The Impact of Local Labor Market Conditions on Work and Welfare Decisions: Revisiting an Old Question Using New Data

Abstract

Using Maryland administrative data between 1996 and 2005, this paper examines the impact of local labor market conditions on work and welfare use among single mothers. Our estimates rely on the new Census Bureau Quarterly Workforce Indicators database, which provides county-level economic indicators filtered by industry, gender, and age-group. We specify a multinomial choice model to estimate the effects of these local labor market variables on the full set of work–welfare combinations. The results indicate that lower unemployment rates and increased new hires and new hires’ earnings in key industries increase the likelihood that women choose alternatives that include work. African American women and those with fewer years of education respond differently to changing economic conditions. Our results are robust to controls for fixed effects, county-specific time trends, and endogenous migration.