Economic Opportunity Act of 1964. The author wishes to thank Irv Garfinkel, Sheldon Danziger, and the editor for helpful discussions. They are not responsible for any remaining errors. The views expressed in this paper are the author's and should not be ascribed to the officers, trustees, or other staff members of the Brookings Institution or the Poverty Institute. [Manuscript received July 1977; accepted November 1977.] The Journal of Human Resources * XIII * 3 This content downloaded from 207.46.13.129 on Sun, 26 Jun 2016 06:51:20 UTC All use subject to http://about.jstor.org/terms 306 | THE JOURNAL OF HUMAN RESOURCES This paper will discuss one specific way in which family composition might be affected by income maintenance programs, through what can be called effects. The magnitude of the price incentives a program sets up can be calculated and compared to a standard of neutrality or to similar measures calculated for other programs. These calculations can be useful in understanding observed changes in family composition or in choosing among untried policy alternatives. The paper will proceed as follows: The first section explains the concern with the effect of government programs on family composition. Then the existing research is briefly summarized and contrasted with the approach presented here. The third section describes what is meant by price incentives and examines the incentives in a hypothetical income maintenance program. The final section of the paper presents measures of the price incentives in our current welfare system and in the cash component of President Carter's welfare reform proposal. Several aspects of the current analysis that limit the scope of this paper should be emphasized. First, the paper will examine only two aspects of family composition, marital stability and fertility; the focus is on the former. Other aspects of family composition, such as children leaving their parents' home, are not discussed, although the methodology developed here could be applied to these decisions as well. A second limitation is that empirical evidence as to the importance of the effects analyzed will not be presented. The paper presents a hypothesis and then examines possible welfare systems in terms of measures that the hypothesis implies are important. WHY WE MAY CARE ABOUT INCENTIVES Some incentives that income maintenance programs may create for people to change their marital status or the number of children they have are examined in this paper. Before looking at these incentives, it is important to investigate the source of concern with the government's impact on family composition. The basic problem is that it is generally assumed that various members of society incur costs when marriages are unstable or people have more children. Thus, if the government causes (or encourages) these things to happen, some people have to bear these costs. As will be discussed below, there is a tradeoff between other goals regarding income maintenance and family-incentive neutrality. The goal of income maintenance is to provide income assistance to needy families. Two concerns in fulfilling this goal, in addition to family effects, are work incentives and equity. Because of these and other concerns, an acceptable program probably involves some family 1 For a thorough discussion of these tradeoffs, see also Lerman [9]. This content downloaded from 207.46.13.129 on Sun, 26 Jun 2016 06:51:20 UTC All use subject to http://about.jstor.org/terms