Abstract
Since 1978, the proportion of all single-parent families receiving benefits from the Aid to Families with Dependent Children (AFDC) program has been falling, reversing an earlier two-decade trend. In this article, data from the 1979, 1982, and 1984 MarchlApril Current Population Survey (CPS) match files are used to investigate the reasons for this decline. Analysis of the CPS data reveals thatfrom 1978 to 1981, the decline in the AFDC participation rate can be attributed to an erosion in real AFDC guarantee levels caused by high rates of inflation and to changes in demographic conditions, while from 1981 to 1983 the decline can be attributed entirely to the provision of the Omnibus Reconciliation Act of 1981 (OBRA), which raised effective AFDC benefit-reduction rates. The analysis also reveals that a sizable reduction in labor supply occurred in response to OBRA, in contrast to earher studies of this issue. If work effort had not been reduced, the results suggest that OBRA would have caused a much larger decline in the AFDC participation rate than actually occurred.
