Labor Market Conditions and Post-Reform Declines in Welfare Receipt among Immigrants

Magnus Lofstrom, University of California at Irvine
Frank D. Bean, University of California at Irvine

This paper analyzes the role of local labor market conditions in explaining declines in the welfare participation trends of immigrants and reductions in the nativity participation gap for the period 1994 to 1999. Data from the March CPS indicate that immigrants' participation in welfare declined more rapidly than natives' during the latter half of the decade. Some analysts have argued that this is due to so-called chilling effects and others have argued that this is true only in California. Our results show that variation in the unemployment and employment rates across MSAs and states explain most of, and possibly all of, the observed relative post-welfare reform decrease among immigrants. The inclusion of state fixed effects in probability models suggests that the relative decline among immigrants is not due to unobservable heterogeneity across states, but rather to differences in local labor market conditions. The policy implications of the findings are discussed.