Temporary Assistance for Needy Families and welfare-to-work policy

Welfare Reform

Working for wages is the principal means for obtaining income and getting ahead in American society. Work is the key to personal independence and an effective way to achieve a meaningful role in our society. Significant participation in the workforce also is a necessary condition for receiving benefits from our nation's major social welfare programs, unemployment insurance, workmen's compensation, Social Security retirement and disability payments, Medicare health insurance, and the Earned Income Tax Credit. With one major exception, adults living outside of an institution, who are unable to work because of their age, physical condition, or other limitations, must depend on family, friends, and/or a meager patchwork of public relief and private charities for income, food, clothing, and housing (e.g., Supplemental Security Income (SSI), food stamps, general relief, homeless shelters, soup kitchens).

Analysis -- Labor Supply and Demand

Parents of minor children (usually women), whose level of income and assets are sufficiently low to make them eligible for monthly cash assistance authorized by the Temporary Assistance for Needy Families (TANF) program in the state in which they reside, are the exception to this "work" policy. TANF is a federally funded block grant program that replaced the 60-year-old Aid for Families with Dependent Children (AFDC) program, our nation's only safety net for economically dependent children. TANF is the heart of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRAWORA), the welfare reform legislation signed into law by President William Clinton on August 22, 1996 (Blank, 2002). The principal elements of TANF include: limiting to five years the federal government's financial and regulatory responsibility for helping poor families with children, regardless of the cause of their poverty; allowing states to spend their share of federal block grant funds ($16.38 billion annually) in any way "reasonably calculated to achieve the purposes of TANF"; limiting the length of time a family can receive federal cash assistance to five years, with states free to further limit assistance to two years; requiring at least 80% of families receiving TANF benefits to participate in employment activities as a condition for receiving cash assistance or services, hence the term welfare-to-work.

There is general support for the goal of TANF, which is to improve the economic circumstances of the poor through a "jobs" policy. The means chosen for accomplishing this goal is to give more latitude to the states to design programs tailored to fit local needs, including the use of sanctions and the withholding of benefits where needed. With the resources and freedom provided by TANF, it is anticipated that states will develop or expand programs designed to increase the capacity of poor families to be self-reliant and enable them to move into the mainstream of economic life. It is assumed that adult recipients of TANF will be offered job training programs, job placement and search opportunities, and the means to maintain employment through affordable child care, reliable transportation, and other supportive services.

The reduction in welfare rolls that has occurred since the enactment of TANF makes it appear that advocates for welfare reform were correct in their assumptions about what was needed to move AFDC recipients from welfare-to-work. What is not clear is the degree to which TANF and its "jobs" policy will provide a safety net for economically dependent children. Are the children of welfare families better off under the new system? Is there greater or lesser economic security? What happens to children in families when a parent is unable to hold a job in the private sector? What happens if the economy slows down and unemployment rises? Despite its limitations, AFDC nevertheless served two important functions for 60 years, only one of which is incorporated in TANF: (1) AFDC was a transitional income security program for parents of very young children who, after a period of time, were able to move successfully into the workforce; and (2) AFDC was an economic "safety net" for children whose parent(s), for a variety of reasons, was unable to earn wages sufficient to support a family. As an economic safety net, AFDC provided a minimum level of income necessary to support millions of economically dependent children during good times and bad times (Finneran, 2004).

Discussion - Welfare Reform and Public Safety Origins

The history of public welfare in the United States has been one of controversy, change, and continued growth. Prior to the 1900s, local governments shared with private charitable organizations major responsibility for public welfare, or as it was often called, "public relief." As the nation's population increased and the economy became more industrial and urban, the need for relief grew beyond the means, and sometimes the willingness, of local public and private auspices to provide for this populace. State governments assumed progressively more responsibility for the poor. For example, by 1926, 40 states had established some type of welfare program for mothers with dependent children, referred to as "mother's pensions" or "widow's mites."

On the first anniversary of his signing the welfare reform bill, President Clinton promulgated that "the debate is over. We now know that welfare reform works." (Woodbury, 2004). Based on the fact that national welfare caseloads have fallen 20% since 1993, the president and others apparently consider reform a success. While any serious analyst would reject this rosy assessment as being premature, it does raise the important question of how to judge the success of welfare reform. This part of the paper takes the view that the success of reform will largely depend on the extent to which former welfare recipients are successfully integrated into the labor market. Will they be able to find work that pays them enough to maintain their already shaky living standards, and to keep it from falling further? Once they find jobs, will they be able to keep them?

Notwithstanding the premature claims of victory, it will be some time before we can begin to know the answers to these questions. It is not too soon, however, to examine the context in which reform is currently transpiring. From the perspective of welfare analysts and policy makers, such an exercise can both help develop a rational set of expectations regarding the outcome of reform and suggest various policies that could lead to a better outcome.

