IS WELFARE REFORM WORKING?
The Impact of Economic Growth and Policy Changes
Executive Summary
COSSA kicked off its 1999 Congressional Briefing series on March 12. A crowd of nearly 150 people attended the briefing, "Is Welfare Reform Working? The Impact of Economic Growth and Policy Changes." The event, cosponsored by the Joint Center for Poverty Research at the University of Chicago/Northwestern University, featured three prominent social scientists: Sheldon Danziger, from the University of Michigan; Robert Moffit, from Johns Hopkins University; and LaDonna Pavetti, from Mathematica Policy Research.
The three discussed the impacts of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 which replaced the 60 year old Aid to Families with Dependent Children (AFDC) with the Temporary Assistance for Needy Families Block Grant (TANF). The new act was a marked departure from the AFDC. The 1996 Welfare Reform Act imposed time limits on welfare benefits, strengthened work requirements, and gave states a much greater role in determining and providing benefits.
The Caseload Decline: A False Indicator?
After a brief welcome by COSSA Executive Director Howard Silver, Sheldon Danziger, Henry J. Meyer Collegiate Professor of Social Work and Public Policy at the University of Michigan, stated that if one wants a quick answer to the question — Is welfare reform working? — he would answer that the new act has "been more successful in reducing the caseload than most people would have thought when it was signed by the president in 1996." He attributed this decline in part to the strong United States economy. However, with respect to the question of whether the 1996 welfare act has been successful in making recipients "better off," Danziger stated that the "results are not that promising."
Danziger argued that far too much attention is paid to the decreasing number of cases, without fully understanding how the recipients are fairing. The decline in caseloads, he argued, may belie the actual situation. He cited a recent New York Times article that noted that West Virginia counts child Supplemental Security Income (SSI) benefits as income. This accounting system has rendered a large number of recipients ineligible for TANF. So, while cases may have declined in West Virginia, this is one example of how "we can cut the caseload without affecting a recipient's well-being," said Danziger.
Danziger discussed labor markets and seemingly came to the conclusion that the news is not all good. He noted that research has shown that even in these prosperous economic times, "it looks like about a third of those who are leaving the welfare roles are not working." Danziger said that many of those that do find jobs "are only in part-time jobs at relatively low wages." Many people who leave welfare do not earn more than they did while receiving public assistance. Additionally, many people who leave welfare are low-skilled and often fit the classic example of "last hired and first fired."
He noted that one policy implication of the 1996 welfare act is "the importance of having some sort of community work experience." He said that providing community work would allow welfare recipients to have some way to work for their benefit when the Nation's economy is not as healthy as it is now.
The Caseload Decline: Reasons and Determinants
Robert Moffitt, Professor of Economics at Johns Hopkins University, focused his discussion on the causes and determinants in the decline in the welfare caseload. He also spent a portion of his discussion considering the cyclicality of welfare cases, whether the caseload increases or decreases as a function of the state of the U.S. economy.
The caseload, according to Moffitt, has declined between 40 and 44 percent between January 1993 and September 1998. This decline, he remarked, is "unprecedented if you look at the ups and downs of the AFDC caseload since 1935." He said that while much research has focused on the contributions of reform to the caseload decline, the reductions actually started before welfare reform was enacted in 1996. Specifically, Moffitt pointed to state welfare systems as a possible explanation. States, he said, had been requesting welfare waivers since the 1980s, and many states requested waivers around the time welfare reform was enacted. These waivers, he said, had many of the same elements of the 1996 Welfare Reform Act.
Moffitt noted that the decline in the unemployment rate and the decline in the caseload have occurred at nearly the same time. He noted that trend lines for AFDC caseloads per capita, the Nation's unemployment rate, and the number of states with welfare waivers, indicate a possible relationship. The trend lines show, said Moffitt, that the AFDC per capita caseload experienced a large increase in the late 1980s and early 1990s, and then started to decline. He noted that the unemployment rate experienced a peak in the early 1990s only to experience a decline throughout the rest of the 1990s. Trends also show that the AFDC caseload declined concurrently with an increase in states approved for welfare waivers. "So piecing out the relative contributions of the waivers and the unemployment rate to the decline in caseload has been a major question," said Moffitt.
