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Welfare Reform
I. What is welfare?
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"welfare" or public assistance consists of several difference programs
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housing assistance through HUD (Dept. of Housing and Urban Development)
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rent vouchers
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public housing
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home rennovation
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heating assistance
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food assistance
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Food Stamps (Dept. of Agriculture)
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WIC (Women, Infant, Children, Dept. of Agriculture)
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school lunch program
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medical care
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Medicaid
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state-subsidized health insurance (like Child Health Plus in New York)
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childcare subsidies
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cash assistance
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TANF (Temporary Assistance for Needy Families)
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SSI, (Suplemental Security Income) for disabled with no work history
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many programs are federally funded and mandated, but administered and partially
funded by the states
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unemployment compensation is NOT "welfare"
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qualify by working for a minimum number of weeks, losing job through "no
fault of one's own"
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funded through payroll taxes
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is college financial aid "welfare?"
II. Who is poor?
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Poverty statistics are calculated by the Bureau
of the Census
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2002 Poverty Data
from the Census Bureau
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The official poverty rate for 2001 is about 12.1%
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based on comparing money income to the poverty threshold
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poverty threshold is nutritionally adequate diet for household x 3
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about $14,824 for a household of 3 people
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the poverty rate depends on measure of money income, must decide
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before vs. after taxes?
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include public assistance? child support?
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currently money income is before taxes, including some public assistance
transfers
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poverty rate varies by type of household, education, race, sex, age, state
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children under 18 have the highest poverty rate (17%), elderly have the
lowest (10%)
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New Hampshire has the lowest poverty rate (5.8%), Mississippi has the highest
18.4%)
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female-headed households have a poverty rate of 26.5%, married households
have a poverty rate of 5.7%
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although the incidence of poverty is higher for minorities over 2/3 of
all people living in poverty are white
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nearly half of all welfare recipients have less than a high school education
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poverty rates are less than 4% for people with a college degree, over 20%
for those with less than a high school diploma
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poverty and eligibility for assistance
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vary by state
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based on money incomes as % of the poverty threshold
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Medicaid: household income must be less than 50-85% of poverty level
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Food Stamps: 200% of poverty level
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welfare recipients
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are more likely to be single mothers
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are likely to have small children
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BUT families on welfare, on average, are smaller than families not on welfare
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are likely to have low education levels
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are likely to be in the labor force
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are likely to be receiving assistance only temporarily
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pre-1996, 70% on welfare less than 2 years, 10% received cash assistance
for more than 5 years
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cost of welfare
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2001 federal budget: TANF, food stamps = $36 billion
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2 % of federal budget (defense 16%, social security 23%)
III. Effects of Welfare
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Economist look at two effects
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effects on work incentives
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effects on family composition
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Welfare and work
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prior to 1996,
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no time limits on benefits
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earnings penalty (benefits cut) if recipients find work
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nonearned income will increase consumption and leisure (decreasing hours
worked)
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only an income effect with respect to labor supply
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and the earnings penalty exacerbates this effect
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the penalty is especially severe with Medicaid, which abruptly cuts off
at certain income levels
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it has been estimated that welfare benefits caused a 10 to 50% reduction
in work hours among recipients;
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this is costly in terms of
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higher costs for benefits,
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greater dependency of recipients,
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loss of skills among recipients,
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lost output in the national economy
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however these costs should be balanced with the potential benefits of nonmarket
work
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women are more likely to value nonmarket work
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women earn lower wages, so the opportunity cost of nomarket work for women
is much smaller
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Welfare and family composition
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does welfare encourage female-headed families through increasing divorce,
increasing out of wedlock births?
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AFDC/TANF responsible for 9-14% of increase in female-headed households
in 1960s,70s, but not since
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real value of AFDC/TANF payments have dropped in 1980s due to inflation
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adult w/ 2 children median benefit of $379/month in 2000
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additional children increase benefits $40-90 per month
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between states, no relationship between size of AFDC/TANF benefits and
family statistics on divorce, births
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states with higher benefits do NOT see higher birth rates among recipient
families
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does welfare encourage poorer families to have more children?
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no evidence of this; in fact families on welfare are smaller than U.S.
families in general
IV. Welfare Reform
1996 Federal reforms (some state reform earlier)
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time limit on benefits--cash and food stamps and federal leve
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states may set more generous time limits
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job training/workfare requirements
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increased child support enforcement
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unmarried teens must live at home and attend school
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states must reduce caseloads and out-of-wedlock births by certain amounts
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states given some flexibility in experimenting with plans to move people
from welfare to work
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Since 1996, caseloads have fallen over 50% nationally--why?
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welfare reform is working
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evidence that time limits are a powerful motivator
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states with stricter welfare rules have seen a larger caseload decline
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economy was booming
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some firms were willing to train unskilled workers due to shortages
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studies vary over how important the economy has been for the caseload decline
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private charities fill the gap
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some charities have reported a big increase in requests for help
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some unanswered questions
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who is better off under welfare reform?
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how best to help children in poverty when parents make poor/irresponsible
choices?
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