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The Effects of the Personal Responsibility and Work Opportunity Reconciliation Act on Working Families— Viewpoints | EPI

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Opinion pieces and speeches by EPI staff and associates.

THIS TESTIMONY WAS GIVEN BEFORE THE COMMITTEE ON EDUCATION AND THE WORKFORCE OF THE U.S. HOUSE OF REPRESENTATIVES ON SEPTEMBER 20, 2001. 

The effects of the Personal Responsibility and Work Opportunity Reconciliation Act on working families

by Heather Boushey

Chairman Buck McKeon and Members of the Committee:

My name is Heather Boushey. I am an Economist at the Economic Policy Institute in Washington, D.C. It is a great privilege to be here today to discuss the effects of the Personal Responsibility and Work Opportunity Reconciliation Act on working families.

There appear to be many positive developments since the passage of the Personal Responsibility and Work Opportunity Reconciliation Act in August of 1996. Welfare caseloads have dropped substantially, from 5.5% of the total U.S. population in 1994 to 2.1% in June 20001. Many former welfare recipients have entered the workforce, and poverty has fallen among children overall from 1993 to 1999.

But these developments shroud many disturbing realities for millions of current and former welfare recipients. Most former welfare recipients are not working full-time or full-year. Most are earning between $6.00 and $8.00 per hour (Acs and Loprest 2001; Administration for Children and Families and Office of Planning Research and Evaluation 2000; Brauner and Loprest 1999; Freedman et al. 2000; Loprest 1999; Loprest 2001; Parrott 1998), a wage insufficient to enable them to provide for their families. And although the poverty rate has declined overall, it has increased among working families, particularly those headed by single mothers. For those families that were already poor, poverty in the last several years has deepened (Primus and Greenstein 2000).

In order to review all of the evidence available to us, we must first be clear about the stated goals of welfare reform and how we measure its success. Caseload reduction is not an adequate measure of success, nor is the proportion of former welfare recipients who are employed “at any time” after leaving welfare. We must look behind these numbers to see if how families fare after leaving welfare.

Welfare families are, by definition, mostly headed by single mothers. The criterion for evaluating welfare reform’s success should be whether these mothers are able to find and maintain stable employment that pays enough for them to achieve a safe and decent standard of living for their families.

The strong economy caused caseload to fall, but not evenly
Welfare caseloads fell over the second half of the 1990s, but this was due in large part to the strong economy. Further, caseloads did not fall uniformly: big cities are now left with a larger share of welfare recipients.

The PRWORA was implemented during the longest boom in post-war history. Researchers have found that 40 to 80% of the fall in caseloads may be attributable to the boom, rather than the policy reforms. (See Council of Economic Advisors (1998); Wallace and Blank (1998); Ziliak, et al (1997) for a thorough review of this literature.) This has important implications for our thinking about TANF reauthorization as the US economy slides into recession. Strong labor demand played an important role in creating jobs for welfare recipients to move into; weakened labor demand in the future may make it more difficult for former welfare recipients to find or maintain employment.

Welfare caseloads are now increasingly concentrated in America’s cities (Brookings Institution 1999). As of 1999, nearly 60% of all welfare cases were in 89 large urban counties that accounted for only 33% of the U.S. population. This is an increase of 10 percentage points since 1994. As a result, ten urban counties now account for roughly one-third of all U.S. welfare cases (Katz and Allen 2001).

The drop in welfare caseloads is also not uniform across states. Between 1993 and 1999, caseloads in Oklahoma, Florida, Colorado, West Virginia, Mississippi, Wisconsin, Idaho, and Wyoming fell by 70% or more. However, caseloads in New Mexico, Hawaii, Rhode Island, New York, Nebraska, Alaska, Vermont, California, and the District of Columbia fell by less than 40%, California and New York, which accounted for 17% and 9% of the nation’s caseloads, respectively, in 1993, accounted for 22% and 12% of caseloads in 1999 (Administration for Children and Families and Office of Planning Research and Evaluation 2000).

The block grant structure implemented as a part of PRWORA may suit some states and communities better than it does others. As the distribution of welfare recipients becomes more concentrated, we must alter our allocation of funds accordingly.

Many (but not all) former welfare recipients are now working but few are escaping poverty
Across the country, between 40% and 70% of all former welfare recipients are working. Work has increased among welfare recipients and welfare leavers. In fiscal year 1994, only 8% of TANF adults were employed while receiving assistance. In fiscal year 1999, however, 28% were employed (Strawn, Greenberg, and Savner 2001). This is consistent with the fact that labor force participation has increased among single mothers (Blank and Schmidt 2000). Labor force participation increased by 9.6 percentage points among single mothers between 1989 and 2000, but increased much more slowly among married women. Further, women with a high-school degree increased their labor force participation by 6% over this period. Labor force participation remained relatively constant for higher-skilled women.

