Making the 1996 Welfare Reform Work: The Promise of a Job

Abstract

Policy makers often tout the finding that Temporary Assistance for Needy Families caseloads have shrunk by 50% or more since the passage of the 1996 welfare reform act (Personal Responsibility and Work Opportunities Reconciliation Act). Less well publicized is the economic fate of these “welfare leavers.” Extensive evidence shows that, despite the fact that as many as 60% exit with a full-time job, within a year or two approximately one half of all welfare leavers—and their children—fall into poverty. These findings predate the current severe recession; the economic status of current and past welfare leavers is undoubtedly much worse today. The proximate cause of this high rate of poverty is that welfare leavers end up working, on average, too few hours over the course of a year. Behind these low hours are the more fundamental causes of the measurable “barriers to work” limiting many leavers, and the limited supply of appropriate private-sector jobs, even during the so-called full-employment years of the late 1990s. In a search for solutions to this problem, this article examines the design, costs, and effects of a large number of job creation/welfare-to-work programs. Using these results, we propose a program of jobs of last resort called Promise of a Job (POJ). The authors outline the structure of POJ, provide costs estimates per participant and for its national implementation, and simulate its impact on poverty rates. Depending on assumptions such as the eligibility requirements and the rate at which participants are placed in full-time jobs, some simulations show dramatic reductions in the rates of adult and, especially, children's poverty.

Keywords:

• TANF
• PRWORA
• poverty
• poverty reduction
• job creation
• welfare-to-work
• transitional jobs
• job programs
• cost estimates

ACKNOWLEDGMENTS

This project was started while Stevens was a Visiting Scholar and Mallon a Research Associate at the National Poverty Center, Gerald R. Ford School of Public Policy, University of Michigan. The authors would like to thank Sheldon Danziger and Rebecca Blank, the Directors of the NPC at the time, and the Center's many scholars and staff members for providing an ideal environment for research and learning. For helpful comments and guidance we are especially grateful to Allegra Baider, Richard Bavier, Vee Burke, Sheldon Danziger, Alan Hershey, Clifford Johnson, Elizabeth Lower-Basch, Mike Miller, Anne Nichols-Casebolt, Demetra Nightingale, Amy Rynell, Larry Root, Arloc Sherman, David Stoesz, and Melissa Young. Of course, none of the above is responsible for the opinions and conclusions expressed in this article; nor is the National Poverty Center, the Federal Reserve Board, or Virginia Commonwealth University.

Notes

1. The assertions made in this paragraph are supported with detailed data in the section below titled “The Outlook for Poverty and Joblessness in the Era of Welfare Reform.”

2. Transitional Jobs programs have shown more limited long-term results in large part due to the inherent design of such programs as being “transitional” in nature. However, other factors and developments have affected the long-term impact of present-day programs. These include the following: (1) Since the completion of the research cited in this article, TJ programs have evolved significantly; (2) Funding sources to date for TJ have typically not provided adequate funds for desirable back-end services—placement, retention, reemployment, and linkages to education and training - and consequently, these funding restrictions have meant that many people were not able to stay in TJ long enough before their transition into unsubsidized employment; and (3) Some programs, most notably the Center for Employment Opportunities, have begun to incorporate higher levels of such back-end services, with the goal of dramatically improving long-term job retention.

3. There is a large and consistent body of evidence supporting this point. See Devere's (2001) survey covering more than 50 studies in 39 states; Ac et al. (Council of Economic Advisors to President George W. Bush, 2001, p. vi); Danziger et al. (2002), using the rich data set from Michigan collected under the Women's Employment Study; Meyer and Cancian (2001, p. 2), on the results of Wisconsin's welfare reform; and Bavier (2002, 2003) using the SIPP data to track welfare leavers for a minimum of two years after exit.

4. See, for example, Economic Report of the President ( 2002), Table B-42, “Civilian Unemployment Rate, 1955–2001,” p. 370. The rates for women and Blacks fell to 4.1% and 7.6%, respectively.

5. Solow (1998) is based on his Tanner Lectures given in 1996 and 1997, long before the results on welfare leavers we have cited became available.

