Explaining Recent Declines in Food Stamp Program Participation

Abstract

Participation in the Food Stamp Program, a key component of the social safety net, fell precipitously between 1993 and 1998. The strong economy and welfare reform have both been advanced as possible explanations for this decline. We investigate the decline using both administrative and household-level data. We find that among households with incomes less than 300% of poverty, 20% of the decline in FSP utilization can be attributed to lower unemployment, while 30% is due to the implementation of the new Temporary Assistance for Needy Families children. The latter effect is concentrated among single heads and in central cities. We also show that single heads are more sensitive than other households to increases in the transactions costs associated with applying for food stamps. Together, these results suggest that efforts to restore FSP benefits to needy households should focus on reducing application costs for single heads in central cities. The Food Stamp Program (FSP) is one of the largest transfer programs in the United States, having provided nearly $24 billion in benefits to 27.5 million families in 1994 (Committee on Ways and Means, 1998). Participation in the FSP hovered around 20 million persons per year during the 1980s, but rose sharply in the early 1990s to a peak of approximately 27 million persons in 1994. Participation then began to fall dramatically, declining back to 20 million participants by 1998. About three-fourths of this decline occurred between 1996 and 1998 (Castner and Cody 1999). Previous research has shown that most of the fall in the caseload has stemmed from falling numbers of single-parent families that receive food stamps (U.S. Department of Agriculture, 1999). The caseload has also fallen dramatically for two other groups: Able-bodied adults without dependents (ABAWD's) and most legal immigrants. However, since they constitute a relatively small share of the FSP caseload, they account for only 22 percent of the overall caseload decline. Finally, McConnell and Ohls (2000) show that the decline in the caseload has been much more dramatic in urban than in rural areas. Declines in the food stamp caseload may be either good or bad news, depending on the reasons for the decline. A number of hypotheses have been offered. The first is that welfare reform has caused the decline. The Personal Responsibility and Work Opportunity Restoration Act of 1996 (PRWORA) made it more difficult for single mothers to receive cash welfare, and may have had the largely unintended consequence of making it more difficult for them to access food stamps. PRWORA also included provisions limiting the use of food stamps by ABAWDS and legal immigrants. Hence, PRWORA seems to have impacted precisely those groups which have shown the greatest decline in the food stamp caseload. A second, closely related hypothesis is that the climate surrounding welfare reform has 2 increased the stigma and also the transactions costs associated with participating in food stamps. Little direct evidence is available about the importance of stigma and transactions costs, so one contribution of our study is to analyze direct proxies for these concepts. A third hypothesis is that the decline in the caseload is due to the recent economic boom. If families are leaving the roles because they are better off, then this is presumably a good thing. On the other hand, if needy families are leaving because it has become more difficult for them to access food stamps, then most observers would feel that this was a negative consequence of welfare reform, and one that merited some remedial action. Our paper provides some new evidence on these competing hypotheses, using both aggregate administrative and householdlevel data. We find that among households with incomes less than 300% of poverty, 20% of the decline in FSP utilization can be attributed to lower unemployment, while 30% is due to the implementation of the new Temporary Assistance for Needy Families children. The later effect is concentrated among single heads and in central cities. We also show that single heads are more sensitive than other households to increases in the transactions costs associated with applying for food stamps. Together, these results suggest that efforts to restore FSP benefits to needy households should focus on reducing application costs for single heads in central cities. The rest of the paper is laid out as follows: We begin with some background information about the recent decline in food stamp caseloads and the possible explanations. We then present the empirical model and the data in sections II and III. In section IV, we present the main results, while section V discusses several extensions. Finally, conclusions appear in section VI.