Substance use and participation in Temporary Assistance for Needy Families: the role of unobserved heterogeneity

Abstract

ABSTRACT Background The 1996 Personal Responsibility and Work Opportunity Reconciliation Act created Temporary Assistance for Needy Families (TANF) and granted states permission to implement drug testing as an eligibility requirement. As more states pass legislation requiring suspected drug users submit to drug tests, it is necessary to understand how substance use impacts participation. While several studies have estimated the association between substance use and participation, the literature has generally ignored the potential endogeneity of substance use. Method Using data from the 1997 National Longitudinal Survey of Youth, we estimate the effect of substance use on mothers’ TANF participation using a system of equations, addressing the potential endogeneity of substance use via unobserved heterogeneity that affects both substance use and TANF participation decisions. Results Our estimates suggest past-30-day substance use decreases the probability of current participation. Unobserved characteristics that increase the probability of participation also increase the probability of substance use. Our results are consistent across a range of sensitivity analyses. Conclusions Endogeneity plays an important role in substance use and TANF participation decisions. At face value, our results suggest legislative efforts to identify and exclude substance users from TANF may be misplaced. More research is needed to understand the causal mechanisms at work before making definitive policy recommendations.