South-Western College Publishing - Economics  

Policy Debate: Is Workfare Working?


Issues and Background

There has been considerable debate about whether the recent decline in AFDC/TANF caseloads has been the result of economic factors or welfare reform. Although the overall health of the U.S. economy has been a positive background factor contributing to the reduction of welfare dependence, the economy has been neither a sufficient nor a primary factor in that reduction. The huge state variations in the rate of caseload decline cannot be attributed to differences in state economic factors. But they can be explained convincingly by differences in the rigor of the state's work-related welfare reforms. Policy reform--not economics--is the principal engine driving the decline in dependence.
~ Robert E. Rector and Sarah E. Youssef
The rhetoric promoting workfare bragged that it would provide on-the-job training to welfare recipients to allow them easier access to, and skills for, the labor market. In reality, the program has provided mostly unskilled jobs such as picking up trash or shoveling snow. Its requirements have actually forced some recipients out of schools or training programs due to the strain of working and caring for their families. Few permanent placements have resulted. In fact in New York City, only 5% of workfare participants have been offered permanent jobs, while the employment rate for welfare recipients who are not in the workfare program is 10%.
~ Center for Community Change

The basic welfare system introduced during the "war on poverty" in the early 1960s was designed to raise the income of households living in poverty. Under this system, a target level of income was determined for each household based on the number of individuals in the household and the cost of living in the geographical region. If household income is below this level, welfare benefits were provided to fill the gap. Suppose, for example, that it was determined that a household consisting of 4 people in a given region required a monthly income of $900 to attain an adequate standard of living. If this household received $500 in income each month, welfare benefits would provide the remaining $400 in income. If the household had no income, welfare benefits of $900 a month were provided.

The problem with this basic welfare system is that it provided no incentive to work. As long as the household was receiving welfare benefits, each additional dollar of earned income resulted in the loss of $1 in welfare benefits. In economic terms, the marginal wage rate received by a welfare recipient was zero. When faced with a choice between working full time and receiving a level of income equal to the target level or receiving the same level of income while not working, many individuals chose to not work.

In 1967, this basic welfare system was replaced with a system in which welfare recipients could keep the first $30 they earned each month without any loss in welfare benefits. Furthermore, benefits were reduced by $2 for every $3 earned. This resulted in a marginal wage that was greater than zero, thereby reducing the labor supply disincentive effect associated with the welfare system.

Welfare reforms introduced in the Omnibus Budget Reconciliation Act of 1981 were intended to reduce welfare expenditures and caseloads by raising eligibility standards while preserving the basic "safety net." These reforms once again lowered the marginal wage rate back to zero after the first 4 months of work in any 12-month period. Thus, these reforms restored some of the labor supply disincentive effect that had characterized the pre-1967 welfare system.

While the 1981 revisions allowed states to introduce workfare requirements in which welfare recipients were required to work in order to maintain eligibility, this option was not widely adopted by states. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996, however, mandated that states adopt some form of workfare requirement. Federal funding in support of state welfare programs under this legislation is provided through the Temporary Assistance for Needy Families (TANF) block grant program, a replacement for the Aid to Families with Dependent Children (AFDC) program. As part of the program's incentive to encourage a movement from welfare to work, assistance payments under TANF are limited to a lifetime limit of 60 months. States are provided a fair amount of discretion in designing their workfare programs, but the level of federal funding is reduced for states if they do not meet target employment rates for TANF recipients.

In the last few years, welfare caseloads and expenditures have declined substantially. Advocates of workfare argue that this is the direct result of workfare requirements. Opponents of workfare suggest that much of this reduction in welfare expenditures is the result of the prolonged expansion that has substantially reduced unemployment. They express concern about whether workfare can survive when the expansion ends and a recession begins. Workfare requirements mandate that welfare recipients work but does not guarantee the existence of a job.

Critics of workfare argue that welfare recipients frequently have relatively low levels of education and limited job skills. They argue that investment in education and training programs are more effective in breaking the cycle of poverty. Proponents of workfare argue that many job skills are acquired through work experience. Whether workfare results in more continuous future labor force attachment than alternative programs is a question, however, that can only be answered empirically.


Primary Resources and Data

  • Office of Family Assistance
    The Office of Family Assistance, part of the United States Department of Health and Human Services, is charged with overseeing the Temporary Assistance for Needy Families Program. This web site contains detailed information on the operation of this program. It also contains summary information about the provisions of state welfare programs.

