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Experimental Social Programs and Analytic Methods. An Evaluation of the U.S. Income Maintenance Projects PDF

241 Pages·1984·4.262 MB·English
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QUANTITATIVE STUDIES IN SOCIAL RELATIONS Consulting Editor: Peter H. Rossi UNIVERSITY OF MASSACHUSETTS AMHERST, MASSACHUSETTS In Preparation Nancy Rrandon Tuma and Michael T. Hannan, SOCIAL DYNAMICS: Models and Methods Michael D. Maltz, RECIDIVISM Published Peter Schmidt and Ann D. Witte, AN ECONOMIC ANALYSIS OF CRIME AND JUSTICE: Theory, Methods, and Applications A. Basilevsky and Derek Hum, EXPERIMENTAL SOCIAL PROGRAMS AND ANALYTIC METHODS: An Evaluation of the U. S. Income Mainte- nance Projects Walter R. Gove and Michael Hughes, with contributions by Omer R. Galle, OVERCROWDING IN THE HOUSEHOLD: An Analysis of Determinants and Effects Ronald S. Burt, CORPORATE PROFITS AND COOPTATION: Networks of Market Constraints and Directorate Ties in the American Economy Peter H. Rossi, James D. Wright, and Andy B. Anderson (Eds.), HAND- BOOK OF SURVEY RESEARCH Joan Huber and Glenna Spitze, SEX STRATIFICATION: Children, House- work, and Jobs Toby L. Parcel and Charles W. Mueller, ASCRIPTION AND LABOR MARKETS : Race and Sex Differences in Earnings Paul G. Schervish, THE STRUCTURAL DETERMINANTS OF UNEM- PLOYMENT: Vulnerability and Power in Market Relations Irving Tollman, Ramona Marotz-Raden, and Pablo Pindas, ADOLESCENT SOCIALIZATION IN CROSS-CULTURAL PERSPECTIVE: Pining for Social Change Robert F. Boruch and Joe S. Cecil (Eds.), SOLUTIONS TO ETHICAL AND LEGAL PROBLEMS IN SOCIAL RESEARCH /. Ronald Milavsky, Ronald C. Kessler, Horst H. Stipp, and William S. Rubens, TELEVISION AND AGGRESSION: A Panel Study Ronald S. Bun, TOWARD A STRUCTURAL THEORY OF ACTION: Net- work Models of Social Structure, Perception, and Action The list of titles in this series continues on the last page of this volume Experimental Social Programs and Analytic Methods AN EVALUATION OF THE U.S. INCOME MAINTENANCE PROJECTS ALEXANDER BASILEVSKY Department of Mathematics and Statistics University of Winnipeg Winnipeg, Canada DEREK HUM Department of Economics St. John's College University of Manitoba Winnipeg, Canada 1984 ACADEMIC PRESS (Harcourt Brace Jovanovich, Publishers) Orlando San Diego San Francisco New York London Toronto Montreal Sydney Tokyo Sâo Paulo COPYRIGHT © 1984, BY ACADEMIC PRESS, INC. ALL RIGHTS RESERVED. NO PART OF THIS PUBLICATION MAY BE REPRODUCED OR TRANSMITTED IN ANY FORM OR BY ANY MEANS, ELECTRONIC OR MECHANICAL, INCLUDING PHOTOCOPY, RECORDING, OR ANY INFORMATION STORAGE AND RETRIEVAL SYSTEM, WITHOUT PERMISSION IN WRITING FROM THE PUBLISHER. ACADEMIC PRESS, INC. Orlando, Florida 32887 United Kingdom Edition published by ACADEMIC PRESS, INC. (LONDON) LTD. 24/28 Oval Road, London NW1 7DX Basilevsky, Alexander. Experimental social programs and analytic methods. (Quantitative studies in social relations) Includes bibliographical references and index. I. Labor supply—United States—Statistical methods. 2. Income maintenance programs—United State. I. Hum, Derek. II. Title. III. Series. HD724.B345 1983 362.5'82 83-11846 ISBN 0-12-080280-5 PRINTED IN THE UNITED STATES OF AMERICA 84 85 86 87 9 8 7 6 5 4 3 2 1 To our wives, Annick and Mary Preface During the late 1960s and 1970s the United States embarked on a series of social experiments to explore the economic and social consequences of a guaran- teed income program. The experiments required millions of dollars, lasted many years, and focused on the negative income tax method of delivering cash bene- fits. At the forefront of policy discussion were a number of issues, including the estimated cost to the United States of a guaranteed income and general matters concerning welfare reform. But the heart of the controversy was the question of work disincentives; that is, whether a guaranteed income would cause low- income able-bodied individuals to work less. This was a key concern for policy makers and required careful empirical research together with precise measure- ment to provide the necessary answers. Most of the experiments on guaranteed incomes are now complete and find- ings on the work disincentive effects have appeared. However, there is still controversy as to the significance and confidence of estimates. Because this research is scattered throughout monographs, limited-circulation reports, journal articles, unpublished manuscripts, and other sources not readily accessible to many, knowledge and appreciation of this research is quite limited. Conse- quently many academics, policy makers, and concerned citizens are less than fully informed. Furthermore, there is a widespread tendency to recall the first numbers associated with the preliminary results from the experiments as the truth or, alternatively, to regard the latest numbers as the final word. There has been neither a conveniently accessible description of the total research findings nor a systematic critical appraisal of methodology and results. This book therefore examines in a thorough fashion the statistical and econometric research on work xi XÜ Preface disincentive effects reported by these unique social experiments. In addition to providing a comparative description of the several experimental designs and labor supply results, we include a general discussion of methodological issues common to all the experiments. We also include a detailed presentation of the Conlisk-Watts model for sample assignment and discuss the labor supply find- ings from both an econometric as well as a statistical perspective. We attempt to discuss how the methods and