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Vehicle ownership may promote work if employment opportunities and job searches are enhanced by reliable transportation. For example, vehicles may serve to reduce potential physical isolation from employment opportunities. I examine the effects of vehicle ownership and vehicle quality on employment for single mothers with no more than a high school education using National Longitudinal Survey of Youth data. I control for potential bias by jointly estimating employment and vehicle ownership in a maximum likelihood framework using state welfare eligibility asset rules as instruments. Results show that vehicle ownership increases employment. Positive effects of vehicles do not differ for urban and rural residents, but they do change with economic conditions. Further, welfare recipients are significantly more likely to exit the program and become employed if they own a vehicle.

Prior to the 1996 welfare reform act (and the preceding welfare waiver period), households were ineligible for welfare assistance if they had assets including vehicles worth more than $1000 with $1500 of each vehicle’s value excluded from this determination. Welfare eligibility criteria began changing in the early 1990s during the pre-welfare reform waiver period, and changes continued with the 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), which, along with placing 5-year lifetime receipt limits and work requirements on welfare recipients, formally gave states the latitude to determine their welfare program’s asset limit. Most states have responded by increasing both their asset limit and their vehicle exclusion amount (or by excluding vehicles from asset calculations entirely). As a consequence, low-income households are now able to own more valuable vehicles and remain eligible for welfare. The change in welfare asset eligibility criteria may affect employment through increased vehicle ownership. Vehicle ownership may promote work if employment opportunities and job searches are enhanced by having transportation or more reliable transportation (proxied by vehicle value). For example, vehicle ownership could expand job searches geographically, facilitate employment farther from home (or in an area inaccessible with public transportation), facilitate employment requiring unusual or non-standard work hours that do not coincide with public transportation schedules (which may be common for entry-level jobs), reduce employee absenteeism, and reduce commute times relative to that offered by public transportation (Gurley and Bruce, 2005, Ong, 2002 and Raphael and Rice, 2002). Vehicles may be particularly important for low-income households living in inner cities. The spatial mismatch hypothesis, introduced by Kain (1968) and studied by many others (Blumenberg and Ong, 1998, Holzer et al., 1994, Ong and Blumenberg, 1998 and Raphael and Stoll, 2000), suggests that inner-city residents are physically isolated from suburban employment opportunities. As a consequence, joblessness and poverty are at least partially due to inner cities having fewer employment opportunities, the jobs available in these areas requiring skills not possessed by many inner-city residents, and employers avoiding recruiting in these areas (Kasarda, 1989, Kirschenman and Neckerman, 1991 and Wilson, 1987).1 By improving accessibility to jobs, vehicles potentially reduce physical isolation from employment opportunities and promote work for inner-city residents. In turn, increased vehicle ownership could reduce welfare dependency. Increased expenditures on vehicles, by enhancing transportation and promoting employment, may reduce welfare rolls by promoting self-sufficiency. This is particularly important in today’s welfare-reformed environment with lifetime benefit limits and work requirements because those who once would have received welfare benefits as an entitlement are now compelled to enter the labor market in spite of potential barriers (Danziger et al., 2000). In this project, I examine the effects of vehicle ownership, as well as vehicle quality (proxied by vehicle market value and vehicle equity), on employment with National Longitudinal Survey of Youth (NLSY79) data. The effects of vehicles on employment should be important to policymakers: if such effects are positive, then liberalizing Temporary Assistance for Needy Families (TANF) vehicle asset rules potentially reduces welfare dependency, increases exits from the program, and promotes permanent welfare exits (rather than temporary ones). I estimate the degree to which vehicle ownership affects employment (and hours of work) controlling for possible omitted variable bias with a discrete factor random effects (DFRE) estimator using welfare vehicle asset rules as instruments. I also separately identify the effects of vehicles for urban and rural residents, and I investigate whether the effects of vehicles vary with local economic conditions. For each of these specifications, I estimate the models using single mothers with no more than a high school education because they are the ones most at risk of receiving welfare. Finally, I select a sub-sample of single mothers on welfare, and I estimate the effects of vehicles on the probability of exiting welfare and on the probability of becoming employed. DFRE results show that vehicles have positive effects on employment and hours of work. Positive effects of vehicles do not differ for urban and rural residents, but they do change with economic conditions as measured by the local unemployment rate. Further, results suggest that single mothers on welfare are significantly more likely to exit the program and become employed if they own a vehicle. The remainder of the paper is as follows: Section 2 reviews the relevant literature, Section 3 describes the data, Section 4 outlines the empirical approach, Section 5 presents the results, and Section 6 discusses the results and concludes.

