For some time now, the out-of-wedlock birthrate has been increasing ra
pidly in the United States. This has prompted several states to propos
e (and in some cases, enact) legislation to deny access to higher AFDC
benefits for families in which the mother gives birth while receiving
AFDC. The authors investigate whether AFDC benefit levels are systema
tically related to the family-size decisions of never-married women. U
sing a bivariate probit model with state and time fixed effects, appli
ed to Current Population Survey data for the years 1980-1988, it is fo
und that the basic benefit level for a family of two (one adult and on
e child) and the incremental benefit for a second child positively aff
ects the family size decisions of black and Hispanic women, but not of
white women. The effects are concentrated among high school dropouts
(no effects are found for high school graduates). The authors conclude
that rather than to uniformly deny benefits to all AFDC women that be
ar children, a better targeted policy might be to alter the AFDC benef
it structure in such a way as to encourage single mothers to complete
high school. However, being a high school dropout might be a proxy for
some other underlying characteristic of the woman, and encouraging wo
men to complete high school who otherwise would not might have no effe
ct whatsoever on nonmarital births.