models vary for each of the experiments and how the results might be sensitive to the model specified. The American experiments were unique in applying, for the first time, large- scale experimental design techniques to estimate labor supply responses for policy goals. Econometricians had little previous experience with experimental design issues, survey research, and the like. The fact that data of an apparently experimental nature were generated created an opportunity and challenge for labor economists and econometricians, but they also posed a new problem. How should the experimentally induced treatment be incorporated? Because this unique feature characterized the experiments and represented unfamiliar terrain for labor supply economists and econometricians, we focus on this aspect: namely, how did each of the researchers specify the treatment, and how success- ful was each researcher in exploiting the experimental nature of the data? At the same time, the income maintenance experiments posed special problems for statistical experimental design because they could be interpreted not only as experiments but also as social programs provided with a convenient control group. This second viewpoint was not always taken by researchers performing the//m-round analysis, so the first stage of the analysis was characterized by more-or-less classical experimental methodology, whereas in the second stage (for example, the Gary analysis and the reworking of the New Jersey data) there was a conscious effort to take into account nonparticipation, sample attrition, and other aspects of nonrandomly missing data. Our book is aimed at two groups of readers, not necessarily mutually exclu- sive. It will be of interest to professionals and students in econometrics, labor economics, statistics, and quantitative research. At the same time, it should prove useful to policy analysts and others concerned with social welfare reform, public administration, and the like. As a summary document of all the experi- ments and a critical survey of the work response findings, the book should provide much general information. Furthermore, separate chapters on ex- perimental design, on methodological issues, and on each separate experiment should be welcomed by professional researchers or those who wish a more technical discussion of individual report findings. The purpose of this book then is to give both professional researchers and policy analysts an up-to-date survey of the work response findings from the American negative income tax experi- ments. There is a need for a book such as the present one—if only to gather in one place the voluminous scattered literature. Our book is an attempt to integrate Preface XÜi and appraise this literature from a combined statistical and econometric view- point. The technical level of this book varies from chapter to chapter. Although we assume a basic knowledge of economics and statistics, the material in Chapters 1,2, and 9 require little technical training to understand. These chapters describe the background to the experiments and the research and policy issues, summarize (without criticism) the work response findings,, and attempt to provide an ap- praisal of the scientific validity of the labor supply response estimates made by the various experiments. This discussion may be read by anyone with a general interest in the issues involved and in the major findings, although a grasp of statistical methodology is clearly helpful when it comes to the interpretation of results and the weighing of evidence. Chapters 3 and 4 are more technical. These chapters discuss the experimental and sample design issues and present an ana- lytic framework that encompasses both the statistics and econometrics disci- plines. Readers with a general interest in statistical methodology or quantitative research, but a less particular interest in labor supply issues per se, will find these chapters relatively autonomous. That is, issues are raised that are not peculiar to estimation of labor supply but are pertinent to quantitative research in general and would have arisen in any other major socioeconomic project. Chapters 5-8 deal with the labor supply models and estimates of work disincentive from each of the four experiments. These are written mainly for labor supply economists and econometricians, but parts of these chapters may be read by the general reader having an elementary statistical background. This book had its intellectual origin as early as 1973 when both authors were employed by the Manitoba Guaranteed Annual Income Project (Mincome Man- itoba) in capacity as director of research (D.H.) and senior researcher (A.B.). However, it was not until 1978, in preparation for the analysis stage of the Canadian project, that initial research was undertaken on the U.S. guaranteed income projects. When it became clear that government agencies would not fund analysis of the Canadian labor supply data, both authors turned to the U.S. results, which were then beginning to appear with increasing frequency, as a full-time research project. There were long stretches of "downtime" as we located inaccessible material, corresponded with individual authors, sought clar- ification, and in some instances discussed matters with individuals directly or indirectly involved with the various experiments. Although written over a period of several years, the book has been expanded and updated during 1981-1982 to incorporate new results, which have begun to appear in increasing numbers and which no doubt will continue to appear. The authors would like to thank the Social Sciences and Humanities Research Council