Welfare Reform Works
April 14, 2003
By June O'Neill
POLITICIANS and experts from the left and the right acknowledge that welfare reform has succeeded beyond the most optimistic expectations. Yet the reforms are nonetheless under political siege: Reauthorization of the major wel- fare-reform law is now nearly a year overdue and seems mired in Capitol Hill politics. And last week the City Council gutted the welfare-to-work policies that made New York City one of the brightest examples of reform's success.
One can only hope that Congress will listen to the message of a large body of research that the council totally disregarded - and pass a bill that retains the emphasis on work that has served us so well.
In 1995 and ‘96, many in the policy community predicted disaster - children crushed by poverty and neglect - if work-oriented reform were approved. Instead, as documented in the recent Manhattan Institute report I wrote with Anne Hill, the poverty rate for single mothers, the major group affected by welfare reform, has fallen by a record amount, from 40 percent to 32 percent between reform's passage in 1996 and 2001.
Underlying this drop in poverty was a dramatic rise in the employment of single mothers and an earnings gain large enough to more than offset the decline in welfare benefits: Single mothers saw their incomes rise by more than 20 percent over the same period.
As to the children, a recent study by Northwestern University's Lindsay Chase-Lansdale and others found that mothers' transitions off welfare and into employment were not associated with negative outcomes for their preschool or young adolescent children.
New York City was perhaps the ultimate testing ground for reform. In 1996, prior to passage of the reform law, 10 percent of the city's population was receiving welfare benefits, compared to only 3 percent in the rest of the state and 5 percent nationwide. Moreover, that number had fluctuated little in decades. But by December 2002, the city welfare rolls had dropped 55 percent, even including those getting state and city rather than federal aid. And the number of recipients continued to fall despite the painful 2001-2002 recession.
What happened to the people who left welfare? A 1997 Columbia University study predicted that 500,000 single mothers would be forced into poverty within five years. That prediction proved totally wrong: The poverty rate among the city's single mothers fell by more than a fifth, from 52 percent to 40 percent. Far from ending up helpless and in deprivation, single mothers moved into the workplace in record numbers.
Some have tried to explain away these positive developments by claiming that they were caused by the 1990s economic boom. That explanation fails under scrutiny. In our Manhattan Institute report, we find that welfare reform can account for more than 40 percent of the rise in single-mother employment between 1996 and 2001; the boom was responsible for less than 10 percent.
Of course, it is always difficult to separate out statistically the net effects of different variables when both are changing. However, our formal statistical analysis is bolstered by historical observations which clearly show that both the welfare and work participation of single mothers in the pre-reform period was only weakly responsive to the ups and downs of the business cycle. This explains why welfare rolls have not risen much during the recent recession and in many places have continued to decline.
In other words, single mothers didn't leave welfare for work because a good economy pulled them in. They left because welfare reform changed the incentives single mothers face, making work a much better option for them in the short- and long-terms.
Before reform, welfare was a long-term entitlement to a guaranteed income - cash, food stamps and medical benefits, and often subsidized housing, too. This income was a limited one, but it was given without any work requirement. So a woman on welfare, particularly one with school-age children, also gained something everyone values - lots of time to spend on activities of her choosing.
Welfare reform changed all that. Strict work requirements sharply curtailed discretionary time. The five-year time limit meant that long-term welfare support was no longer an option. Faced with a dramatic shift in incentives, some women who would have gone on welfare did not do so, while many on welfare chose to leave welfare much sooner than they would have.
The commitment to join the workforce has given single mothers the impetus to gain the skills and experience essential to improving their lives. Indeed, my recent research shows that women did better economically the longer they stayed off welfare and in the workforce. Poverty rates dropped 50 percent for women who did these things for four years.
Why? Each year in the workforce brings additional money - their hourly pay rose about 2 percent (after inflation) per year worked, 3 percent if they stayed with one employer for that time - enabling many to raise themselves out of poverty.
Welfare reform succeeded because it made going to work more attractive than going on welfare. Reauthorization of reform is being held up and threatened by the failure of many in Congress to recognize this point.
Some would tie reauthorization to an increase the ability of single mothers to substitute education and training programs for work experience. Such proposals sound good - and typically were the centerpiece of the failed welfare initiatives of the past -but they fly in the face of what we know about why welfare reform worked, in New York City and throughout the country.
June O'Neill, former director of the Congressional Budget Office, is professor of Economics at the Zicklin School of Business and director of the Center for the Study of Business and Government at Baruch College, CUNY.
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