ECON 345: ECONOMICS OF PUBLIC PROGRAMS
Handout: A NOTE on TANF and LABOR SUPPLY
[References: chapters 2 (2.2 and 2.4) and 17 (17.2) in Gruber’s text]
1. Labor Market: Firms demand labor, Individual supply labor. Compensation for labor includes wage,
salary, bonus, and other benefits. For simplicity, we use wage (W) as “compensation” for providing
labor service or “price” of labor.
2. Questions of interest:
a) Does TANF benefits increase or decrease the labor supply of single parents (mothers)?
b) What is the impact of reduction in TANF benefits on social efficiency (output, income) and social
welfare (equity)?
3. Program Background
- TANF – Temporary Assistance for Needy Families
-Created in 1996, to replace AFDC (Aid to Families with Dependent Children Program)
-Program was intended to provide benefits for a limited period of time (i.e., “Temporary”)
4. Program description:
(1) TANF provides monthly support check to families (single mother or two parents) with
incomes below a threshold level set by each state.
(2) Eligibility: Income level below a threshold
(3) Benefit guarantee: The cash welfare benefit for individuals with no other income. It may be
reduced as income increases.
Example of guaranteed benefits: can vary widely from $204/month to
$1,464/month (Alaska);
NY and NJ – single mother with two children and no other source of income receive:
$424 monthly check;
(4) Funding of program: Jointly funded by federal government (through support in form of
block grants to finance state program) and the states
(5) Benefit reduction rate: the rate at which welfare benefits are reduced per dollar of other
income earned (50 – 100%)
(6) Federal government mandates:
max of 60 months (5 years) over the course of life receiving TANF
Welfare recipient is required to work after receiving at most 24 months of TANF
benefit (States can choose shorter deadlines.)
Some exceptions (“loopholes”): “hardship” and definition of “work” (job-skills
training as work, etc.)
©2019 Charles R. Sebuharara pg. 1
