The Effect of Welfare on High School Graduation

Higher welfare support levels diminish the relative value of education according to standard economic theory. However, studies based on the negative income tax experimentshavefound that higher welfare support levels increase participation in the educational system. This study examines a nonexperimental source of data to determine the effect of higher expected state-level welfare benefits on high school graduation rates for the chief recipients of welfare, single mothers. A nationwide sample of 18 to 25 year-old single mothers is analyzed. The hypothesis that higher welfare levels adversely impact high school graduation rates is confirmed with ahigh degree ofstatistical precision. Economists predict that educational levels will decline as welfare levels increase. The reasoningbehind thishypothesis is that education is expensive to acquire in both time and money. Education improves one’sfuture earningcapacity. One invests in education today to receive a higher salary in the future. As the welfare system becomes more generous, the difference between income levels while working and income levels while not working diminishes, thereby reducing the incentive to investin education. Experiments with the negative income tax, however, consistently dispute this prediction. One could argue that, since the experiments were temporary, participants may have beenacting strategically by taking advantage of the temporarily higher support levels to invest in education so as to earn more income when welfare levels were expected to decline on termination of the experiment.