A single parent with two children needs about $30,000 to afford the basic necessities of life (Boushey et al. 2001). This is more than double the federal poverty line. Among former welfare recipients, however, mean earnings are only between $10,000 and $14,000 annually. This is often lower than the poverty line of $13,133 for a family of three of in 1998 (Strawn, Greenberg, and Savner 2001) (when most of these surveys tabulated their data) and well below the amount a family needs to purchase adequate housing, food, health care, child care, and other basic necessities.

Most of the research on what has happened to welfare leavers looks at leavers during the late 1990s. A few examples shows the limited range of results:

In New York City, a sample of 569 cases from 6,092 cases closed in November of 1997 yielded 126 cases with valid phone numbers. Of those 126 surveyed, 58% reported that they were supporting their families mainly through work. The median wage among respondents was $7.50 per hour. Thirty-seven percent of respondents had incomes above the poverty line.

In Maryland, a study using administrative data from government programs on welfare, child support, and unemployment insurance, found that 51% of former welfare recipients had positive earnings in the quarter after leaving welfare. Average wages for those working were $2,384 in the first quarter after leaving welfare and $2,439 in the second quarter, which annualizes to over $9,500, leaving the average family far below the poverty line.

In South Carolina, a study utilizing phone interviews and home visits for a randomly selected group of closed cases found that 65% were employed at the time of interview, earning an average hourly wage of $6.

In Washington state, a survey of those leaving TANF between April and August 1998 found that 71% of former recipients were employed with hourly wages averaging $8. Workers worked an average of 36 hours per week.

As former welfare women enter the labor market,
the implicit hope of the PRWORA is that they will eventually climb the job ladder. From prior research, we know that wage profiles for less-educated workers remain stagnant, even if earnings profiles slope upward. Most studies find that wages increase between 1% and 2.6% per year for low-skilled workers (Burtless 1995; Card, Michalopoulos, and Robins 1999; Moffitt and Rangarajan 1989)2. Less-educated workers experience little wage growth while working for the same employer and only limited gains — far less meaningful than for more-educated workers — when moving to a new employer (Connolly and Gottschalk 2000). Substantial proportions of workers actually experience real declines in wages while working for the same employer or after moving to a new employer (Gottschalk 2000).

Poverty and hardships have not been reduced among the kinds of families most affected by welfare reform
Recent data show that poverty has declined overall, although it has deepened for those who remain poor and has increased among “working families.” Most former welfare recipients do not earn wages that lift them above the poverty line: only 29% of those with earnings who had been on welfare in the previous year had wages above the official poverty line in 1998 (Sherman et al. 1998).

Although poverty was lower among almost every demographic group in 1999, it increased among single, working mothers. Before counting the benefits of government safety net programs, the poverty rate for people in working single-mother families fell from 35.5% in 1995 to 33.5% in 1999 (the latest year for which data is currently available). However, after counting government benefits and taxes, the poverty rate among people in working single-mother families was 19.4% in 1999, virtually the same as in 1995. The authors of a recent report on poverty conclude:

… after 1995, declines in the effectiveness of the safety net in reducing poverty among families headed by working single mothers offset the effect of the improving economy, halting the reduction of the poverty rate for these families and pushing those who remained poor deeper into poverty (Porter and Dupree 2001).

Further, people in families headed by working single mothers who were poor in 1999 are deeper in poverty than such families were in 1995. This is yet another piece of evidence indicating that former welfare mothers are having difficulties finding employment that helps them to escape poverty.

Many former welfare families are as likely to experience hardships after leaving welfare. Over one-third of families on welfare went without housing, food, or necessary medical care, compared to 29.8% of families who left welfare over a year ago. Families with a full-time worker were only slightly less likely to experience one or more of these hardships compared to current welfare families. Nearly one-quarter% of families who left welfare more than a year ago and had a full-time worker went without housing, food, or necessary medical care, while 29.9% of those in families that left welfare more recently did so (Boushey and Gundersen 2001).

Single parents should be able to adequately support their families
Much of the PRWORA explicitly addressed the high rates of single parenthood among poor families. Since the passage of this legislation, teen pregnancy rates have fallen. However, research cannot substantiate that this was due to changes in welfare policy, rather than other causes. What we do know is that 90% of former welfare recipients are mothers, and that the kinds of employment and earnings they can garner in the labor market will dictate our success as helping them transition from welfare-to-work.