Impacts on Labor-Management Relations

There are a number of ways to generate a set of expectations regarding the impact of welfare reform on employment and wages. One is to apply the rules of comparative statistics, along with accepted labor supply and demand elasticities, to derive estimates of the impact of moving potentially millions of persons from welfare to work. Numerous studies, described in the pages that follow, have used such methods to produce plausible estimates of the impact of the added supply of less-skilled workers on wages and employment. Another way is to describe the current and historical conditions in the low-wage labor market, delineating the various constraints facing workers who are both already earning low wages as well as those coming off of the welfare rolls who are most likely to find work in that sector. The goal of this approach, undertaken in this section, is to try to paint a picture of low-wage labor market conditions and to extrapolate a set of possible outcomes.

New trends in the 1990s

The genuine wage growth in the late 1990s was benefited from across the wage configuration, by low-, middle-, and high-wage earners and by both men and women (see Table A). Salary growth has also been larger among lower-wage employees than among high-wage (or middle-wage) employees, showing a remarkable turnaround from the early 1990s and the former two decades, when low-wage workers not only did worse than other workers but in fact saw their wages continuously decline after inflation (Montgomery, 2004).

TABLE A. Pay and productivity trends, 1990-200

Labor market indicator

Annual growth

Acceleration

1995-2002 vs.

1990-95

(2)-(1)

1990-95

(1)

1995-2002

(2)

Labor productivity

1.4%

2.5%

1.1%

Average hourly:

Wages

0.6%

2.7%

2.0%

Compensation

0.6

1.8

1.3

Real hourly wages*

Men

Low

-0.9%

1.7%

2.6%

Middle

-1.1

1.3

2.4

High

0.1

1.8

1.7

Women

Low

-0.3%

2.0%

2.3%

Middle

-0.3

1.4

1.7

High

0.7

1.9

1.2

*Measured as 20th, 50th and 90th percentiles.

Source: www.census.gov

Moreover, the attributes of jobs have improved remarkably since 1995. The share of workers with employer-provided health insurance -- a clear dividing line between a "good" and a "bad" job -- has grown since 1995, reversing the downward slide in health insurance coverage during the 1980s and early 1990s. The growth of part-time jobs relative to full-time jobs slackened, to the point that there were proportionately fewer voluntary part-time workers in 2002 than in 1995.

Assessment

The above analysis demonstrates an increase in low-wage jobs, particularly among men, which leads to an examination of changes in labor demand, wherein I try to differentiate between the shift in relative demand against low-skill workers (defined in the literature as workers with a high-school education or less) and the shift in demand, at least for men, toward lower-wage workers. The analysis shows that the demand twist against low-skilled workers is not so evident when we examine demand shifts by absolute wage levels, which I argue is the relevant metric in the question of welfare-to-work. The impression I derive is that, barring an economic downturn, it is possible that the labor market will be able to absorb the increased supply of low-wage workers moving from welfare to work. I am, however, much less optimistic about the effect of reform on the wage trends of low-wage workers.

Conclusion and Findings

People in poverty often lack real access to labor markets, particularly in rural areas where jobs are allocated through historically constructed old boys networks. Despite long economic recoveries over the 1980s and 1990s, it was not until 1999 that the poverty rate finally fell below its 1989 level. In examining a variety of explanations as to why it took so long for poverty rates to respond to the recoveries of the 1980s and 1990s, we paid particular attention to the latter half of the 1990s, since various changes in both the economic and policy landscapes have made this a unique period. In these years, the labor market tightened up, finally giving a boost to the earnings of low-wage workers. At the same time, the poor significantly expanded their hours of work in the paid labor market, due both to the strong economy and the welfare-to work component of welfare reform. The result was some diminution of the poverty rate, both overall and particularly for minorities.

In looking specifically at regions, divisions (i.e., groups of states within regions), and states, a focus that is particularly important given the recent devolution of some important economic and social policies to the state and local level, the most prominent example is welfare reform, but other wage and income policies, such as state-level earned income tax credits, state minimum wages, and municipal living wage ordinances have also become much more common in recent years. As policy decisions and analyses have devolved to the state and local levels, geographically specific data are needed to better understand and evaluate the impact of these changes.

In general, the trends in states and regions mirror those at the national level: many states have experienced lower unemployment and higher real wage growth in the mid- to late 1990s compared to earlier periods. But there is a great deal of regional variation as well. For example, Midwesterners and Southerners experienced many of the positive economic developments of the 1990s more so than did people in the Northeast and West, where median family incomes were slightly lower and poverty was considerably higher in 1998 than in 1989. Similarly, while national unemployment rates fell more quickly in the 1990s than in the 1980s, the largest declines were concentrated in the Midwest and South. Unemployment rates in the nation's most populous states, California and New York, were higher in 1999 than 1989. Moreover, in the 1990s wage growth for middle- and low-wage workers in these two states, where about 20% of the population resides, started later and was smaller than for similar workers in the rest of the country.