of Canada for partial support of one author's (D.H.) sabbatical leave, which permitted him to devote more time to the book than would have been otherwise possible. We must also acknowledge our respective universities, the XÎV Preface University of Winnipeg and the University of Manitoba, for financial aid toward the preparation of the manuscript. We would also like to thank Andy Anderson of the University of Massachusetts and Don Sabourin of the Institute for Social and Economic Research, University of Manitoba for numerous suggestions on portions of previous drafts that greatly improved the manuscript, as well as for his constant encouragement. We are also indebted to our editor, whose diligent efforts also greatly improved our book. Finally, our families deserve our appre- ciation and gratitude for their patience and support. We are alone responsible, of course, for any error of fact or interpretation that may have made its way into the manuscript. Although each author took responsibility for the first draft of various chapters the final manuscript, after much rewriting, is the indivisible result of an equal collaboration, and authorship order is alphabetical. ί Poverty and Experiments — The Background /. INTRODUCTION The United States is an affluent society. At the same time it is also a society that has a great deal of poverty. Although discussion on the causes of poverty appears unending, it is doubtlessly true that measuring the extent of poverty by income levels has become common.l In fact, the construction of poverty lines and periodic counting of the poor is now a fairly standard, replicable exercise carried out by government officials and academics alike. Consequently, one is often tempted to define the issue of poverty rather narrowly in terms of either low or inadequate incomes and to phrase policy concerns in terms of either income maintenance or cash transfer programs. Although such an approach is unnecessarily restrictive, it does serve to focus attention on income support measures and their associated problems. And among the most contentious and controversial antipoverty strategies ad- vanced is the program of guaranteed incomes. Proposals to alleviate poverty based on a government guarantee of a certain minimum level of income to every individual or family are no longer new. These proposals have a moderately long history of intellectual advo- cacy, policy discussion, and program proposals. When one views the poverty problem primarily as a matter of insufficient income in a market- oriented society, as do most economists, it is natural to look to tax transfer 1 2 1 POVERTY AND EXPERIMENTS—THE BACKGROUND measures to redistribute income. Simultaneously the tax transfer system is seen as the vehicle for administering the welfare system, financing the transfer costs, and integrating the able-bodied poor into the labor market. Friedman (1963) was among the first to suggest a "negative income tax" (NIT) by means of which a portion of the unused tax exemptions and deductions allowable under the personal income tax system would be actually paid to individuals by the government. Lampman's (1965a, b) various proposals specified that different rates of subsidy be added to earnings in order to bring an individual's income up to some predetermined level. Tobin (1965, 1966) advocated a system of income allowances in which those with no earnings would receive a certain minimum amount. All of these proposals are related to the income tax system; hence a NIT generally means any form of income maintenance or supplementation based on the mechanism of the personal income tax. Specifically, it involves the payment of cash transfers by the government to households having income below a prespecified amount; it is the technical inverse of taxes paid to the government by households with incomes above a certain exemption level.2 The combination of three elements, namely, the view that poverty can be largely defined in terms of income, the belief that the tax transfer mechanism is an appropriate instrument for welfare reform objec- tives, and the economist's fascination (or infatuation) with the logical symmetry of the income tax system, influenced much of the design and basic language of NIT schemes. The NIT proposal has had its share of advocates (e.g., Rolph, 1967; Tobin et al, 1967), detractors (e.g., Schorr, 1966; Hitch, 1966; Vadakin, 1968), and skeptics (e.g., Hildebrand, 1967). Almost all variants of income maintenance schemes embody a basic support level, to which families are entitled if they have no earnings or other income, and some rate of taxation by which this support amount is reduced or "offset" for each dollar earned. Consequently, a NIT scheme may be characterized by the combination of its guaranteed minimum income level G and its offset taxation rate t. A breakeven level of income B can then be defined in terms of G and /, and it is that level of income at which cash transfers or negative taxes to the family are no longer paid. The higher the level of the minimum income guarantee and/or the lower the tax rate, the higher is the level of income below which negative taxes will be paid and consequently the greater will be the proportion of the population that receives negative taxes. The costs of such NIT transfers are therefore greater with higher guarantee levels and lower tax rates. At the same time a NIT offers able-bodied, low-income individuals a certain lump sum amount of income unconditionally; that is, without reference to work performance. Operating in conjunction with a tax on earned income, the guaranteed

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