Better Off Welfare

Policy Reports | Welfare

No. 255
Monday, October 07, 2002
by Joe Barnett

Determinants of State Welfare Caseload Declines

As welfare rolls fell by more than 50 percent during the years following reform, those who had opposed TANF had difficulty explaining the apparent success of the program. In the past, welfare rolls grew during good economic times as well as recessions. And new federal initiatives, such as job training programs and disregarding wages from work for eligibility purposes actually increased the number of welfare recipients. The answer may be found in the strategies some states used to reduce their rolls by more than 90 percent, while other states were reducing theirs by less than 25 percent.

"During the 1990s, the good economy accounted for less than 20 percent of the drop in the welfare rolls."

Did the Booming Economy Explain the Drop in Welfare Rolls? During the boom years of the late 1990s, welfare reform critics claimed that the good economy was primarily responsible for the fall in welfare rolls. They predicted that if the good times ended, welfare rolls would rise as newly unemployed families returned to welfare. Prior to reform, welfare caseloads rose even during periods of increasing employment, whereas after reform welfare rolls continued to fall in most states and increases were negligible in others. This was true even after unemployment rose with the onset of recession in 2001. In fact, rigorous statistical analyses confirmed the common wisdom that welfare rolls in the past had grown during both recessions and booms, and welfare receipt had little to do with the economy at large.

Economists June O'Neill and Anne Hill, using data from the Census Bureau's CPS, found that:40

  • The TANF program created in 1996 has accounted for more than half of the decline in welfare participation since then and for more than 60 percent of the rise in employment among single mothers. By contrast, the contribution of the booming economy of the late 1990s to these declines was relatively minor, accounting for less than 20 percent of either change.
  • Employment gains have also been the largest among disadvantaged single mothers, and TANF accounts for much of these gains: 40 percent of the increase in work participation among single mothers who are high school dropouts, 71 percent of the increase in work participation among single mothers ages 18 to 29, and 83 percent of the increase in work participation among black single mothers.

There is also evidence that those states with relatively lower benefit levels have had the most success in reducing caseloads. This is not unexpected, since the point of welfare reform was to change incentives between welfare and work. Cato Institute researchers found that "those states with the strongest sanctions and the lowest benefit levels had the most success in reducing their caseloads."41

"Potential recipients diverted from welfare are found to be ineligible, or they qualify for other programs or opt to receive a lump-sum cash

Are Potential Welfare Recipients Being Diverted to Other Programs? Some allege that caseload reductions have been achieved by diverting families from applying for welfare. Actually, diversion is an explicit and appropriate policy in most states. Many of those diverted are ineligible, usually because at least one parent is working. Some are found to be eligible for more generous federal programs, such as Supplemental Security Income (SSI), which provides cash assistance and free medical care to disabled children, regardless of their parents' work history. Other divertees opt to receive a lump-sum cash payment of $1,000 to $2,000 in lieu of monthly cash benefits - an alternative authorized by the 1996 reform law. Follow-up surveys of those who were diverted show that most soon found employment.

Are Sanctions Discriminatory? Welfare reform critics have claimed that minorities are disproportionately sanctioned, or "kicked off" welfare. However, there is evidence that many sanctioned families - families that have lost their benefits due to noncompliance - were actually voluntary welfare leavers.

For example, in Arizona, African-Americans were 13 percent of cases closed due to sanctions and just 9 percent of cases closed due to earnings. Hispanics were 39 percent of cases closed due to sanctions and just 9 percent of cases closed due to earnings. However, a survey of welfare leavers in Arizona found a much lower percentage reporting that they left welfare due to sanctions than was indicated by administrative data, supporting the conclusion that they found work, and having no incentive to do so, did not report their new status. They just stopped showing up for appointments with caseworkers.42

A survey of families whose benefits had been terminated a second time found that two to four months later, despite the loss of their welfare checks, half had experienced an increase in household income averaging $758 a month - more than double their income before the sanction. Only one-third reported a reduction in household income (averaging $384).43

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