Welfare Reform

I.  What is welfare?

• "welfare" or public assistance consists of several difference programs
• housing assistance through HUD (Dept. of Housing and Urban Development)
• rent vouchers
• public housing
• home rennovation
• heating assistance
• food assistance
• Food Stamps (Dept. of Agriculture)
• WIC (Women, Infant, Children, Dept. of Agriculture)
• school lunch program
• medical care
• Medicaid
• state-subsidized health insurance (like Child Health Plus in New York)
• childcare subsidies
• cash assistance
•  TANF (Temporary Assistance for Needy Families)
• SSI, (Suplemental Security Income) for disabled with no work history
• many programs are federally funded and mandated, but administered and partially funded by the states
• unemployment compensation is NOT "welfare"
• qualify by working for a minimum number of weeks, losing job through "no fault of one's own"
• funded through payroll taxes
• is college financial aid "welfare?"

• Poverty statistics are calculated by the Bureau of the Census
• 2002 Poverty Data from the Census Bureau
• The official poverty rate for 2001 is about 12.1%
• based on comparing money income to the poverty threshold
• poverty threshold is nutritionally adequate diet for household x 3
• about $14,824 for a household of 3 people
• the poverty rate depends on measure of money income, must decide
• before vs. after taxes?
• include public assistance? child support?
• currently money income is before taxes, including some public assistance transfers
• poverty rate varies by type of household, education, race, sex, age, state
• children under 18 have the highest poverty rate (17%), elderly have the lowest (10%)
• New Hampshire has the lowest poverty rate (5.8%), Mississippi has the highest 18.4%)
• New York 14%
• female-headed households have a poverty rate of 26.5%, married households have a poverty rate of 5.7%
• feminization of poverty
• although the incidence of poverty is higher for minorities over 2/3 of all people living in poverty are white
• nearly half of all welfare recipients have less than a high school education
• poverty rates are less than 4% for people with a college degree, over 20% for those with less than a high school diploma
• poverty and eligibility for assistance
• vary by state
• based on money incomes as % of the poverty threshold
• Medicaid:  household income must be less than 50-85% of poverty level
• Food Stamps:  200% of poverty level
• welfare recipients
• are more likely to be single mothers
• are likely to have small children
• BUT families on welfare, on average, are smaller than families not on welfare
• are likely to have low education levels
• are likely to be in the labor force
• are likely to be receiving assistance only temporarily
• pre-1996, 70% on welfare less than 2 years, 10% received cash assistance for more than 5 years
• cost of welfare
• 2001 federal budget: TANF, food stamps = $36 billion
• 2 % of federal budget (defense 16%, social security 23%)

• Economist look at two effects
• effects on work incentives
• effects on family composition
• Welfare and work
• prior to 1996,
• no time limits on benefits
• earnings penalty (benefits cut)  if recipients find work
• nonearned income will increase consumption and leisure (decreasing hours worked)
• only an income effect with respect to labor supply
• and the earnings penalty exacerbates this effect
• the penalty is especially severe with Medicaid, which abruptly cuts off at certain income levels
• it has been estimated that welfare benefits caused a 10 to 50% reduction in work hours among recipients;
• this is costly in terms of
• higher costs for benefits,
• greater dependency of recipients,
• loss of skills among recipients,
• lost output in the national economy
• however these costs should be balanced with the potential benefits of nonmarket work
• women are more likely to value nonmarket work
• women earn lower wages, so the opportunity cost of nomarket work for women is much smaller
• Welfare and family composition
• does welfare encourage female-headed families through increasing divorce, increasing out of wedlock births?
• AFDC/TANF responsible for 9-14% of increase in female-headed households in 1960s,70s, but not since
• real value of AFDC/TANF payments have dropped in 1980s due to inflation
• adult w/ 2 children median benefit of $379/month in 2000
• additional children increase benefits $40-90 per month
• between states, no relationship between size of AFDC/TANF benefits and family statistics on divorce, births
• states with higher benefits do NOT see higher birth rates among recipient families
• does welfare encourage poorer families to have more children?
• no evidence of this; in fact families on welfare are smaller than U.S. families in general

1996 Federal reforms (some state reform earlier)

• time limit on benefits--cash and food stamps and federal leve
• states may set more generous time limits
• job training/workfare requirements
• increased child support enforcement
• unmarried teens must live at home and attend school
• states must reduce caseloads and out-of-wedlock births by certain amounts
• states given some flexibility in experimenting with plans to move people from welfare to work
• Since 1996, caseloads have fallen over 50% nationally--why?
• welfare reform is working
• evidence that time limits are a powerful motivator
• states with stricter welfare rules have seen a larger caseload decline
• economy was booming
• some firms were willing to train unskilled workers due to shortages
• studies vary over how important the economy has been for the caseload decline
• private charities fill the gap
• some charities  have reported a big increase in requests for help
• some unanswered questions
• who is better off under welfare reform?
• how best to help children in poverty when parents make poor/irresponsible choices?