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Backgrounder #1568 on Welfare and Welfare Spending

July 12, 2002

Why Successful Welfare Reform Must Strengthen Work Requirements

By and

As Congress considers reauthorization of welfare reform, work requirements have emerged as a key issue of debate. The 1996 Personal Responsibility and Work Opportunity Reconciliation Act (Public Law 104-193) replaced the failed Aid to Families with Dependent Children (AFDC) system, which had trapped millions of families in poverty, with a new Temporary Assistance for Needy Families (TANF) program. The core of TANF was a system of strong federal work standards that required welfare recipients to work and make progress toward self-sufficiency.

The success of this work-based welfare reform has been astounding. The number of people dependent on welfare has plummeted from 14 million in 1994 to just 5 million today. Because this decline in welfare caseloads has been matched by an unprecedented increase in work among poor single mothers, the child poverty rate has dropped sharply as well. After six years since passage of this welfare reform legislation,

  • Just 8.6 percent of families are in poverty--the lowest rate ever;
  • The poverty rate for families headed by single mothers is the lowest ever (see Chart 1);
  • The poverty rate for black children is the lowest ever (see Chart 2); and
  • A total of 5.5 million people, including 3 million children, have risen out of poverty. 1

Despite the stunning success of work-based programs in moving families into self-sufficiency and reducing poverty, many of those on welfare have been excluded from work requirements. Chart 3 shows that 34 percent of adults on TANF worked in 2000, leaving millions of people unable to progress toward self-sufficiency. 2

President George W. Bush has tried to reduce the number of families that are falling through the cracks of welfare reform by calling on Congress to strengthen TANF's work requirements. (See Table 1.) Under his plan, which passed the House of Representatives mostly intact, 70 percent of the adults in TANF would have jobs with 40-hour workweeks by 2007. 3

Unfounded Opposition

Many in Congress have spoken out against extending these successful work requirements to the remaining welfare caseload. For example, Representative Benjamin Cardin (D-MD), the ranking Democrat on the House Ways and Means Subcommittee on Human Resources, derides the President's proposal as "make-work programs." Senator John Breaux (D-LA) charges that the President's proposed policy would "do damage to state welfare programs." 4

With so many in Congress opposing policies to move welfare recipients into jobs, it is important to address the myths behind this opposition. This paper debunks the eight most common myths cited by opponents of welfare work requirements.

Myth: Education programs provide more opportunity and higher earnings than immediate work.

Fact: Those placed in immediate jobs see their earnings increase 122 percent more than those placed in education programs.

Critics of welfare reform often argue that long-term education programs will build up welfare recipients' job skills and open doors to higher-paying jobs in the long run. In contrast, proponents of work-based policies believe that jobs themselves provide the best training to move welfare recipients to independence.

The Manpower Demonstration Research Corporation (MDRC) addressed this debate by studying 11 different local welfare programs across the nation, which were divided into two groups: (1) programs delaying strict work requirements and instead spending resources on education, and (2) programs promoting immediate work, including permanent jobs, subsidized jobs, and community service work. The study found that the earnings of welfare recipients placed in education-based programs increased by a total of $1,317 over the next five years; however, the earnings of those placed in immediate work programs increased by a total of $2,928 over the next five years--122 percent more than those in education-based programs. (See Chart 4.)

The MDRC included studies that randomly divided welfare recipients from the same community into education-based and work-based groups. The results were consistent: In every city, the group placed in immediate work earned substantially higher earnings over the next five years. 5 Clearly, if welfare reform's goal is to bring welfare families into financial self-sufficiency, then moving welfare recipients into immediate work will be more successful than focusing on education.

Work-based programs outperform education-based and training-based programs for two reasons. First, for most welfare recipients, the lack of consistent work experience is the most common barrier to becoming employed; only work can provide that experience. Second, many welfare recipients do not achieve substantial benefits through education programs because they are historically poor classroom performers, often with learning disabilities that cannot be quickly or easily overcome.

Immediate work, by contrast, connects welfare recipients to the working world and provides work experience--a major step toward self-sufficiency. Those lacking work experience learn important traits such as punctuality, reliability, working with coworkers, and carrying out duties prescribed by employers. As these skills are mastered and the individual begins to build a résumé, earnings can increase enough to approach self-sufficiency. The MDRC studies show that work experience is more effective than additional time in a classroom in raising an individual's earnings.

