Off the dole, ten years later

A CENTRAL precept of free-market economics is that incentives matter. If you raise the minimum wage, employers will hire fewer workers. If you raise the tax on income, individuals will work less. In retrospect, some of the most "radical" conservative policy innovations in history have simply attempted to align individual incentives with sensible social objectives.

One of the most controversial policies adopted in memory was welfare reform in 1996. An epidemic of single motherhood was one of the most pressing social problems of the late 20th century. Teens who had children were far more likely to drop out of school and live a life of poverty. Children of teen mothers faced disadvantages from the time they were born, when they averaged relatively low birth weights, through adulthood, when they were far more likely to end up in prison.

Until 1996, federal welfare policy perversely encouraged teen motherhood. A single mother could increase her welfare payment simply by having another baby. She could lengthen her stay on welfare by spacing her children out over time. The authors of welfare reform argued, quite controversially at the time, that these incentives induced young teenagers to have children out of wedlock. The echoes of the politically correct uproar that ensued still ring in the halls of the nation's newspapers.

But, against enormous odds, the 1996 reform finally reversed the pro-illegitimacy incentive. The bill required teen mothers under the age of 18 to stay with a parent if they received welfare support. It also hammered deadbeat dads, allowing states to use employment data to track down child-support payments. It encouraged capped benefits, so that handouts no longer increased automatically with the number of children, and it imposed a five-year time limit on welfare, making it impossible to use births to extend one's stay on welfare indefinitely.

Teen birthrates have dropped sharply since the reform, but the nearby chart still ignites a firestorm of debate. Opponents of the 1996 reform maintain that, while birthrates are down, they were declining prior to the reform. It's not the reform that did it, they claim, but something else. Fear of contracting AIDS is one key factor that is often cited.

But when big-picture charts don't tell a complete story, economists dig deeper. In this case, states had a lot of leeway to enact different flavors of welfare reform. A number of studies have shown that states that were tougher on teen parenthood saw bigger declines in fertility than those that were not. My personal favorite is a recent paper by economists Anna Aizer and Sarah McLanahan, published by the National Bureau of Economic Research, which shows that strengthening child-support enforcement laws led men to father fewer out-of-wedlock children. While other factors started the downtrend, welfare reform clearly extended it.

The good news for economists is that it looks like incentives really do matter, even for fertility. The good news for society is that the 1996 welfare reform got incentives right, and led to a sharp decline in illegitimacy.

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