Is There an Effect of Incremental Welfare Benets on Fertility
Behavior?
A Look at the Family Cap
Melissa Schettini Kearney
a b s t r a c t
This analysis exploits the variation across states in the timing of policy implementation to determine if family cap policies lead to a reduction in
births to women aged 15 to 34. Vital statistics birth data for the years 1989 to 1998 offer no such evidence. The data reject a decline in births
of more than one percent. The nding is robust to multiple specication checks. The data also reject large declines in higher-order births among
demographic groups with high welfare participation rates.
I. Introduction
Over the past decade, states across the country have been experiment- ing with welfare reform. One of the most controversial reform policies, the “family
cap” or “child exclusion,” is motivated by the notion that an incremental increase in cash assistance for each additional child increases a woman’s propensity to bear
additional children. With the intention of heightening personal responsibility, 18 states have responded to this concern by implementing family caps that end the
traditional practice of providing families on welfare with additional cash benets when a new child is born into the family. An additional ve states have altered the
Melissa Schettini Kearney is an assistant professor of economics at Wellesley College and a Faculty Research Fellow at the National Bureau of Economic Research. The author thanks Joshua Angrist, Da-
vid Autor, Amy Finkelstein, Jonathan Gruber, Jonathan Guryan, Phil Levine, Sean May, Sendhil Mul- lainathan, Diane Whitmore, and participants of the MIT labor and public nance lunches for helpful
comments. She also thanks Bob Schoeni, Phil Levine, and Diane Whitmore for sharing CEA welfare policy data. Three anonymous referees provided thoughtful comments and suggestions. The National
Science Foundation provided nancial support through a Graduate Research Fellowship. The analyses, interpretations, and conclusions of this paper are attributable to the author and not to the National
Center for Health Statistics, which is responsible only for the initial natality data. The data used in this article can be obtained beginning October 2004 through September 2007 from Melissa S. Kearney,
Department of Economics, Wellesley College, 106 Central Street, Wellesley, MA 02481. [Submitted October 2000; accepted August 2003]
ISSN 022-166X; E-ISSN 1548-8004
Ó 2004 by the Board of Regents of the University of Wisconsin System TH E J O U R N A L O F H U M A N R E S O U R C E S X X X I X 2
form of the additional benet, but not eliminated it entirely. This paper uses the variation across states in the timing of family cap implementation to identify whether
the denial of incremental benets leads to a reduction in births. A woman’s decision to give birth is part of a complex series of decisions inu-
enced by social, religious, economic, and other demographic and personal factors. The question of how welfare benets affect this decision focuses on the role of
economic factors in determining this choice. The primary economic question is whether the availability of fewer resources at the margin decreases a woman’s pro-
pensity to bear additional children. The potential direct effect of the policy is to reduce higher-order births: A decrease in marginal resources raises the price of an
additional child and may thereby deter a woman from having additional births. Inso- far as the policy sends a message that welfare is less generous than previously, it
may also lead a woman to delay childbearing until she is nancially secure and thereby reduce rst births as well.
The economic theory underlying this question is that of rational choice, and in particular the role of incentives as important determinants of behavior. There is an
extensive literature on various potential incentive effects of the welfare system. Econometric studies generally show that labor supply is reduced by the Aid to Fami-
lies with Dependent Children AFDC program and that higher potential benets induce greater participation in this program. The evidence regarding the effects of
AFDC on family structure is more mixed, but recent studies have found a weak effect. For a survey of the literature see Moftt 1998, 1992.
Identifying the causal effects of welfare on fertility decisions is not straightfor- ward. A regression of the number of births a woman has on the welfare benets she
receives confounds the direction of causality. The amount of cash assistance a woman receives is determined by the number of children she has. Many studies have
tried to identify the causal relationship by exploiting cross-sectional variation in state benet levels and birth rates. The main weakness of this strategy is that there may
be xed differences in birth rates across states that can not be controlled for in a cross-sectional analysis.
This paper addresses these problems by using a plausibly exogenous source of variation in incremental benets and data from a panel of states. The nineties was a
decade of unprecedented welfare reform and experimentation at the state level. Wel- fare reform has been a political movement during the time period being studied and
state policies have been adopted based on the politics and priorities of the state. The implementation of family caps does not appear to be driven by movements in birth
rates. The legislative “quasi-experiment” is therefore reasonably considered exoge- nous. Furthermore, the variation in timing across the 18 states that eliminate incremen-
tal benets provides us with multiple quasi-experiments from which we can identify the effect of the policy. The effect of the family cap on fertility behavior is identied
using state-level panel data. The analysis compares the change in birth rates for a state that implements a family cap to the change in birth rates among states that do
not implement a family cap, controlling for level differences in birth rates across states and years as well as differences in linear birth rate trends across states.
Vital statistics birth data for the years 1989 to 1998 offer no evidence that family cap policies lead to a reduction in births to women aged 15 to 34. When state effects,
month effects, and state-specic linear time trends are controlled for, a decline in
births of more than one percent can be rejected at the 95 percent condence level. The upper bound of the condence interval is an increase in births of 1.1 percent.
This nding of no effect on births is maintained across multiple specication checks. The set of condence intervals around six alternative estimates has a lower bound
of a one percent decline and an upper bound of a two percent increase. The data also reject large declines in higher-order births among demographic groups with
relatively high welfare participation rates. Curiously, the data suggest increases in higher-order births to unmarried black and white high-school dropouts and to unmar-
ried black teens approximately one year after the implementation of a family cap. The data reject a decline in births of more than four percent for unmarried white
high-school graduates and unmarried white teens.
II. Background