Myth: Redirecting welfare recipients into job-training programs will significantly increase their hourly wage rates.

Fact: Job-training programs do not significantly increase hourly wage rates.

Just as some critics of welfare reform see education programs as a panacea, others argue that allowing welfare recipients to delay their entry into the workforce through lengthy job-training programs will substantially raise hourly wages. However, a nationwide study commissioned by the U.S. Department of Labor that surveyed 17,000 job-training applicants reveals that these programs provide a small return on the large investment they require. The study found that job-training programs, such as classroom training and on-the-job training, increase women's hourly wages by less than 3 percent and actually decrease men's hourly wages. 6

Job-training programs often fail because they are designed poorly. Yet even the best job-training programs cannot fully replicate real job situations; and like education programs, they cannot provide the work experience that must be built on to achieve self-sufficiency. The best job-training program is a job. 7

Myth: Employers will not hire welfare recipients.

Fact: Businesses are hiring welfare recipients and plan to hire more.

A nationwide survey of 700 businesses with higher-than-average numbers of entry-level positions shows sustained enthusiasm for hiring welfare recipients. 8 The survey found that 62 percent of the businesses had hired individuals who were currently on, or had recently left, the welfare rolls. (An even stronger majority--79 percent--was found among medium-sized companies with between 21 and 99 employees.)

In addition, the survey found that three-fourths of these businesses were satisfied with these workers and that an impressive 94 percent planned to hire more welfare recipients. Among the 38 percent who had not hired a welfare recipient for an entry-level position, 82 percent reported that they planned to do so within a year. The lesson is clear: Businesses will hire welfare recipients who are willing to work.

Myth: Employers will hire only those welfare recipients who have received education and training.

Fact: Employers rate a positive attitude and reliability as the most important traits for entry-level jobs.

A survey asked employers to name the three most important traits they seek when hiring for entry-level jobs. The most popular answers were:

  • Positive work attitude (66 percent),
  • Reliability (66 percent),
  • Work ethic (39 percent), and
  • Punctuality (31 percent).

At the bottom end, by contrast, were:

  • Prior experience (12 percent) and
  • Specific job-training (4 percent). 9

Just 25 percent of the employers surveyed require that their workers have a high school degree or GED, while 14 percent require trade skills and 10 percent require computer skills. The skills employers value most, such as a positive work ethic, reliability, and punctuality, cannot be taught in a classroom or as part of a job-training program; rather, they are acquired through firsthand work experience. 10 Therefore, permanent jobs, temporary jobs, and publicly funded community service work will better prepare welfare recipients for careers than education and training programs.

Myth: All employable welfare recipients have already left the system, leaving only unemployable cases.

Fact: Many of those who remain on welfare are even more employable than those who have left.

The 63 percent decrease in welfare caseloads since 1994 has left many policymakers believing that the final 37 percent of individuals remaining on welfare must have significant barriers to work that would render additional work requirements ineffective. The most often cited barriers to work include serious physical or mental disabilities, inability to speak English, lack of transportation, and vital caretaker responsibilities.

Despite these concerns, however, the majority of remaining welfare recipients are work-ready. An Urban Institute study published in April 2001 showed that those remaining on welfare were even more work-ready than those who had left. 11

Despite the work-readiness of the caseload, only 34 percent of adults on TANF worked in 2000. 12 The nonworking include not only those with substantial barriers to work, but also those with one or zero barriers. In 1999, among welfare recipients classified without any barriers to work, 56 percent actually worked; among welfare recipients with just one barrier to work, 33 percent worked. 13 The TANF system clearly needs to do a better job of moving the most work-ready welfare recipients into jobs. Strengthening work requirements will remedy that problem.

Wisconsin's welfare reforms prove that moving the final welfare recipients into work does not need to be more difficult than moving the first ones. In January 1987, Wisconsin's welfare caseload had exceeded 100,000 families for the first time in the state's history. A series of innovative work-based welfare reforms initiated by then-Governor Tommy Thompson reduced the caseload to 34,491 by 1997.

Then, instead of categorizing the remaining caseload as "unemployable," Wisconsin established new work requirements for them as part of the new Wisconsin Works (W-2) program. The remaining individuals thrived under the new work requirements. The vast majority were placed in jobs where they earned enough income to escape poverty, and the state's caseload plummeted even further to just 9,562. 14

Myth: Those with low work skills and other personal employment barriers cannot work.