During the 1980s, the gender wage gap narrowed substantially. The gap closed because, while real wages for both women and men fell, they fell more for men. As the economy heated up during the 1990s, however, the gender wage gap stopped narrowing and began stagnating. Right now, the gender wage ratio (that is, women’s wages as a percentage of men’s) among full-time workers is 81%. The ratio is even lower for parents: mothers’ earnings amount to less than two-thirds of fathers’ earnings.

This gender wage gap is not due to differences in the skills and attributes that women and men bring to the labor market. Among high-school educated, full-time workers, the gender wage gap is .79, the same as among college-educated full-time workers. Further, women are now more likely than men to attend and graduate from college. Pay inequality is due to something more than the attributes that women and men bring to the labor market. The pay gap remains, however, partly because of the high degree of segregation of women and men into different types of jobs.

Eliminating the gender pay gap would go a long way to helping families make ends meet. If single working mothers earned as much as comparably skilled men, their family incomes would increase by nearly 17%, and their poverty rates would be cut in half, from 25.3% to 12.6%.

Work supports
Much has been made of the increased attention to work supports in the PRWORA and in other areas related to welfare reform. The major areas of reform have been child care, health care, the EITC, food stamps, and housing.

The good news is that Congress has allocated more money to childcare programs. The total federal dollars available for child care have nearly doubled since the early 1990s; states may now use TANF monies for childcare expenditures. However, many problems remain. Only 12% of eligible families receive assistance through the Child Care and Development Fund (Layzer and Collins 2001; U.S. Department of Human Services 1999). Federal and state programs reach very few families with child care needs. Tax credits are too low to help families with child care costs. Head Start serves less than half of eligible children (Blank, Schulman, and Ewen 1999). Furthermore, child care quality is inadequate due to low pay for child care workers. Despite increased federal funding on child care over the past decade, wages for child care workers stagnated, resulting in continued problems with recruiting and retraining qualified teachers (Whitebrook, Howes, and Phillips 1998).

Many families who have moved from welfare-to-work cannot afford health care. If a working-poor family is not offered employer-based health care or cannot afford the plan offered, in most cases it cannot rely on governmental assistance for health coverage. In the typical state, a parent in a family of three earning over $7,992 (59% of the poverty guideline) is not eligible for Medicaid coverage (Guyer and Mann 1999). According to our family budget research, if a two-parent, two-child family tried to purchase a non-group health insurance plan, it would cost an average of $350 a month. Former welfare recipients-even those with a full-time worker in their family-have high rates of health-related hardships. They experience levels of health hardships similar to those of welfare families, and higher than those of poor families overall (Boushey and Gundersen 2001). Although the Children’s Health Insurance Program (CHIP) has been expanded, more than 6 million children are eligible, but are not enrolled in either CHIP or Medicaid3.

The welfare reform legislation did not recognize the large role of housing in the budgets of poor families. A recent report found that few of the states studied either had a separate housing allowance provided with connection to TANF or a specific provision for housing costs in the TANF benefit (Wright, Ellen, and Schill 2001). The report concludes that, “as a rule, the states reviewed in this study made no special provision for how sanctions imposed on clients for noncompliance with a TANF eligibility requirement would affect any payments made through TANF for housing costs” (Wright, Ellen, and Schill 2001, p. 46). Families are experiencing high rates of housing hardsh
ips as a result: among parents who recently left welfare, 28% report being unable to pay housing or utility bills4.

Conclusion

There is some good news, but for millions of current and former welfare recipients, economic well-being has not improved.

Falling caseloads are linked to the good economy. This progress will soon reverse course.

Even during the latter years of the boom, many families were unable to maintain stable, full-time employment.

Wages are too low to enable families to escape poverty and avoid material hardships.

Contractions of the safety net lead to higher poverty among people in working single mother families.

We have made progress on implementing work supports, but we have very far to go.

It’s unclear how possible increases in caseloads as the economy contracts will affect work support programs.

References
Acs, Gregory, and Pamela Loprest. 2001. Initial Synthesis Report of the Findings from ASPE’s “Leavers” Grants. Washington, DC: The Urban Institute.

Administration for Children and Families, and Office of Planning Research and Evaluation. 2000. Temporary Assistance for Needy Families (TANF) Program: Third Annual Report to Congress. Washington, DC: U.S. Department of Health and Human Services.

Blank, Rebecca, and Lucie Schmidt. 2000. “Work and Wages”. Paper presented at The New World of Welfare: Shaping a Post-TANF Agenda for Policy, Washington, DC, December.

Boushey, Heather, and Bethney Gundersen. 2001. Just Barely Making It: Hardships Experienced after Welfare. Washington, DC: Economic Policy Institute.

