A Stock-Flow Analysis of the Welfare Caseload

Insights from California Economic Conditions

by Jacob Alex Klerman, Steven Haider

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During the 1990s, the welfare caseload peaked and then declined by about half. The decline occurred simultaneously with a robust economic expansion and a series of major welfare reforms. This paper reconsiders the methods used in the previous studies to explain these changes. The authors explicitly model the welfare caseload as the net outcome of past flows onto and off of aid and explore the implications of such a stock-flow perspective for understanding the determinants of the caseload size and its evolution over time. The approach is shown to explain some of the anomalous findings in the literature regarding the effects of economic conditions on the welfare caseload. Then, using administrative data for California, the authors estimate the effect of the changing unemployment rate on the underlying flows and simulate the impact of the caseload stock. They find that approximately 50 percent of the caseload decline in California can be attributed to the declining unemployment rate. These estimates are substantially larger than the 20 to 35 percent estimates that are obtained from more traditional methods.

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