  • Personal Responsibility and Work Opportunity Reconciliation Act of 1996
    The full text of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 is contained at this web site. This Act mandates the adoption of state workfare requirements.

  • Administration for Children and Families
    The Administration for Children and Families is charged with administering U.S. welfare programs. This website contains an extensive collection of information describing and evaluating the success of TANF program.

  • U.S. Department of Labor
    The web site of the U.S. Department of Labor contains information on the state of the U.S. labor market, including an extensive collection of labor market statistics and data.

  • Administration for Children and Families, "Welfare Reform"
    This Administration for Children and Families website contains detailed information about the welfare reforms enacted in 1996. Detailed information about the TANF program and time-series and cross-sectional data on welfare caseloads are provided on this site. Links to information about state welfare reform programs are also provided. An extensive collection of aggregate and state-by-state welfare statistics is also available at this site.

  • Office of the Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services
    This web page contains links to an extensive collection of studies on issues related to the Department's mission. Of particular interest are studies related to welfare, work, and self-sufficiency and poverty, income, and assets.

  • The Office of Child Support Enforcement
    The Child Support Enforcement program, established in 1975, attempts to ensure that children are financially supported by both parents. The 1996 welfare reform law substantially strengthened the Child Support Enforcement Program, though, by requiring states to adopt uniform child support enforcement measures and providing more severe penalties for the failure to meet child support obligations. This web site contains information on the operation of this program.

  • Elaine Sorenson and Chava Zibman, "To What Extent Do Children Benefit from Child Support?"
    This January 2000 Urban Institute study summarizes findings about child support from the 1997 National Survey of America's Families. Sorenson and Zibman note that roughly one-third of children in the U.S. live apart from at least one of their parents. Only about 20% of these children receive the full amount of child support for which they are eligible. They find that poverty rates among these children are over three times as high as in families in which children live with both of their parents. Sorenson and Zibman note that the absence of child support is a major source of poverty for children. To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

  • Liz Schott, Ed Lazere, Heidi Goldberg, and Eileen Sweeney. "Highlights of the Final TANF Regulations"
    This April 29, 1999 report summarizes the federal Temporary Assistance for Needy Families regulations. Schott, Lazere, Goldberg, and Sweeney discuss the flexibility that is allowed to states under TANF. They also examine the restrictions on states in terms of work participation rates and time limit requirements.

  • Sheila R. Zedlewski, "Work Activity and Obstacles to Work Among TANF Recipients"
    This September 1999 Urban Institute report describes the level of work activity and the obstacles to work effort for TANF recipients. Zedlewski observes that TANF recipients have, on average, lower levels of educational attainment and more physical and mental health conditions than workers already in the labor force. She notes that as more TANF recipients find work, those remaining unemployed are likely to be those facing the greatest obstacles to working.

  • Gregory Acs, Norma Coe, Keith Watson, and Robert I. Lerman, "Does Work Pay? An Analysis of the Work Incentives under TANF"
    This July 1998 Urban Institute study provides a detailed examination of the work incentives that exist under TANF. The authors find that there is a relatively strong financial incentive for individuals to move from a state of no work to a 20-hour per week job. Reductions in benefits, however, result in lower marginal wages as hours of work increase beyond this level. The incentive effects, however, vary substantially from state to state. It is suggested that welfare recipients may not necessarily be fully aware of the impact of the Earned Income Tax Credit (EITC) on their marginal wage. The authors suggest that policymakers should attempt to make the benefits from the EITC more obvious to nonworking welfare recipients. (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

  • Economic Success Network (formerly known as the Welfare Information Network)
    The Economic Success Network web site provides an extensive collection of links to online resources dealing with a variety of issues related to welfare and welfare reform.


Different Perspectives in the Debate

  • Mimi Abramovitz, "Workfare and the Non-Profits? Myths & Realities"
    Mimi Abramovitz, a member of the New York City Chapter of the National Association of Social Workers, discusses the reaction of nonprofit organizations to New York City's workfare program in this online article. She argues that:
    • there are not enough available jobs for all welfare recipients in many areas,
    • even well-intentioned nonprofits are likely to treat workfare workers less well than conventional employees,
    • workfare interferes with better education and training opportunities,
    • there are substantial costs to nonprofits associated with the employment of workfare workers,
    • few people move from workfare to work at their workfare job placement,
    • nonprofits that intend to help the poor end up serving as enforcers of work rules, limiting their ability to serve as advocates for these individuals,
    • most welfare recipients are on welfare for short periods of time even in the absence of workfare,
    • job skills of welfare recipients do not always match the requirements of available jobs,
    • workfare employees displace other workers,
    • workfare encourages poverty by reducing benefits and increasing the supply of low-wage workers,
    • single mothers are effectively required to reduce the time they spend in child-care activities, without providing an adequate level of child care services,
    • workfare limits the ability of battered women to leave abusive spouses, and
    • workfare generates additional costs for society.

