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Measuring Poverty: A New Approach
that would accrue to a specific type of family at a particular income level. Other models use microsimulation techniques operating on large-scale household databases to project the effects on program costs and caseloads of specified program features, given the distribution of the population and estimates of the likelihood of participation and other behavioral effects (see Citro and Hanushek, 1991; Lewis and Michel, 1990).
Human beings participate in programs, and programs undeniably affect their behavior. Some effects are intended, others are unintended; some effects are positive, others are negative.
Some programs have an explicit goal of providing a positive incentive: for example, the federal government subsidizes student loans to encourage more young people to obtain the economic and other benefits of a college education. As another example, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) seeks out poor pregnant women, mothers, and children to provide food supplements with the goal of healthier pregnancies, healthier babies, and, ultimately, healthier children and adults.
Other programs have a primary goal of providing income support to needy people. Such cash and near-cash assistance programs as AFDC and food stamps must contend with the fact that economic support has negative incentive effects to the extent that recipients are encouraged to rely on the program and not take steps to become self-supporting. Research on AFDC has examined incentive effects in the areas of work effort, family structure, and migration.
Both economic theory and empirical research indicate that such programs as AFDC adversely affect the work choices of the eligible population. These programs provide a "guaranteed" base income to those who do not work; the resulting "income effect" allows individuals to work less. These programs also impose taxes on earned income. Since workers' net wages are now lower, the "substitution effect" encourages them to decrease the number of hours worked as it is relatively less expensive for them to do so. The combination of these provisions results in an unambiguous decrease in the aggregate number of hours of market work by the eligible low-income population.7
Extensive research has been undertaken to estimate the magnitude of the
In theory, there is an alternative explanation: it is possible that the primary effect of extra program dollars for low-income families is to induce them to underreport their earned (or other) income. That is, rather than decreasing work hours, they may decrease reporting of work hours (or switch to work where it is easier to evade official notice). However, there is no empirical evidence on this point.