Transitions from welfare and the employment prospects of low-skill workers.

• Author: Ribar, David C.

1. Introduction

   Sweeping reforms in state welfare programs, initiated first through Section 1 115 waivers to the Social Security Act in the early 1990s and later in response to the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996, were intended to "end welfare as we know it." The waiver and PRWORA reforms promoted employment as a route out of poverty by imposing work requirements, changing benefit formulas, setting time limits on participation, and increasing transitional and diversionary support. While the general goal of increasing economic self-sufficiency was widely shared, many people thought that specific provisions of the reforms were punitive. Critics were especially concerned that the low-skill labor market would not be able to absorb all the people being forced off the welfare rolls or to replace their lost benefit income.

   We now know that the critics' worst fears were not realized and that welfare reform coincided with a historic tightening of the labor market. The outcomes have been mostly positive. Welfare caseloads, which peaked at 5.1 million families in March of 1994, fell by more than half through the late 1990s. By September 2002, the welfare caseload had fallen to 2 million families (Committee on Ways and Means 2003). Economic and social circumstances for disadvantaged families generally improved. For instance, the poverty rate among families with children declined from 17.4% in 1993 to 12.7% in 2000 (U.S. Bureau of the Census 2003). An open question remains, though, regarding the extent to which the surging labor market contributed to the caseload declines and well-being improvements. This question has become more consequential as the United States confronts a weak economy and rising unemployment as well as a decision about whether to reauthorize the PRWORA.

   This study investigates how skill-specific employment prospects affected welfare participation and economic outcomes for single mothers in the years immediately preceding the enactment of the PRWORA, during the time when states were experimenting with welfare waivers. Specifically, the analysis draws data from the 1992 and 1993 panels of the Survey of Income and Program Participation (SIPP). The SIPP contains person-, family--and household-level information on program participation, employment, income, poverty status, and other personal characteristics. The study links the person--and family--level information from the SIPP to year--and county-specific measures of low-skill employment opportunities that were constructed in an earlier analysis (Ribar 2003). With these combined data, the study estimates transition models of program entry and exit and regression models of economic outcomes for single mothers.

   Beyond examining the role of economic conditions, the study also addresses some other issues that are related to welfare reform. First, it investigates the effects that an early set of reforms, which occurred in the form of waivers granted to states in the operation of their Aid to Families with Dependent Children (AFDC) programs, had on program participation and economic outcomes. The changes that were implemented under these waivers included several policies, such as time limits on benefit receipt and work requirements, that were later included as provisions in the PRWORA. Second, the study examines the effects that the general decline in benefit levels had on single mothers' welfare receipt and economic well being. Over the 1990s, the average real value of the maximum cash benefit for a family of four dropped by one-filth. The reduction in benefits continued a trend that began in the late 1970s and contributed to cash assistance becoming less and less attractive. Third, the analyses include some limited measures of the availability of paid child care. Child-care constraints have long been viewed as a potential barrier to single mothers' sell-sufficiency. The PRWORA consolidated many of the then-existing federal child-care programs and reoriented them toward the goal of economic self-sufficiency.

   Estimation reveals that local labor market conditions were a statistically and substantively important determinant of welfare receipt and single mothers' economic well being. The analysis also indicates that other policy-relevant factors such as benefit levels and child-care availability had some effects. However, the study's other measures for welfare reform indicators for the adoption of welfare waivers--are not significantly associated with mothers' welfare participation or their economic outcomes.

   The remainder of this study is organized as follows. Section 2 reviews some of the previous empirical research that has attempted to measure the impact of local labor market conditions, program characteristics, and child-care availability on welfare recipiency and other outcomes. Section 3 describes the data that are used in the present analysis. The empirical models for welfare transitions and economic outcomes are specified in section 4. Estimation results are also presented in section 4. Conclusions are offered in section 5.