  • Equal Rights Advocates, "The Broken Promise: Welfare Reform Two Years Later"
    In this January 2000 report, Equal Rights Advocates, a women's law center, suggests improvements that can be made in California's welfare program. They argue that the workfare program has not been effective in finding productive employment for welfare recipients. The report indicates that there was relatively poor communication of program and eligibility requirements to welfare recipients. This is partly the result of low literacy levels among a substantial portion of welfare recipients. In addition, the report states that more extensive verbal communication is needed in cases in which literacy skills are low. More effective job search assistance would also be useful. Participants in focus groups argued that the limited education and training programs that are approved for workfare participants qualify individuals only for minimum wage jobs.

  • Ed Lazere, "Welfare Balances After Three Years of TANF Block Grants: Unspent TANF Funds at the End of Federal Fiscal Year 1999"
    In this January 12, 2000 Center on Budget and Policy Priorities report, Ed Lazere examines the magnitude and composition of the accumulated unspent TANF balances as of the end of fiscal year 1999. He observes that a reduction in welfare caseloads has resulted in substantial unspent TANF balances in most states even though most families leaving welfare for work have very low earnings. He suggests that these balances could be used to provide enhanced child care and transportation assistance for workfare participants. (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

  • Rebecca Brown, Evelyn Ganzglass, Susan Golonka, Jill Hyland, and Martin Simon, "Working Out of Poverty: Employment Retention and Career Advancement for Welfare Recipients"
    This Hune 1998 NGA Center for Best Practices study examines the work history of welfare recipients making the transition to work. The authors observe that a substantial number of welfare recipients return to the welfare roles within a year of beginning work. They suggest that welfare programs should attempt to provide more support for those making the transition to work so that they can more effectively advance in the labor market. Their recommendations include: ongoing case management; the introduction of mentoring systems; short-term financial assistance for emergency situations; an expansion of federal and state earned income tax credits; and improved child care, transportation health care, and housing.

  • Kathryn Porter and Wendell Primus, "Recent Changes in the Impact of the Safety Net on Child Poverty"
    In this December 1999 Center for Budget and Policy Priorities report, Kathryn Porter and Wendell Primus examine recent trends in child poverty. They note that while the number of poor children has declined since 1993, the level of poverty has increased for the children who remain poor. They indicate that the reduction in the number of children living in poverty appears to be the result of increases in employment and wages, combined with an expansion of the Earned Income Tax Credit. The worsening situation for those children remaining in poverty appears to be the result of reductions in the food stamp and cash assistance programs. (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

  • Andrew Cherlin, "The Consequences of Welfare Reform for Child Well-Being: What Have We Learned So Far and What are the Policy Implications?"
    Andrew Cherlin, in this August 14, 2004 study, examines several studies of the effects of welfare reform on children in low-income households. He finds that transitions out of welfare or from welfare to work have not had significant negative effects on the wellbeing of younger children. There are some indications that a movement from welfare to work (or a combination of welfare and work) reduces the likelihood of behavioral problems and mental health problems in younger children. Some of the random-assignment studies, though, have found that older children experience problems in school when their mother begins to work. Cherlin notes that these studies are limited in that they examine only the short-term effects of welfare return, and were conducted at a time when the economy was growing and few households had used up their TANF eligibility. (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

  • David A. Super, Sharon Parrott, Susan Steinmentz, and Cindy Mann, "The New Welfare Law"
    This August 13, 1996 Center on Budget and Policy Priorities report summarizes the effect of the 1996 welfare reforms. The authors cite a variety of studies that detail the projected adverse affect of these reforms on child poverty, particularly after the 5-year household eligibility for TANF funding expires.

  • Robert Rector, "The Myth of Widespread American Poverty"
    In this September 18, 1998 Heritage Foundation report, Robert Rector argues that the problem of poverty in the U.S. is generally overstated. He suggests that a large proportion of "poor" households own their own homes, most live in uncrowded living spaces, and have adequate nutrition. In fact, he notes that poor individuals are more likely to be overweight than middle-class individuals. Rector argues that living standards improved as a result of economic growth and not due to the War on Poverty. He suggests that poverty programs have lead to increased dependence and less self-sufficiency and has resulted in an increase in the number of children born out of wedlock.

