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

241 Pages·1984·4.262 MB·English

by  Alexander Basilevsky, Derek Hum and Peter H. Rossi (Auth.)

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)
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COPYRIGHT © 1984, BY ACADEMIC PRESS, INC.
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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