Instrumental Variable Estimates
of the Labor Market Spillover Effects
of Welfare Reform
Upjohn Institute Working Paper 02-78
Timothy J. Bartik, Senior Economist
W.E. Upjohn Institute for Employment Research
JEL Classification Codes: J68, J38, I38, J31, H53
By increasing the labor supply of welfare recipients, welfare reform may reduce wages and increase unemployment among
other less-educated groups. These "spillover effects" are difficult to estimate because welfare caseloads decrease
in response to improvements in the economy, which leads caseload reductions to be associated with improvements in labor
This paper corrects for the endogeneity of caseloads by using instruments that reflect policy. The
estimates suggest that welfare reform has significant spillover effects: welfare reform reduces employment of male high
school dropouts, and reduces wages of single mothers and male high school dropouts.
Full text* | Institute Home Page | Back to Working
* Note: This paper is best viewed with Adobe Reader Version 5.0.5. Visit Adobe
for a free download of this software.