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Manhattan Institute

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Gaining Ground, Moving Up: The Change in the Economic Status of Single Mothers Under Welfare Reform


Gaining Ground, Moving Up: The Change in the Economic Status of Single Mothers Under Welfare Reform

March 1, 2003
Urban PolicyWelfare

In August 1996, President Clinton signed legislation that radically changed welfare in the United States. Under the Personal Responsibility and Work Opportunity Reconciliation Act of 1996, welfare would no longer be an entitlement. The traditional, open-ended Aid to Families with Dependent Children was replaced with Temporary Assistance to Needy Families. The new law imposed a five-year time limit on the collection of welfare benefits, and strict work requirements for adult recipients.

The decline in welfare dependency since then has exceeded even the most optimistic forecasts. Between August 1996 and December 2001, caseloads plummeted. The number of families on welfare declined by 52%. Among families headed by a single mother—the predominant category of recipients—the change was truly extraordinary. Between 1988 and 1993, the welfare participation rate of this group ranged between 30 and 35%. By 2000, it had fallen to 13%; and in 2001, despite the weakened economy, it declined to 10%.

In an earlier study, Gaining Ground: Measuring the Impact of Welfare Reform on Welfare and Work, we found that the decline in participation was shared by all groups of single mothers.[1] Moreover, single mothers with characteristics associated with welfare dependence, such as being a high school dropout or a never-married mother, were among those with the largest declines. We also found that increases in employment went hand in hand with the decline in welfare dependency—and that the 1996 reform played a major role in both trends, even after factoring in the effects of an expanding economy.

But as welfare participation declined to levels not seen since the early 1960s, many observers voiced concern that single mothers were earning too little to raise themselves and their families out of poverty. Women on welfare typically have less education than the general population; and if they have been on welfare for many years, and have little work experience, they are likely to start with low wages when they do go to work. Do they earn enough to compensate for the loss of benefits? Since earnings typically rise with work experience, the picture is expected to improve with time, raising income and thereby lifting many single mothers out of poverty. Does it? To what extent do these women have access to income from sources other than their own earnings—from other government programs (e.g., food stamps), from a partner, or from other family members?

This report addresses those questions using two kinds of national data: (1) comprehensive annual data on single mothers from the Current Population Survey (CPS); and (2) panel data from the Survey of Income and Program Participation (SIPP) that allow us to identify welfare leavers and track their progress over several years.

In Section I, we examine poverty rates for single mothers and their families, before and after welfare reform. We find that poverty declined to record lows in the post-welfare reform period for all groups of single mothers, including those from racial and ethnic minorities and those with limited education who had sharply reduced their welfare participation from relatively high levels. Using panel data restricted to welfare leavers, we also find that poverty declined among single mothers who left welfare after welfare reform, and that a woman’s likelihood of being poor continued to decline with the passage of time. In short, the poverty data show that single mothers substantially increased their incomes by leaving welfare and going to work.

In Section II, we detail changes in the work participation of single mothers and find that both the percentage employed and the intensity of employment increased dramatically in the post-reform period. We update and expand our earlier analysis of the determinants of work participation to include additional variables (such as the Earned Income Tax Credit) and again find that welfare reform was the most important factor explaining the rise in employment in the post-reform years, accounting for more than 40% of the employment gains.

In Section III, we examine the annual and hourly earnings of all single mothers as well as those who left welfare. We find that single mothers, on average, earned $11.60 per hour in 2001, considerably more than the minimum wage. In fact, only 4% of working single mothers earned at or below the minimum; and even among those who are high school dropouts, only 8% were at or below the minimum. More importantly, we find that mothers who leave welfare, like workers generally, earn more per hour for each year they remain at work, and their hourly pay is further enhanced for each year they stay with the same employer.

Finally, in Section IV, we examine inflation-adjusted changes in total income and its components for single mother households from 1993–2000. We find that the gain from increased earnings far outweighed the loss in welfare benefits, resulting in a 29% rise in single mothers’ own cash income between 1993 and 2000, even after averaging in those reporting zero cash income. Similar gains were experienced by single mothers at all levels, even those who had dropped out of high school.

Most single mothers have recourse to additional sources of income, in the form of non-cash benefits and the income of those with whom they share their households. About half of single mothers live with a male partner or other adults, and close to 90% receive additional income from the EITC and/or non-cash benefits such as food stamps. Income from those additional sources (net of taxes) boosted the income available to single mothers by 59% in 2000. That more complete measure of income had increased by 26% between 1993 and 2000, reaching $36,000 in 2000.[2]

Viewed by their position in the income distribution, single mothers in the second lowest income quintile, the quintile with the largest proportion on welfare before welfare reform (two-thirds were on welfare in 1994), experienced large increases in income, moving from an average of 10% above the poverty level before 1995 to an average of 32% above in 1995–2001 (based on full household income). As explained below, the reporting of income in the lowest quintile is erratic. But nonetheless, the full post-tax household income of the poorest 20 percent of single mothers, which was generally below or just at the poverty level between 1988 and 1995, rose to an average of 9% above that level between 1996 and 2001.

When we track changes in the total household income of those mothers who left welfare in the years since 1996, we find further evidence of progress. Before leaving welfare the incomes of these women ranged from about 10 to 40% above the poverty level. By the end of the second year after leaving welfare their incomes were 50 to 70% above poverty.

In sum, we find that the economic well-being of single mothers improved substantially after welfare reform. By sharply restricting the option of long duration income support and requiring work while on welfare, the reform measures provided strong inducement to leave welfare and go to work. Once in the work force, these women earned enough to raise their incomes significantly, despite the loss in welfare benefits. They also found that the longer they remained in the work force, the better their economic status became.

The large numbers of women who have left welfare in recent years have greatly improved their life chances. Many started with serious disadvantages. But they are gaining ground and moving up the economic ladder.