During the past three years, national
caseloads in the Temporary Assistance to Needy Families (TANF)
program have fallen by 37 percent. Welfare rolls in the TANF
program (formerly called Aid to Families with Dependent Children,
or AFDC) dropped from 4.73 million families in June 1995 to 2.98
million in June 1998. However, the overall
national decline masks enormous variation in reductions among the
states, ranging from an 84 percent drop in caseload in Wisconsin to
a 7.4 percent increase in Hawaii.
Considerable debate has emerged concerning
the causes of the large-scale caseload decline, with some analysts
arguing that declines are driven by policy changes and others
favoring strong economic growth as the principal factor. This CDA
analysis examines the factors behind the wide variation in
declining state TANF program participation.
We
find that differences in state welfare policies--specifically
stringent sanctions and immediate work requirements--are highly
associated with rapid rates of caseload decline. By contrast, the
relative vigor of state economies, as measured by unemployment
rates, has no statistically significant effect on caseload decline.
Indeed, states with higher caseload reductions, on average, had
slightly higher unemployment rates.
Many
analysts express concern that large declines in welfare dependence
may lead to large increases in child poverty. However, the data
show that the decline in the national AFDC/TANF caseload has not
resulted in an increase in child poverty. When the Earned Income
Tax Credit, food stamps, and other means-tested benefits are
counted as income, the child poverty rate now stands at 13.8
percent, the lowest rate since 1980.
ANALYSIS OF
CASELOAD REDUCTION
To
analyze caseload reduction, we began by assigning states to four
different categories based on their sanctioning procedure:
-
Initial full-check
sanction--States that have the option of sanctioning the
entire TANF check at the first instance of non-performance of or
non-compliance with required work or other activities.
-
Delayed full-check
sanction--States that generally have a sequence of
progressively more severe sanctions. But these states will sanction
the full TANF check only after a number of months of non-compliance
or repeated performance infractions.
-
Moderate
sanction--States that may sanction more than a third of
the TANF check or the full check in certain circumstances.
-
Weak sanction--States
that sanction only the adult portion of the TANF check, except in
unusual circumstances. This enables recipients to retain the bulk
of their TANF benefits even if they fail to perform workfare or
other required activities.
Chart 1 provides
preliminary data on the effect of sanctioning on recent caseload
decline. States with initial full-check sanctioning had an average
caseload decline of 41.8 percent over the 18-month period between
January 1997 and June 1998. By contrast, states with delayed
full-check sanctions had an average caseload decline of 28.3
percent, while states with weak sanctions had a decline of only
17.3 percent during the same period.
Next, we analyzed the state's timing of
work requirements, or the "work trigger time limit." The national
TANF law requires all recipients to engage in work, as defined by
the state, after 24 months on the rolls. However, many states
require loosely defined "work activities" at an earlier date. To
measure the variation, we created a second variable called the
immediate work requirement. States with an
immediate work requirement formally require "work activity" upon
enrollment.
These welfare policy variables are quite
broad; within each category, there is considerable variation in
actual program operation. More detailed information, which would
allow the policy categories to match the specifics of program
operation more closely, undoubtedly would enhance the predictive
capacity of these variables.
State Data
Table 1 summarizes
the information for the 50 states and the District of Columbia
regarding type of sanction, timing of formal work requirements,
average unemployment rate, and percentage of caseload decline
during the 18-month period.
Table 2 ranks the
50 states and the District of Columbia according to caseload
decline between January 1997 and June 1998, and notes their type of
work sanction. The states are grouped into five categories of
caseload decline:
-
Highly Successful-The
10 states with the highest levels of caseload reduction, ranked #1
through #10.
-
Above Average-The 10
states with the next highest levels of caseload reduction, ranked
#11 through #20.
-
Average-The middle
group of 10 states, ranked #21 trough #30.
-
Below Average-The next
lowest 10 states, ranked #31 through #40.
-
Poor-The 11
jurisdictions that have the lowest rate of caseload decline (10
states plus the District of Columbia), ranked #41 through #51.
Two
relationships in Table 2 are quite apparent. The first is the
clustering of states with initial full-check sanctions in the top
two groups, "Highly Successful" and "Above Average." The second, an
even more obvious relationship, is the clustering of states with
weak sanctions (affecting only the adult portion of the check) into
the bottom or "Poor" performance category. The table reveals no
clear linkage between unemployment rates and caseload decline.
Bivariate Correlations of Economic,
Caseload, and Policy Variables
We
began our statistical analysis by examining simple bivariate
correlations between economic, policy, and caseload variables as
shown in Table 3.
The first important piece of information obtained from this
analysis is the lack of strong correlation between caseload decline
and unemployment; the weak correlation that does exist (.013) is
actually the reverse of the expected association. The correlation
shows that states with higher rates of caseload reduction in
general actually had higher rates of unemployment than less
successful states.