6. Hard-to-employ is the term used to refer to recipients that are long-term welfare recipients who have two of three specified barriers to employment: (1) holds no high school diploma or General Equivalency Diploma (GED) and has low reading or math skills, (2) requires substance abuse treatment for employment, or (3) has a poor work history.

7. In addition to current welfare recipients, TJ programs also target recently released offenders, youth, refugees, people with disabilities, and other low-income workers.

8. We made these (admittedly rough) calculations per participant from Perez-Johnson et al. (2002), using total costs for Outreach/Recruitment in Table II.2 and the number of “Ever Active” participants in Table II.3.

9. The full text of the Workforce Investment Act of 1998, and subsequent amendments, can be found at http://www.doleta.gov/USWORKFORCE/WIA/act.cfm

10. Other organizations, such as nonprofit faith-based and community organizations, could also refer participants who have been unable to secure and maintain full-time stable employment due to the factors we described above (i.e., personal barriers to employment or insufficient labor market demand). We anticipate that such individuals would have first attempted to secure employment through the aforementioned avenues (e.g., public departments of social services, One-Stop Centers, etc.).

11. The studies behind Michalopoulos (2004) used random assignment and found significant impacts on such “long-run” employment measures as “employed in year 1 and 6 of 8 subsequent quarters,” or “employment in 9 of 12 quarters.”

12. See his Table 3.4, p. 63. In describing the duration and properties of the various programs, we rely primarily on the detailed descriptions of each program in the appendix of Perez-Johnson et al. (2002), pp. A.3–A.34. The duration data described in this study are broadly consistent with, but sometimes different from, statistics reported in Fraker et al. (2004) on the actual time spent by successful job seekers in Job Readiness Training and Job Search Assistance; for these data see Exhibit III.6 on p. 57. None of this variation seemed to lead to either a higher placement rate into a transitional job (all three did quite well) or a higher rate of full-time work after 2 years (none did very well).

13. See Fraker et al. (2004), Exhibit IV.3, “Percentage of WtW Enrollees Employed Sometime During the First and Second Years After Program Entry” (p. 77) and Exhibit IV.13, “Percentage of WtW Enrollees Satisfying the TANF 30 Hrs/Wk Work Requirement One and Two Years After Program Entry” (p. 83), present the relevant data.

14. See Perez-Johnson et al. (2002), Figure III.4 (p. 40) for costs per participant of the various components of each of the 18 programs studied; for the costs for our Phase II we used the estimates for two components: “Job-Readiness/Case Management” and “Job Development/Placement.” See footnote 12, above, for our sources of data on the duration of each component in each of the 18 programs.

15. For example, a POJ participant can be “suspended” for one-month after which he or she can reapply. Subsequent issues with meeting participation standards can result in longer “suspensions.”

16. For the 18 programs studied in Perez-Johnson et al. (2002), we calculated that administrative costs ranged from $85 to $604 per participant. We took total administrative costs in Table II.2 (p. 19) and divided them by the number of “Ever Active” participants for the given year in Table II.3 (p. 23).

17. In most cases, the wage rate was set at or below the minimum wage to encourage program participants to actively seek higher paying jobs in the private sector.

18. See Gibbs et al. (2004), pp. 2.8–2.11 and, especially, Table 2.2 on pp. 2.10–2.11.

19. We realize that it is controversial to propose providing jobs for noncitizen immigrants. We consider this case on the grounds of providing equal opportunity for children and reducing child poverty, but we consider also an alternative that excludes for POJ all adults from child-only cases.

20. No direct estimates exist of the number of TANF recipients below the poverty line, as far as we can tell, but the stringent TANF eligibility criteria suggest that a reasonable assumption is that all TANF recipients, except, possible, a percentage of child-only cases, fell below the poverty line. Data for 1996, used for a scenario we “run” in the next section, show that all recipients existing on 1996 AFDC benefits plus food stamps fell below the poverty line (U.S. House of Representatives, Committee on Ways and Means, 1998, Table 7–8, pp. 416–418).

21. Using the 2007 poverty thresholds by size of family, a full-time, minimum wage job under POJ plus food stamps and the EITC would raise all families above the poverty line except for those with five or more children. Because we could find out the number of families in this category (just under 43,000), but not the total number of children, to calculate the number of children we assumed six children on average per family in this class, a total of approximately 255,000 children. The same procedure was used to make the calculations for 1996.