  • Robert E. Rector and Sarah E. Youssef, "The Determinants of Welfare Caseload Decline"
    Robert E. Rector and Sarah E. Youssef examine the reasons for the decline in welfare caseloads in this May 11, 1999 Heritage Center for Data Analysis report. They find that, while welfare caseloads declined nationally during the years 1995-1998, the experience of individual states has been quite varied (ranging from an 84% reduction in welfare caseloads in Wisconsin to a 7.4% increase in caseloads in Hawaii). Rector and Youssef argue that much of the variation across states is related to the requirements of state programs. Welfare caseloads declined more rapidly in states that had "stringent sanctions and immediate work requirements...." They argue that more stringent workfare requirements have been successful in reducing welfare and poverty in states that have adopted these policies. They also cite a series of studies that suggest that welfare payments have a negative impact on the future education and earnings of children raised in recipient households.

  • Demetra Smith Nightingale, John Trutko, and Burt S. Barnow, "Status of the Welfare-to-Work Grants Program After One Year"
    This September 1999 study examines the effect of the Welfare-to-Work grant program that was designed to help states develop programs designed to assist welfare recipients in making the transition to full-time work. The authors find that this program has begun to show promise after a relatively long startup process.

  • Business Interface, Inc.
    Business Interface, Inc., is a private sector initiative to provide jobs and training for young welfare recipients. Particular emphasis is placed on finding employment for at-risk youth and youthful offenders. This website provides information about this program.

  • The Heritage Foundation, "The Good News about Welfare Reform: Wisconsin's Success Story"
    This page contains the transcript of speeches given at the Heritage Foundation on March 6, 1997 by Phillip N. Truluck, Wisconsin Governor Tommy Thompson, and Dr. William J. Bennett. Each of the speeches discusses the welfare reforms that were remarkably successful in reducing welfare caseloads in Wisconsin. Workfare requirements were a major component of these reforms.

  • Robert I. Lerman, Pamela Loprest, and Caroline Ratcliffe, "How Well Can Urban Labor Markets Absorb Welfare Recipients"
    This 1999 Urban Institute study examines the ability of urban labor markets to absorb welfare recipients making the transition to the labor market. They find that these workers can be fairly readily absorbed in the 20 metropolitan low skill labor markets that they examine. In fact, they predict that, even with the growth in the labor force caused by workfare, unemployment is likely to decline in these urban areas as a result of economic growth.

  • Center for Community Change, "Welfare Reform and Income Support"
    The Center for Community Change states their arguments against the current workfare system on this website. They argue that the reality of workfare has not matched the rhetoric. Of particular interest is a report entitled: Jobs: Some Organizing Strategies.

  • Anuradha Mittal, Peter Rosset, and Marilyn Borchardt, "Shredding the Safety Net: Welfare Reform as We Know It"
    This online Food First article discusses the problems that welfare recipients have experienced under the current workfare system. Arguments of the inequities associated with the current system are supported by stories of the experiences of individual workfare recipients.

  • The Urban Institute, "A Decade of Welfare Reform: Facts and Figures"
    In this June 2006 document, the Urban Institute provides a discussion of the effects of welfare reform from 1996 to 2006. They find that:
    • welfare reform was successful in reducing welfare caseloads, increasing work, and work-related activities by welfare recipients, and raising the household income of welfare recipients.
    • those who have left welfare have had mixed labor market experiences, with many returning to welfare from work, particularly in the years following the 2001 recession.
    • a growing share of welfare recipients are high school dropouts, are in poor health, are the parent of an infant, face language barriers, have no recent employment experience, or are the primary caretakers of children with disabilities. These individuals have low probabilities of becoming employed.
    • a larger share of low-income families receive child support frm non-custodial parents,
    • child poverty decreased in the 1990s, but increased from 2000 to 2004, and
    • behavioral and emotional problems from children aged 6 to 17 did not change substantially.
    (To view this document, the Adobe Acrobat viewer plugin is required. You may download this viewer by clicking here.)

  • Robert Rector and Patrick F. Fagan, "The Continuing Good News About Welfare Reform"
    In this February 6, 2003 Heritage Foundation Backgrounder, Robert Rector and Patrick F. Fagan argue that welfare reform has been successful in reducing poverty, particularly in black households. They note that welfare expenditures and caseloads have also been reduced,

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