The interaction between single mothers' living arrangements and welfare participation

This article examines the interaction between single mothers' living arrang ements and their welfare participation, taking into account the endogeneity embedded in the two decisions. Using data from the 1990 Survey of Income a nd Program Participation,, I estimate a two-stage instrumental variables mo del and simulate the effects of partial- and full-family benefit reductions on both the distribution of living arrangements and the rate of welfare pa rticipation. Tabulations show that 62 percent of single mothers live indepe ndently, 16 percent live in rite home of their parents, 12 percent cohabit with an unrelated man, and 11 percent share with others. Reductions in comb ined AFDC and food stamp benefits increase mothers' probability of living w ith their parents relative to living independently, cohabiting, or sharing with others. Benefit reductions also decrease the probability of welfare re ceipt. The resulting drop in the participation rate is even move pronounced once the simultaneous effect or the distribtition of living arrangements i s taken into account. The implication of these findings is that policies ai med at reducing welfare caseloads may have the unanticipated effect of shif ting families' living arrangements, potentially confounding the impacts of policy changes in either positive or negative ways. (C) 2000 by the Associa tion for Public Policy Analysis and Management.