This study evaluates the potential effectiveness of alternative child support policies in reducing welfare program participation. Employing longitudinal data from the Panel Study of Income Dynamics, the analysis addresses the simultaneity of women's decisions regarding welfare participation, labor force participation, and annual hours of work following marital breakup. The estimation framework accounts for the endogeneity  of child support payments with female labor supply and for the selection bias due to differential rates of remarriage among divorced/separated women. Results show that higher child support payments would (i) decrease welfare participation and (ii) increase average hours of work. The empirical estimates are used to assess the potential effects of adopting alternative child support policies such as the Wisconsin child support assurance system. These results suggest that large potential welfare cost savings are attainable but significant reductions in welfare participation rates would only be achieved through substantial improvements in child support enforcement or through government-assured child support payments.

Wei-Yin Hu is an assistant professor of economics at the University of California, Los Angeles. This paper is based on his doctoral dissertation. It has benefitted greatly from suggestions by Tom MaCurdy, John Pencavel, Anne Royalty, and John Shoven. The author acknowledges further helpful discussions with Michael Cragg, Janet Currie, Dana Goldman, Tom Hubbard, Kathleen McGarry, Duncan Thomas, and Aaron Yelowitz, as well as seminar participants at Chicago's Graduate School of Business, Mathematica Policy Research, Stanford University, University of California, Los Angeles, and the Universities of Pennsylvania, Virginia, and Western Ontario. He thanks the anonymous referees for many good suggestions. Financial support from the Lynde and Harry Bradley Foundation is gratefully acknowledged. The data used in this article will be available from Wei-Yin Hu, Department of Economics, UCLA, 405 HilgardAve., Los Angeles, CA 90095-1477, (hu@ucla.edu)from May, 1999 through April, 2002.

© 2002 by the Board of Regents of the University of Wisconsin System

US ISSN 0022-166X

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