HOW AND WHY REFORM HAS WORKED
In the four decades preceding the 1996 welfare reform, the number of Americans on welfare had never significantly decreased. By 1995, nearly one in seven children was on AFDC. The typical AFDC beneficiary was on welfare for an estimated average of 13 years. And such welfare dependency gets passed from one generation to the next: For example, in a 2002 study, researcher Marianne Page of the University of California, Davis, found that if a woman's family had received welfare during that woman's childhood — be it AFDC, General Assistance, food stamps, or Supplemental Security Income — that woman was roughly three times as likely to receive welfare as an adult. The '96 reform sought to disrupt this cycle of inter-generational dependence by moving families with children off the welfare rolls through increased work and marriage.
The success of that reform tells an extraordinary story. Within five years of the enactment of TANF, caseloads dropped by approximately 50%. As caseloads plummeted, employment and earnings among low-income single parents surged upward. Employment of never-married mothers increased by 50%, employment of single mothers with less than a high-school education increased by two-thirds, and employment of young single mothers between the ages of 18 and 24 approximately doubled. Child poverty among the demographic groups most affected by the new policy also fell dramatically. For a quarter-century before the reform, poverty among single mothers and among black children had remained stubbornly high. Immediately after the reform, poverty among both groups experienced a dramatic and unprecedented decline, reaching all-time lows.
Against conventional wisdom, the effects of welfare reform have been the greatest among the most disadvantaged single parents facing the greatest barriers to self-sufficiency. Both decreases in dependency and increases in employment were largest among those most inclined to long-term dependence — that is, among younger, never-married mothers with little education.
How did this happen? The welfare reform enacted in 1996 had three main elements, of varying degrees of effectiveness. First, the reform placed a five-year time limit on the receipt of TANF benefits. But the time-limit policy contained large loopholes; in the 15 years since welfare reform's enactment, only about 2% of TANF recipients have been removed for reaching the five-year limit. Overall, the requirement has had little or no impact on caseload reduction.
The second main component of the reform, which changed the funding structure of cash welfare, had a greater effect. The old AFDC program was an open-ended entitlement: If caseloads went up, state governments received more federal funds. The new TANF program, by contrast, used a fixed, block-granted funding system. If caseloads increased, state governments were forced to bear the extra cost. If caseloads fell, however, state governments had to receive their fixed amounts of federal funding and could use the surplus for other state projects. This policy created enormous financial incentives for states to reduce lifelong welfare dependency among their populations.
But it was the third element — mandatory work requirements — that had the greatest impact. The 1996 law required that roughly a third of people on the TANF rolls in each state work or prepare for work as a condition of receiving aid. The TANF work requirements were the real motor behind welfare reform — the main reason that caseloads fell rapidly during the five years following the law's enactment.
These core "workfare" requirements were spelled out in Section 407 of the 1996 law. Section 407 established a three-part mandatory work system, defining who was required to work, how much they were required to work, and what constituted qualifying work-related activities. Under Section 407, around 30% to 40% of the "work eligible" adult TANF case-load (defined as non-disabled adults receiving TANF benefits) is required to engage in "work activities." (The law nominally requires that 50% of this caseload be engaged, but provides a variety of exemptions and deductions that substantially reduce the effective participation rates.)
"Work activities" are defined very broadly to include unsubsidized employment, government-subsidized employment, on-the-job training, up to 12 months of vocational education, community-service work, job searches (for up to six weeks) and job-readiness training, high-school or GED education for recipients under age 20, and high-school or GED education for those 20 or over if combined with other listed work activities. Eligible individuals are required to engage in such activities for 20 hours per week if they have children under age six in the home and for 30 hours per week if they do not. Subject to the overall participation rate, states are free to determine which recipients will be required to engage in work activities.
This TANF workfare system is simple and flexible, allowing states a wide range of choices in meeting their participation standards. And the "workfare" approach also yields a number of important benefits for welfare recipients and society at large. The public overwhelmingly believes that able-bodied adult welfare recipients should be required to work, prepare for work, or at least seriously look for work as a condition of receiving aid. In requiring some TANF recipients to engage in constructive activity in exchange for benefits, workfare thus transforms welfare from a one-way handout into a system of reciprocal obligation. Moreover, demanding work as a condition of receiving benefits reduces the relative economic utility and attractiveness of remaining idle on welfare: If a recipient has to work anyway, he might as well hold a job that likely provides more compensation than welfare and allows for self-sufficiency. These improved incentives have resulted in fewer welfare enrollments, shorter spells of welfare dependency, and smaller caseloads across the country.
The implementation of workfare had the added effect of helping people avoid slipping into welfare dependency in the first place. By definition, an able-bodied applicant for welfare claims that he cannot find employment and therefore needs aid from the taxpayers. In many cases these claims are true, but it is also true that large numbers of people will take free handouts if the government is offering them, regardless of whether they really need them. A work test applied at the point of entry into the welfare system helps separate these two groups. If workfare requires recipients to begin serious efforts toward achieving self-reliance at the outset, many people who do not really need the aid will simply choose not to join the welfare rolls. The sharp drop in the TANF welfare caseload after 1996 was caused as much by a decline in new enrollments as it was by the increase in departures from welfare.
By deterring unnecessary entries into the welfare system, and by steering recipients toward paying jobs to help them get out of that system, workfare has also increased long-term earning potential among the affected population. Time spent on welfare never looks good on a résumé, and welfare dependence erodes important work habits and job skills and reduces the sorts of contacts with other employed people that can lead to future job opportunities. To the extent that welfare enrollment can be avoided, then, it boosts earning prospects. And for those already in the system, workfare programs provide skills training, job-readiness preparation, and employment-search services that help connect recipients to jobs, speeding the transition from welfare to work.
By reducing unnecessary welfare enrollments and shortening the time spent on welfare, the '96 workfare requirement significantly reduced caseloads, generating substantial savings for taxpayers. It also offered those who did require government assistance the support and training they needed to achieve self-sufficiency — and to become productive contributors to the broader economy. This was the heart and soul of welfare reform, and this is why it has been deemed a success.