Substantial positive correlations are
shown between caseload reduction and initial full-check sanctions
(.496) and immediate work requirements (.314). By contrast, there
is a strong negative relationship (-0.468) between weak sanctions
and caseload reduction: States with lenient sanctions have less
caseload decline. Finally, there is a positive correlation (.302)
between a state having a weak sanction and higher unemployment.
Regression Analysis
To
complete the assessment, we performed a regression analysis to
estimate the magnitude of the effect of policy and economic
variables on caseload decline. The dependent variable is the
percentage caseload decline over 18 months. The independent
variables are initial full-check sanction, delayed full-check
sanction, moderate sanction, weak sanction, immediate work
requirement, and average state unemployment during the 18-month
period.
Table 4 summarizes
the results of the regression. The independent variables of initial
full-check sanction, delayed full-check sanction, and immediate
work requirements were shown to have a strong and statistically
significant effect on caseload reduction. By contrast, unemployment
had a weak and statistically insignificant effect on caseload
reduction. The sign of the unemployment variable was the opposite
of the expected direction, indicating that--as stated
previously--states with higher caseload reduction, on average, had
slightly higher unemployment rates than states with lower caseload
reductions. The R Square of the
regression is .410, indicating that the model is able to explain
about 40 percent of the variation in state caseload decline.
The
coefficient figures in Table 4 show the effect of the policy
variables when compared with the default condition that represents
a state with weak sanctions and no immediate work requirement. The
analysis shows that:
-
States with an initial full-check
sanction will, on average, have a caseload reduction rate that is
25 percentage points higher than states with weak sanctions.
-
States with a delayed full-check
sanction will tend to have a caseload reduction rate that is 14
percentage points higher than states with weak sanctions.
-
States with a formal immediate work
requirement will, on average, have a caseload reduction rate that
is 11 percentage points higher than states without such a
requirement.
The
overall effects of the model are summarized in Chart 2. Assuming an
unemployment rate of 4.5 percent, a state with weak sanctions and
no immediate formal work requirement has a predicted caseload
reduction of 14.2 percent during the 18-month period. By contrast,
in the same employment conditions, a state with initial full-check
sanctions and immediate work requirements has a predicted caseload
reduction of 49.9 percent, more than three times higher than the
state with lenient reforms.
WHY WORK REQUIREMENTS REDUCE
DEPENDENCE
The
above data indicate the effectiveness of work requirements,
enforced by meaningful sanctions, in reducing dependence. There are
several reasons why work requirements may have this effect:
-
Eliminating fraud. A
small number of the AFDC/TANF cases represent simple fraud--cases
in which a single household is receiving multiple welfare checks
under different names or the recipient household never actually
resided in the locality. Because such "phantom" recipients cannot
show up at a workfare site or welfare office on a daily basis, a
work requirement, coupled with a full-check sanction for
non-compliance, will quickly remove these cases from the rolls. By
contrast, under a lenient sanction system, such fraud cases are
likely to remain on the welfare rolls indefinitely, albeit with a
slightly reduced monthly payment.
-
Uncovering unreported
earnings. A more common form of fraud is for the welfare
recipient to have a job and earnings that are not reported to the
welfare office. By concealing income, individuals are able to
obtain welfare payments to which they are not lawfully entitled.
Surveys indicate that over one-third of AFDC/TANF households have
sources of income that they have failed to report to the welfare
office. Serious work
requirements make it difficult for individuals to receive AFDC
benefits and simultaneously work at unreported jobs: It is
virtually impossible for recipients to participate in daily
activities assigned by the welfare office while continuing their
concealed employment. If the welfare work requirements are enforced
by a serious sanction affecting the whole TANF check, the recipient
generally will be forced to choose between welfare dependence and
reliance on earnings. Many simply will leave welfare and begin to
rely more fully on employment for support. On the other hand, if a
state employs only lenient sanctions for non-compliance with
required activities, the most likely outcome is that recipients
will continue on welfare, receiving slightly reduced welfare
benefits which they will combine with earnings from the
still-unreported job.
-
Reducing incentives for
idleness. Under the traditional AFDC system, benefits were
bestowed as an unconditional entitlement with no requirement that
recipients undertake constructive behavior. When serious work
requirements are put in place, welfare is transformed from a
one-way handout to a system of reciprocal contribution. Under such
a system, aid is given, but in exchange the recipient is expected
to perform community service work or to undertake other significant
steps toward self-sufficiency, such as a supervised job search or
on-the-job training. Work requirements thus eliminate the
recipient's option to receive free income from welfare; this, in
turn, reduces the economic utility or attractiveness of welfare for
the recipient compared with other alternatives, such as obtaining a
private-sector job or relying on family and friends for
support.
Because work requirements reduce the
economic attractiveness of being on welfare, it is not surprising
to see the number of exits from the welfare rolls increasing
sharply and the number of new enrollments declining. However, if a
state enforces work requirements with only lenient sanctions, the
recipient, by and large, is able to continue receiving a free
income from welfare without working; the economic utility of
welfare is affected only marginally, and there is little incentive
for the recipient to leave welfare to obtain a private-sector job.
Consequently, with only lenient sanctions in force, caseloads will
decline slowly.