Fact: Individuals with these challenges have benefited the most from work-based programs.

Factors commonly cited as barriers to work--including having young children, housing instability, drug or alcohol dependency, or low skills--are not insurmountable. Although welfare recipients who face these barriers are often considered unemployable, many individuals with these same obstacles are productive members of the workforce. Among those who are not on welfare, 85 percent of the individuals who face serious barriers to work have jobs, and 67 percent of these workers remain employed year-round. 15 Even disadvantaged individuals on welfare can work.

In fact, these disadvantaged welfare recipients are the most helped by work. Returning to the earlier study of work-based versus education-based programs, the largest benefits of work-based programs were enjoyed by those without a high school diploma or GED. The earnings of individuals in that group who were placed in education-based programs increased by a total of $1,230 over the next five years, but the earnings of those in work-based programs increased by a total of $2,859 over the next five years--132 percent more. (See Chart 5.)

Those considered among the most disadvantaged have been the chief beneficiaries of welfare reform. Since 1992, the largest gains in employment have been among those who:

  • Were never-married mothers,
  • Were between ages 18 and 24,
  • Were black or Latino,
  • Had children under age 7, and
  • Lacked a high-school diploma. 16

Myth: Welfare reform's success is measured in terms of those who have left welfare for work.

Fact: The success of welfare reform can also be shown by the number of individuals who never entered the system.

Often, policy analysts measure the success of welfare work requirements solely by the number of individuals who have left the welfare system. While those figures are important indicators of success, consideration should also be given to the hundreds of thousands of families for whom reform meant they never had to enter the welfare system.

Welfare offices across the nation have embraced the concept of diversion, whereby caseworkers put families on a track to self-sufficiency without having to enroll them in the welfare system. Caseworkers help these families through assisted job searches, short-term loans, career counseling, and benefits to support work such as child-care and transportation assistance. While the accomplishments achieved by former welfare recipients are to be praised, even they understate the true success of work-based welfare reform.

Myth: Parents need high hourly wage rates to escape from poverty.

Fact: Generous government wage supplements ensure that single parents will have incomes well above poverty levels, even if they work at minimum-wage jobs.

It is often argued that for welfare parents to escape from poverty, they need to receive education and training that will enable them to obtain higher-wage jobs. There are two problems with this argument. First, most education and training programs do not raise hourly wage rates to any substantial degree. Second, because the government provides an extensive array of programs to supplement earnings, parents who work consistently, even at low wages, will have incomes well above the poverty level.

As Chart 6 shows, a single mother with two children who works full-time at a minimum-wage job throughout the year will typically receive benefits that could nearly double her income. For example, in one scenario, such a mother would receive $9,512 in wages (after Social Security taxes were deducted); but she would also receive $4,008 from the Earned Income Tax Credit (EITC), $2,282 in food stamps, $376 in school lunch subsidies, and $2,234 in Medicaid assistance, bringing the total family income to $18,412. This income is one-third above the poverty level for a family of three ($13,874 in 2002). Most former welfare mothers earn more than the minimum wage; wages of $7.00 per hour are typical. After taking into account the wage supplements mentioned above, a single mother working full-time at $7.00 per hour would have an annual income of $19,633--40 percent above the poverty level.

Nearly all low-wage parents are eligible for the supplemental government benefits shown in Chart 6. While it is true that not every family that is eligible for these programs actually receives benefits, participation in these programs is extensive. Approximately 90 percent of low-wage single parents receive the EITC and food stamps.

Enrollment by eligible families in Medicaid is less common, but many low-income parents understand that they do not need to be pre-enrolled in Medicaid to obtain assistance. An eligible family can obtain Medicaid coverage at the time medical services are specifically needed. Therefore, lower enrollment levels for Medicaid do not mean that low-income families will not receive assistance for medical care when they need it.

Conclusion

In shaping TANF policy for the next five years, legislators should bear in mind four fundamental facts.

Reducing unnecessary entries into welfare programs helps families move toward self-sufficiency and financial independence. In most cases, both the short-term and long-term incomes of families will be significantly enhanced if parents avoid welfare dependence and remain in the labor force. Diversion strategies that help families avoid unnecessary spells of welfare dependence are among the most effective anti-poverty tools.