2. Background

   At the time the PRWORA was enacted, several analysts expressed concerns regarding the availability of employment for welfare recipients (see, e.g., Nightingale and Haveman 1995 and the concerns raised earlier by Danziger and Weinberg 1986 and Gueron and Pauly 1991). In fact, a number of site-specific studies (Weicher 1995; Kleppner and Theodore 1997: and several other job gap studies performed by the Jobs Now Coalition for Minnesota: the Northwest Policy Institute for Washington, Oregon, Montana, and Idaho: the Arkansas Advocates for Children and Families; the California Budget Process; the Maine Department of Labor; and the Vermont Peace and Justice Center) starkly predicted that the influx of former welfare recipients would overwhelm the low-skill labor market and drive up unemployment. Many analysts were also concerned about what would happen when the economic expansion, then already four years old, ended and former recipients were forced to compete for jobs in a declining job market.

   For the most part, these concerns were not realized. Welfare caseloads, which started to decline prior to the enactment of PRWORA, continued to fall afterward. The Council of Economic Advisors (1999) reported that the number of welfare recipients declined 13% from 1993 to 1996 and 33% from 1996 to 1998. The growth in the economy, and job growth in particular, was so strong that low-skill unemployment and poverty actually fell. An analysis by Lerman, Lowest, and Ratcliffe (1999) suggested that the labor market was able to absorb most of those leaving welfare.

   Research attention has turned to examining the economic and policy changes that were responsible for the decline in caseloads and investigating how these changes affected economic outcomes for former welfare recipients and at-risk families. A number of researchers, including the Council of Economic Advisors (1997. 1999), Bartik and Eberts (1999), Figlio and Ziliak (1999), Card and Lemieux (2000), Hoynes (2000), Gittleman (2001), and Klerman and Haider (2004), have examined the effects of employment conditions on patterns of welfare receipt. Most of these studies found that tight labor markets reduced recipiency. (1) Because Blank (2002) has recently provided a comprehensive survey, the discussion in this section only summarizes the results from this literature.

   The studies by the Council of Economic Advisors (1997, 1999), Figlio and Ziliak (1999), and Gittleman (2001) additionally considered the role of welfare reform in caseload declines. Other studies by Grogger (2000) and Schoeni and Blank (2000) also looked at policy changes. With the exception of the analysis by Figlio and Ziliak, these studies concluded that the implementation of time limits, work requirements, and other restrictions under the waivers granted to various states prior to the PRWORA and under the Temporary Assistance for Needy Families (TANF) programs after PRWORA explained much of the decline in recipiency. Figlio and Ziliak countered, however, that once employment dynamics were taken into account, the economy became a more important factor.

   A few studies have reported that other policy changes also contributed to the caseload decline. Lemke et al. (2000) assembled a meticulous set of descriptors for the local availability, cost, and quality of child care for welfare families in Massachusetts and found that child-care subsidies and the provision of early education programs sped the transition from welfare to work. Meyer and Rosenbaum (2000) considered the extensive set of changes that accompanied welfare reform, including expansions of the earned income tax credit (EITC), Medicaid eligibility, training programs for recipients, and child-care assistance, and how these expansions affected single mothers" employment relative to that of other groups. They concluded that these accompanying changes, especially the changes in the EITC, substantially increased the incentives to work among single mothers.

   A separate line of research has examined how welfare reform and the economic expansion affected outcomes for welfare recipients, single mothers, and women generally. The U.S. General Accounting Office (GAO 1999) summarized the separate research from 17 states regarding outcomes for families who had recently left welfare. The summary indicated that many adults in these "leaver" families were successful in finding employment but that their incomes were generally low and that a substantial fraction of them ended up returning to welfare. Schoeni and Blank (2000) undertook a more comprehensive, nationwide evaluation of economic outcomes and were more sanguine about the effects of welfare reform. They concluded that welfare reform promoted employment, increased family incomes, and reduced poverty among less-skilled women. Other research (see the review in Ribar...