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Welfare Reform Worked
By June O'Neill
Five years ago today Congress put its final seal on welfare reform. Critics feared the worst. Defenders of the status quo were alarmed that lawmakers had not only imposed a work requirement on recipients, but restricted welfare benefits to five years.
"We know how welfare reform will turn out," warned an article in the New Republic after President Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act. "Wages will go down, families will fracture, millions of children will be more miserable than ever."
Five years later, the prophets of doom have been proved wrong. The proportion of single mothers on welfare has plummeted, while their employment rates have soared. Strikingly, these changes have been most pronounced for the least-advantaged women. But the big question is whether these developments are attributable to the reforms or are mainly a byproduct of the corresponding economic boom.
In a new study prepared for the Manhattan Institute, economist M. Anne Hill and I conducted an extensive analysis of available data. We conclude that welfare reforms in fact were the major factor, causing both the decline in welfare participation and the increase in work.
The 1996 reforms aimed to reduce the number of families receiving welfare benefits -- and that has happened. Between August 1996 and September 2000 (the date for the most recent statistics), the number of families on welfare declined by 50%. True, the unemployment rate over that period declined to 4% from 5.5%. But during the economic expansion of the 1980s the welfare caseload remained stable while the unemployment rate dropped to 5.3% in 1989 from 9.6% in 1983.
When we looked at the welfare participation of single mothers -- the predominant group of welfare recipients -- we found that all subgroups of single mothers reduced their welfare participation after welfare reform. The effect was more pronounced for high-school dropouts, black and Hispanic mothers, mothers of young children, and women who were never married. These were the groups that had the greatest propensity to be long-term welfare recipients, and more strongly affected by the reforms.
Contrary to fears, these vulnerable mothers have been finding jobs. Between 1996 and 2000, the proportion of all single mothers who are employed increased to 73% from 63%. But the increase for those who are high-school dropouts jumped even more dramatically -- to 50% in 2000 from 36% in 1996. Similarly huge employment gains were registered by black mothers (to 67% from 50%) as well as for Hispanic mothers, never-married mothers and mothers of young children.
These trends are suggestive, but not conclusive. To provide more rigorous analysis -- and to control for changes in unemployment as well as other factors -- we examined data from the U.S. Current Population Survey to track the welfare and work patterns of 80,000 single mothers over the period from 1983 to 2000. We used results from this multiple regression analysis to estimate the contributions of the reforms and the economy, as measured by the decline in unemployment, to the changes in welfare and work participation.
The booming economy of the late 1990s accounts for some of these gains, but not nearly as much as welfare reform. We find that the economy accounts for less than 20% of the changes in either welfare or work participation rates since the passage of welfare reform in 1996. Welfare reform, by contrast, accounts for more than half of the decline in welfare participation, and for more than 60% of the rise in employment among single mothers.
Welfare reform also contributed relatively more than the economy to the employment rates of the least advantaged. For example, reform accounts for an extraordinarily high 83% of the employment increase among single black mothers.
Why have the 1996 reforms worked, when three decades of prior reform efforts failed? The answer is that the new reforms were the first to fundamentally change the incentives single women faced under federal welfare programs. Before 1996, the main federal welfare program -- Aid to Families with Dependent Children -- had been in place since the New Deal. Under that program, a single mother was eligible for cash and noncash benefits so long as she had low earnings and a child under the age of 18. Previous efforts to move recipients from welfare to self-sufficiency focused only on providing employment and job-training programs, but left the basic benefit guarantee intact.
The 1996 reform changed this dramatically. The law scrapped this old system, replacing it with an entirely new program -- Temporary Assistance for Needy Families. The five-year lifetime limit for benefits and the up-front mandatory work requirement -- the major features of the 1996 reform -- totally changed the incentives. The time limit meant single mothers could no longer depend on a guaranteed income for 10 years or more. And the work requirement sharply limited welfare recipients' discretionary time.
Some may worry that these gains will be undone if the economy declines. To answer that question we simulated the effects of a recession that raised the unemployment rate to the level of 1993 -- nearly 7%. With such a sharp rise in unemployment, we estimate that the welfare participation rate of single mothers will increase by only five percentage points from its 1999 level (to 20% from 15%) -- provided the provisions of the reform bill are maintained and enforced. That rate is still 15 percentage points lower than the welfare rate of 1993.
Can we sustain the success? This is now a live question, as Congress must vote to reauthorize the reforms within the next year. If lawmakers chip away at the time limits and weaken work requirements, welfare participation could again mount. Should lawmakers stay the course, however, there are reasons to be optimistic. An unprecedented number of single mothers are gaining work experience. As they do, their earnings, like those of other employees, will rise -- as will their access to unemployment benefits. This makes it even less likely they will relapse into welfare dependence.
These gains will likely be reinforced if the reauthorized welfare reform encourages current and coming generations of young, single women to postpone having a child and stay in school. We don't yet have numbers on this. But if these long-term changes do occur in the next few years -- and if employment gains are preserved -- welfare reform will truly have improved the lives of millions of Americans.
©2001 The Wall Street Journal
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