To move out of poverty, TANF recipients must be engaged in constructive work-related activities. Today, however, a substantial portion of TANF recipients are idle on the welfare rolls; this idle dependence undermines prospects for long-term financial success.

Policies that focus on work-related activities such as community service work and job search produce far greater gains in earnings than are produced by classroom training.

The government actively supplements the wages of low-income working parents through programs such as the Earned Income Tax Credit (EITC), food stamps, the school lunch program, and Medicaid. Because of these wage supplement programs, most single parents who work full-time will have total incomes well above the poverty level even if they have hourly wages in the $5.00 to $7.00 range.

With welfare reform still moving through the legislative process, it is critical that policymakers be guided by the principles that made the 1996 TANF reforms the most successful social policy reform of the past half-century. Simply put, work is the only way to escape the cycle of poverty, and work requirements must be enforced if they are to play a meaningful role in helping welfare dependents to become self-sufficient. To ignore these premises is to return to the failed policies of the past that trapped millions of families in a state of dependency.

Brian M. Riedl is Grover M. Hermann Fellow in Federal Budgetary Affairs in the Thomas A. Roe Institute for Economic Policy Studies, and Robert E. Rector is a Senior Research Fellow, at the Heritage Foundation.

Show references in this report

1. U.S. Bureau of the Census, 2000 United States Census, Historical Poverty Tables 2, 4, 13, and 15, at http://www.census.gov/hhes/poverty/histpov/perindex.html

2. U.S. Department of Health and Human Services (HHS), Temporary Assistance for Needy Families Program (TANF) Fourth Annual Report to Congress, April 2002, at http://www.acf.dhhs.gov/programs/opre/director.htm#ann2000.

3. The House of Representatives passed H.R. 4737, the Personal Responsibility, Work and Family Promotion Act, on May 16, 2002, by a vote of 229-197.

4. Robert Pear and Robin Toner, "Republicans Rally Behind Welfare Proposals That States Oppose," The New York Times, April 11, 2002.

5. Stephen Freedman et al., "National Evaluation of Welfare-to-Work Strategies," Manpower Demonstration Research Corporation, prepared for U.S. Department of Health and Human Services, November 2001, at http://www.mdrc.org/Reports2001/
NEWWS_FinalReport/NEWWS_FinalReport_ES.pdf
.

6. Howard S. Bloom, Larry L. Orr, George Cave, Stephen H. Bell, and Fred Doolittle, "The National JTPA Study," Abt Associates, prepared for the U.S. Department of Labor, January 1993, p. 6.

7. Additionally, providing welfare recipients with more training and preparation for better jobs than the working poor can access would create a perverse incentive for working poor families to enter the welfare system.

8. Marsha Regenstein and Jack Meyer, "Job Prospects for Welfare Recipients: Employers Speak Out," Urban Institute, July 1998.

9. Ibid.

10. Reliability and punctuality can also be affected by factors such as child care and available transportation, which is why it is important for states to continue addressing these issues for welfare recipients.

11. Sheila R. Zedlewski and Donald W. Alderson, "Before and After Reform: How Have Families on Welfare Changed?" Urban Institute, April 2001. Of the 6 categories of work barriers cited, the only statistically significant change in the first two years of welfare reform was the barrier of "last worked more than 3 years ago." The percentage of the caseload with that barrier actually decreased from 42 to 27 percent, leaving the caseload overall more work-ready.

12. HHS, Temporary Assistance for Needy Families Program (TANF) Fourth Annual Report to Congress."

13. Zedlewski and Alderson, "Before and After Reform: How Have Families on Welfare Changed?"

14. Wisconsin Department of Workforce Development, Survey of Those Leaving AFDC or W-2: Preliminary Report, January 1999, and data provided by Wisconsin Department of Workforce Development's Bureau of Welfare Initiatives.

15. Krista Olson and LaDonna Pavetti, "Personal and Family Challenges to the Successful Transition from Welfare to Work," Urban Institute, May 17, 1996, p. 21.

16. June E. O'Neill and M. Anne Hill, "Gaining Ground? Measuring the Impact of Welfare Reform on Welfare and Work," Manhattan Institute Civic Report No. 17, July 2001, pp. 8-14.

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