-
Preparing for the real world of
employment. Unlike welfare, real employment is seldom a
one-way handout. In the private sector, employees who do not
regularly perform assigned duties will not receive pay or maintain
employment. When a welfare system requires community service work
or other constructive activity and enforces those requirements with
stiff sanctions for non-compliance, it creates an environment that
will prepare the recipient for the real world of work. Under such a
system, recipients are held accountable for their own actions and
thus learn the habits of self-control, responsibility, and
persistence, which are the hallmarks of eventual self-sufficiency.
Thus, the work requirement provides the psychological preparation
necessary for reducing dependence.
-
Sending a positive symbolic
message. One of the key elements of national welfare
reform has been to send a strong symbolic message to welfare
recipients and potential recipients that society expects them to
engage in work and to strive for self-sufficiency. Efforts to
reduce dependence are, in a large measure, contingent on how
seriously recipients regard this social message. States with
serious work requirements and strong sanctions for non-compliance
send a clear signal that the expected goals of work and
self-sufficiency are very real. States with lenient sanctions send
exactly the opposite message; in those states, recipients are
informed implicitly that the entitlement nature of welfare has not
really ended; that they will not really be held accountable for
their own actions; and that the demand for self-sufficiency is more
rhetorical than real. Thus, lenient sanctions sap the motivation
that is necessary to overcome the debilitating habits of
dependence.
WHY REDUCING
DEPENDENCE IS CRITICAL
Evidence from other studies indicates that
reducing dependence is vitally important both to recipients and to
society.
Some
analysts argue that being on AFDC as a child has harmful effects on
a child's development that are carried on into adulthood. The
negative effects of dependence become clear in comparisons of women
who as children lived in families receiving AFDC and similar women
who did not but who otherwise were identical in race, family
income, family structure, IQ, and childhood residence. One study
comparing these two groups, co-authored by Dr. June O'Neill, the
former Director of the Congressional Budget Office, found that the
women who received AFDC as children:
-
Were almost twice as likely to become
high school dropouts;
-
Spent some 200 percent more time on
welfare as adults; and
-
Were some 50 percent more likely to
have a child out of wedlock.
Some
other analysts would argue that these negative effects are the
result of poverty, not earlier welfare dependence. But the
comparison is between women who had identical levels of family
income in childhood. Thus, the negative behavioral effects cannot
be explained by poverty, but are the direct result of welfare
dependence.
O'Neill and Anne Hill also found that the
longer a child spends in the welfare system, the lower the child's
IQ compared with children who are identical in race, income, and
other social and economic factors. In examining young children
(with an average age of 5.5 years), O'Neill and Hill found that
those who had spent at least two months of each year, since birth,
on AFDC had cognitive abilities 20 percent below the cognitive
abilities of those who had received no welfare--even after holding
constant such variables as family income, race, and parental
IQ. Again, the authors make
it clear that it is not poverty but welfare itself that has a
damaging effect on the child.
A
similar study by Mary Corcoran and Roger Gordon of the University
of Michigan found that the receipt of welfare income has negative
effects on the long-term employment and earnings capacity of young
boys. Holding constant the
variables of race, parental education, family structure, and a
range of other social variables, higher non-welfare income obtained
by the family during a boy's childhood was associated with higher
earnings when the boy became an adult (over age 25). However,
welfare income had the opposite effect: The more welfare income
received by a family while a boy was growing up, the lower the
boy's earnings as an adult. The study suggests that an increase of
$1,000 per year in welfare income received by a family would
decrease a boy's future earnings by as much as 10 percent.
It
is important to note that the Corcoran and Gordon study compares
families whose average non-welfare incomes were identical. In such
cases, each extra dollar in welfare represented a net increase in
overall financial resources available to the family. This extra
income, according to conventional welfare theory, should have
positive effects on the well-being of the children. But the study
shows that the extra welfare income, even though it produced a net
increase in resources available to the family, had a negative
impact on the development of young boys within the family. The
higher the welfare income of the family, the lower the earnings
obtained by the boys upon reaching adulthood. Thus, the long-term
well-being of the child is improved if the family is off welfare,
even if this means lowering the family's income.
CONCLUSION
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.
There also has been widespread concern
expressed that large declines in welfare dependence would lead to
large increases in child poverty. In reality, decreases in
dependence have beneficial effects on children's long-term
development, even if they are accompanied by decreasing family
income. However, the fall in the national AFDC/TANF caseload has
not resulted in an increase in child poverty. When the Earned
Income Tax Credit, food stamps, and other means-tested benefits are
counted as income, the child poverty rate now stands at 13.8
percent, the lowest rate since 1980.
Robert E.
Rector is Senior Policy Analyst in Welfare and Family
Issues and Sarah E. Youssef is a former Research Assistant in
Economic and Domestic Policy Studies at The Heritage
Foundation.
APPENDIX A:
Change in AFDC Caseload in 50 States and D.C.
(Alphabetical Order)
APPENDIX B:
Change in AFDC in 50 States and D.C.
(Rank Order)
