The New Economics of Welfare

is the title of a series of papers editted by Rebecca Blank and Ron Haskins and was published in 2001 by the Brookings Institute:

The need for reauthorization presents an opportunity to assess what welfare reform has accomplished and what remains to be done. The New World of Welfare is an attempt to frame the policy debate for reauthorization, and to inform the policy discussion among the states and at the federal level, especially by drawing lessons from research on the effects of welfare reform. In the book, a diverse set of welfare experts—liberal and conservative, academic and nonacademic—engage in rigorous debate on topics ranging from work experience programs, to job availability, to child well-being, to family formation. In order to provide a comprehensive overview of the current state of research on welfare reform, the contributors cover subjects including work and wages, effects of reform on family income and poverty, the politics of conservative welfare reform, sanctions and time limits, financial work incentives for low-wage earners, the use of medicaid and food stamps, welfare-to-work, child support, child care, and welfare reform and immigration … Rebecca M. Blank is dean of the Gerald R. Ford School of Public Policy at the University of Michigan. She was senior staff economist with the Council of Economic Advisers during the first Bush administration and was appointed to the council under President Clinton. Ron Haskins is a senior fellow at the Brookings Institution and a senior consultant at the Annie E. Casey Foundation.

The AB comment box has been occasionally graced with contributions from Dr. Blank, which is truly an honor. When I posted this, one comment directed us to the recent testimony of Ron Haskins. Haskins talks about lower caseloads, which could be due less to the premise that welfare reform is working and more to the possibility that time limits are just tossing people deeper into poverty. Yes, poverty is lower today than it was in 1996 – but it has been rising. Haskins, however, does gather evidence as the employment and earnings of female-headed households. Again, we saw improvements during the boom during the late 1990’s with some recent reversals.

Dr. Blank asks What Did the 1990s Welfare Reform Accomplish? I cannot do justice to Dr. Blank’s paper in a single post, so I’ll simply focus on a couple of points. First welfare reform neither began nor ended with the 1996 act and it would be a mistake to think that Congress had some simple monolithic welfare to work mandate:

Since the Reagan administration, there has been a growing interest in providing welfare recipients with the assistance and the incentives to move rapidly off welfare into employment. Experiments with welfare-to-work programs started in the 1980s. These experiments became more dramatic in the early 1990s under the Clinton Administration … The 1996 passage of PRWORA enacted federal changes to cash assistance programs. Most notably, it abolished AFDC and in its place Congress created the Temporary Assistance to Needy Families (TANF) block grant. This had two major effects. First, it gave states much more discretion over program design … Second, TANF provides funds to state programs as a block grant, whereas AFDC was funded through a matching grant … In addition to the creation of the TANF block grant, the PRWORA legislation had a number of other provisions that limited the availability of cash assistance and increased the incentives for low-income families to move into work … PRWORA also enacted time limits, limiting an individual’s ability to receive TANF-funded assistance to 60 months … Finally, a variety of PRWORA provisions limited access to income assistance programs among target groups. Immigrant access to TANF was restricted, as well as to food stamps and Medicaid.

Notice that we had been experimenting with different structures before 1996 and the 1996 act gave states more flexibility to experiment. The second point I’d like to focus on is noted here:

Policy changes weren’t the only news in the last half of the 1990s. While the economy grew slowly coming out of the recession of 1990-91, starting in 1995 the U.S. entered a period of sustained high growth, rising productivity, and low unemployment. By the time the expansion ended in 2001, it had become the longest period of continuous economic growth in U.S. history. The effect of this expansion was particularly noticeable for less-skilled workers. Despite a consensus view in the early 1990s that the expected long-term unemployment rate in the United States was between 5.5 or 6 percent, unemployment remained at or below 5 percent from April 1997 through October 2001. Even among adult high school dropouts – whose unemployment rates were in the double digits in the early 1990s – unemployment fell to less than 7 percent. Wages also rose throughout the wage distribution. This was particularly good news for less-skilled (and especially male) workers, who had experienced substantial wage declines for 15 years starting around 1979. Although the wage increases after 1995 did not make up all of the ground lost in the previous two decades, they clearly increased the economic returns to work. The result of this economic boom was a job-rich economy that offered more job availability and better wages to low-skilled workers than at any time in the previous two or three decades. This allowed states to largely ignore job availability concerns as they
redesigned their welfare-to-work programs and encouraged a growing number of welfare recipients to seek work. States could focus on program design and implementation for their new TANF-funded programs … The economic slowdown of the early 2000s is clearly visible in these data, combined with the effects of a steady caseload decline. The likelihood of moving into work, conditional on receiving welfare in the previous year, declines in 2001 and 2002 (although it rises again in 2003). In part this reflects higher unemployment rates and a more sluggish economy. In part it reflects the fact that the group of women who report public assistance income in each year is shrinking over time, creating a progressively smaller and more selected base sample.

We have heard from a bunch of know-nothings who cannot make up their minds whether poverty moves inversely with the business cycle. While I don’t pretend to be an expert on this topic, Dr. Blank certainly is. And she recognizes that efforts to reduce poverty work best when the economy is growing and its growth is shared across income groups.