Evidence suggests that vehicles promote employment for single mothers with no more than a high school education. In some cases, the effects of vehicles are large: owning a vehicle often doubles the probability of employment and the number of hours worked, increasing the probability of employment by roughly 30% points and work hours by about 13 per week. Further, every $1000 increase in vehicle market value and vehicle equity is predicted to increase employment by a couple of percentage points and hours worked by roughly two per week. The results also suggest that single mothers on welfare are more likely to exit the program within a couple months and to find employment if they own a vehicle. In some cases, my results are somewhat larger than those found by others. For example, Ong (2002) concludes that owning a vehicle increases the probability of employment by roughly 9% points (and hours of work by 23 per month), Ong, 1996 and Danziger et al., 2000 find that owning a vehicle increases employment by 12% points, Raphael and Rice (2002) by 15, and Lucas and Nicholson (2003) by 19. At the same time, my results are smaller than those found by Bansak et al. (2005), who conclude that owning a vehicle increases employment by 50% points in two-stage least squares models (and 11 h per week), and Cervero et al. (2002), whose results indicate that acquiring a car increases the probability of getting a job and moving off welfare by a factor of 13 for welfare recipients in Alameda County, California. Ultimately, differences may be due to vehicle effects that are unique to specific states or counties or to the way unobservables are handled. Furthermore, some of these researchers examine samples of welfare recipients, while others study disadvantaged respondents in general. Although some evidence indicates that vehicles increase employment more when unemployment is high, my results do not tend to differ significantly by urban/rural residence. Perhaps this is consistent with at least some other work showing that many welfare reforms have not had significantly different effects on rural (versus urban) recipients (see Weber et al., 2002). Regardless, positive effects for those in urban areas suggest vehicles enhance employment for inner-city residents, at least partially mitigating problems associated with spatial mismatch (Holzer, 1991, Ihlanfeldt, 1992, Ihlanfeldt and Sjoquist, 1998 and Kain, 1992). However, since the beneficial effects of vehicles are not limited to inner-city residents, vehicle ownership seems to enhance employment even when neighborhoods are not necessarily located in a part of town that is physically isolated from job opportunities. In 2003, TANF served an average of 4.9 million participants from 2.0 million households monthly, and program participants received average monthly benefits of $393.18 per household at an annual cost (which does not include administrative costs) of over $9.5 billion to the government (Social Security Administration, 2004). This makes TANF one of the larger government-assistance programs. My results are important because they suggest that if recent liberalization of welfare vehicle asset rules increases vehicle ownership, then such liberalization may simultaneously decrease program dependency by promoting employment.17 Since results suggest that vehicle ownership will be an important factor in determining welfare reform’s success moving people from cash-assistance to work, the government may want to consider ways to help low-income households acquire vehicles (or attain reliable transportation in general). State and local governments could do this by providing low-interest loans for welfare recipients to purchase and insure vehicles (Michigan, Tennessee, and Wisconsin already have similar such programs), and the federal government could provide grants to state agencies adopting these programs. Further, the government could enlarge tax benefits to individuals or businesses that donate vehicles to welfare recipients (Colorado, Maryland, Texas, and Vermont already have similar such programs) (Gurley and Bruce, 2005 and Lucas and Nickolson, 2003). Such a change in emphasis might be particularly important today compared to initially after welfare reform in 1996 because the most readily-employable welfare recipients likely have already found employment, leaving a sample of recipients on welfare who are more prone to have personal problems that are barriers to employment (such as physical and mental health limitations).