He then briefly discussed some studies that considered the relative contributions the unemployment rate and the states' waivers had in the AFDC caseload decline. He pointed to a May 1997 study performed by Council of Economic Advisers that determined the relative contribution of each of these factors to the decline in welfare cases. The CEA study, said Moffitt, found that the decline in the unemployment rate between 1993 and 1996 accounted for 31 to 44 percent of the decline, while State waivers explained 14 to 30 percent of the decline. These numbers, however, have been hotly debated and subsequent research has disagreed with these figures, said Moffitt.
Three new studies have come to close consensus on the contribution of the unemployment rate to the decline in welfare cases between 1993 and 1996, according to Moffitt. The studies note that the unemployment rate during this period can explain 48 percent, or about one-half, of the AFDC caseload decline. There was less agreement between these studies on the impact of state waivers. The midpoint range, however, was that state waivers accounted for 15 percent of the AFDC caseload decline.
Moffitt noted that there are still many unresolved issues. For instance, he said that there are questions regarding the cyclicality of welfare cases to the state of the U.S. economy and business cycle. He said the number of welfare cases has been getting more sensitive to the business cycle over time. The 1996 Personal Responsibility and Work Opportunity Reconciliation Act may reduce the sensitivity of the number of welfare cases to cycles of the U.S. economy, he concluded.
What the States are Doing
LaDonna Pavetti, a Senior Researcher at Mathematica Policy Research, led a discussion of what states are doing now and what they are likely to do when they face an economic recession. First, though, she provided her answer to the question: Is welfare reform working? She stated that it is too soon to answer the question. She specifically noted that "until [the U.S.] experiences an economic down turn, we won't know what this new welfare system actually looks like." She did state, however, that she does not believe that "we have a system in place yet that is stable." We have a lot to learn, she said. She did place a lot of the apparent success on the current state of the U.S. economy. She stated that many of the states' current policies would not work without a strong economy.
She then turned to the states' welfare programs and discussed some of their similarities. One aspect that is consistent throughout most of the programs, she said, is support for job search programs. There is, said Pavetti, quite a variance in the different programs — some provide a lot of assistance and others provide very little assistance. She also pointed out that most of the states place an emphasis on programs that instill job retention and job advancement strategies. She said that states are also putting a lot of energy and resources into job support, such as child care and transportation support. Finally, Pavetti noted that states have made extensive use of sanctions, "particularly full family sanctions and time limits, to send a message that this is a very different environment and work is expected."
Pavetti proceeded to review and comment on some of the literature that has been written on welfare reform, particularly papers presented at a November 1998 conference of the Joint Center for Poverty Research. Through consideration of some of the conference's papers, she came to several conclusions about the current welfare system. First, she noted that states vary greatly in the amount of funds they have in reserve or in contingency funds. Second, and perhaps related, she noted that the states vary in their preparedness for an economic recession. Many states, she said, would deplete their funds quickly if the U.S. went into a severe recession. Finally, she stated that "the basic situation that we are going to find ourselves is one in which there are not enough resources for states to continue to do everything they are doing now."
She proceeded to consider some of the decisions and choices states would have if there was a down turn in the economy. States, she said, would have to reconsider community service and subsidized employment as work. Second, states may have to reduce the number of people expected to fulfill work requirements. Pavetti also questioned whether states would have to reconsider education and training programs as a viable part of their welfare systems. She also wondered whether, in times of economic decline, states would be able to provide generous work support programs. If not, she asked, what types of mechanisms would be put in place to distribute scarce resources? She also noted that states would have to reassess their time limits.
In conclusion, Pavetti noted that the best thing states can do is work to create a broad-based program. She said they should build a strong foundation now in the event of an economic downturn.
Edited transcripts of the briefing are available. Contact COSSA for more information.