Welfare Reform and Labor Participation: Are There Urban and Rural Differences?

Although welfare reform began in 1996 at the national level, Iowa was one of the earliest states to obtain a waiver to initiate the Iowa Family Investment Program (FIP) in 1993. To gain a better understanding of welfare recidivism, we use Iowa administrative quarterly data between October1993 and September 1995, impute the education attainment for the caseheads with missing education attainment using fractional imputation and study the factors that affect the probability of working, the potential wage for the caseheads and the possibility of leaving FIP based on the potential wage. We find higher education (i.e. higher skills) leads to higher labor force participation, especially for single-mothers with children. Metro or urban location is associated with the probability of working and potential wage earnings, but has no effect on FIP participation. The local unemployment rate does not affect labor participation of low-income individuals, but does affect the potential wage and FIP status. Those with lower education, and nonwhites are more affected by the local labor market environment than others. If an individual moves once in a year, he or she will earn more money than in the original job; no gains are achieved through moving more than once. The possibility of leaving FIP is relatively high if there is only one move.