Boushey, Heather, Bethney Gundersen, Chauna Brocht, and Jared Bernstein. 2001. Hardships in America: The Real Story of Working Families. Washington, DC: Economic Policy Institute.

Brauner, Sarah, and Pamela Loprest. 1999. Where Are They Now? What States’ Studies of People Who Left Welfare Tell Us. Washington, DC: The Urban Institute.

Brookings Institution. 1999. The State of Caseloads in America’s Cities: 1999. Washington, DC: Brookings Institution, Center on Urban and Metropolitan Policy.

Connolly, Helen, and Peter Gottschalk. 2000. “Returns to Tenure and Experience Revisited: Do Less Educated Workers Gain Less from Work Experience?”

Council of Economic Advisors. 1998. Technical Reports: Explaining the Decline in Welfare Receipt, 1993-1996. Washington, DC: Council of Economic Advisors.

Freedman, Stephen, Daniel Friedlander, Gayle Hamilton, JoAnn Rock, Marisa Mitchell, Jodi Nudelman, Amanda Schweder, and Laura Storto. 2000. Evaluating Alternative Welfare-to-Work Approaches: Two-Year Impacts for Eleven Programs. Washington, DC: U.S. Department of Health and Human Services and U.S. Department of Education.

Gladden, Tricia, and Christopher Taber. 2000. “Wage Progression Among Less Skilled Workers.” In Finding Jobs: Work and Welfare Reform, edited by D. Card and R. Blank.

Gottschalk, Peter. 2000. “Wage Mobility Within and Between Jobs: How Prevalent is Downward Mobility?”. Paper presented at Low-Wage Employment, Earnings Mobility, and the Eurpoean-American Employment Gap, University of Aberdeen, November 17-18.

Katz, Bruce, and Katherine Allen. 2001. Cities Matter Shifting the Focus of Welfare Reform. The Brookings Review, Vol. 19, No. 3, pp. 30-3.

Loprest, Pamela. 1999. How Families that Left Welfare are Doing: A National Picture. Washington, DC: Urban Institute. http://newfederalism.urban.org/html/series_b/anf_b1.html

Loprest, Pamela. 2001. How Are Families that Left Welfare Doing? A Comparison of Early and Recent Welfare Leavers. Vol. Series B. Washington, DC: The Urban Institute.

Parrott, Sharon. 1998. Welfare Recipients Who Find Jobs: What Do We Know About Employment and Earnings? Washington, DC: Center on Budget and Policy Priorities.

Porter, Kathryn H., and Allen Dupree. 2001. Poverty Trends for Families Headed by Working Single Mothers: 1993 to 1999. Washington, DC: Center on Budget and Policy Priorities.

Primus, Wendell, and Robert Greenstein. 2000. Analysis of Census Bureau’s Income and Poverty Report for 1999. Washington, DC: Center on Budget and Policy Priorities. < http://www.cbpp.org/9-26-00pov.htm>

Sherman, Arloc, Cheryl Amey, Barbara Duffield, Nancy Ebb, and Deborah Weinstein. 1998. Welfare to What: Early Finding on Family Hardship and Well-Being. Washington, DC: Children’s Defense Fund.

Strawn, Julie, Mark Greenberg, and Steve Savner. 2001. Improving Employment Outcomes Under TANF. Washington, DC: Center for Law and Social Policy.

Wallace, Geoffrey, and Rebecca Blank. 1998. “What Goes Up Must Come Down? Explaining Recent Changes in Public Assistance Caseloads”. Paper presented at Welfare Reform and Macroeconomy, Washington, DC, November 19-20.

Wright, David J., Ingrid Gould Ellen, and Michael H. Schill. 2001. Community Development Corporations and Welfare Reform: Linkages, Roles, and Impacts. Albany, NY: Rockefeller Institute Press.

Ziliak, James, David Figlio, Elizabeth Davis, and Laura Connolly. 1997. “Accounting for the Decline in AFDC Caseloads: Welfare Reform or Economic Growth?”, 1151-97 1151-97. Madison, WI.

Endnotes

1These data are available at: < http://www.acf.dhhs.gov/news/stats/6097rf.htm>.

2 The exception is Gladden and Taber (2000) who find that once labor market experience is taken into account appropriately, there are no large differences in earnings growth between low-skilled and medium-skilled workers, despite differences in wage levels.

3 These data are available at: < http://www.childrensdefense.org/hs_genhlth_faqs.htm>.

4These data are available at: < http://www.childrensdefense.org/fair-start-welfaretowhat_2000.htm>.

Heather Boushey is an economist at the Economic Policy Institute.

[ POSTED TO VIEWPOINTS ON SEPTEMBER 27, 2001 ]