Assessing the New Federalism Discussion Paper No. 03-03
The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.
Note: This report is available in its entirety in the Portable Document Format (PDF).
About the Series
Assessing the New Federalism is a multiyear Urban Institute project designed to analyze the devolution of responsibility for social programs from the federal government to the states. It focuses primarily on health care, income security, employment and training programs, and social services. Researchers monitor program changes and fiscal developments. Alan Weil is the project director. In collaboration with Child Trends, the project studies changes in family well-being. The project provides timely, nonpartisan information to inform public debate and to help state and local decisionmakers carry out their new responsibilities more effectively.
Key components of the project include a household survey, studies of policies in 13 states, and a database with information on all states and the District of Columbia. Publications and database are available free of charge on the Urban Institute's web site: http://www.urban.org. This paper is one in a series of discussion papers analyzing information from these and other sources.
This project was funded in part by the U.S. Department of Health and Human Services, Administration for Children and Families under grant 90PA0002/01 and in part by the Assessing the New Federalism project. The Assessing the New Federalism project is currently supported by The Annie E. Casey Foundation, The Robert Wood Johnson Foundation, the W. K. Kellogg Foundation, The John D. and Catherine T. MacArthur Foundation, and The Ford Foundation.
Introduction
Welfare caseloads declined dramatically during the 1990s, and research credits changes to welfare polices and the decade's booming economy for this trend.1 Concern that needy families were being "pushed off" the welfare roles by aggressive sanctions, work requirements, and time limits, spawned a plethora of studies on welfare leavers. By and large, these "leaver" studies show that welfare leavers are somewhat better off after exiting welfare and that about two-thirds of those leaving welfare are working (Acs and
Loprest 2001). But it is important to recognize that welfare policies do not just affect those on welfare; changes in welfare policy also affect the decisions low-income families with children make about entering welfare. Only recently have changes in welfare entry drawn the attention of policymakers and policy researchers.
If low-income families are climbing up the socioeconomic ladder, declines in welfare entry rates can be viewed positively. However, if low-income families remain in "a holding pattern," neither entering welfare nor improving their economic circumstances through higher earnings or marriage, falling entry rates may raise concerns. For example, families deterred from entering welfare may also fail to enroll in other public assistance programs like food stamps and Medicaid that could improve their well-being.
This paper examines how welfare entry rates changed during the 1990s, a decade marked by substantial state and federal welfare reforms. It also assesses whether changes in entry rates are accompanied by improvements in the circumstances of families that choose not to receive welfare.
This analysis uses data from the 1990 and 1996 panels of the Survey of Income
and Program Participation (SIPP) to identify three cohorts of low-income single mothers
who are potentially eligible for welfare but are not receiving benefits. The first cohort is a
pre-reform cohort starting in late 1989. The second cohort covers the early reform period
starting in late 1995. And the third cohort covers the post-federal reform period starting
in late 1997. The women in each cohort are tracked for 28 months to see if they enter
welfare, remain in precarious economic circumstances, or change their circumstances
through higher incomes, marriage, or other living arrangement modifications—that is,
changes that effectively end their potential eligibility for welfare. We then use
multivariate regression models and decomposition techniques to identify the factors
responsible for changes in welfare entry patterns over the 1990s. These same techniques
also allow us to examine the factors associated with changes in circumstances that result
in single mothers no longer being potentially eligible for welfare.
The results indicate that entry rates declined during the 1990s with the largest
declines coming toward the end of the decade. Neither changes in the characteristics of
low-income single mothers nor improvements in the economy directly account for this
shift. This leaves policy shifts and changes in attitudes toward work and welfare as the
most likely explanations for the drop in welfare entry rates. The analysis also shows that
declining entry rates are not accompanied by substantial improvements in the
circumstances of low-income single mothers who are not on welfare.
Background
The 1990s were marked by significant changes in social welfare policy and substantial economic growth. As dissatisfaction with the nation's primary cash assistance program for low-income families—the Aid to Families with Dependent Children program (AFDC)—increased, many states sought and received waivers to federal rules and began modifying their welfare programs. In 1996, the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) eliminated AFDC and replaced it with the Temporary Assistance for Needy Families (TANF) block grant. Under TANF, welfare is no longer an entitlement and the program imposes a lifetime time limit on the receipt of federal aid.2 In addition to changes in welfare policy, the federal Earned Income Tax Credit (EITC), which is designed to reward work for low-income families, expanded considerably, and several states introduced state EITCs. Further, as the decade progressed, a sluggish economy gave way to a lengthy and robust economic expansion. These changes in policy and the economy contributed to the decline in welfare caseloads nationwide during the 1990s.
Most of the research on declining welfare caseloads does not distinguish between reductions associated with families leaving welfare and those associated with families entering welfare.3 Many assume that caseloads have dropped because families are leaving the welfare role faster today than in the past, but changes in the rate at which they enter may be even more important.
Before examining how welfare policy changes in the 1990s affected welfare entry, it is useful to consider prior research on the determinants of entry. Among studies that examine the period prior to the welfare reform era of the 1990s, several find that larger AFDC guarantees, the grant available for recipients who did not work, are associated with higher entry rates (Hutchens 1981 and Plotnick 1983) while others do not (Gottschalk and Moffitt 1994; and Klawitter, Plotnick, and Edwards 2000).4 Higher wage rates and other income reduce the likelihood that a woman will enter AFDC (Hutchens 1981; Plotnick 1983). There is mixed evidence on the impact of the economy on welfare entry. Gottschalk and Moffitt (1994) find it matters; Gottschalk (1996) does not. Finally, most studies find that personal and family characteristics affect entry. For example, Plotnick (1983) finds that younger women and women with a work limiting disability are more likely to begin participating in AFDC.
More recent work has incorporated the potential effects of welfare reform policies on welfare entry. These more recent studies tend to find that benefit levels do affect entry (Acs et al. 2001; Grogger 2003; and Ribar 2001), but they do not consistently find that reform policies have affected entry. For example, focusing on the presence of any state waivers to AFDC, Gittleman (2001) finds that through 1995, women living in states with waivers are more likely to enter welfare. Ribar (2000), however, concludes that waiver policies, in general, have little impact on welfare entry rates. Similarly, Hofferth, Stanhope, and Harris (2000) focus specifically on returns to welfare and find that welfare policies adopted under waivers do not appear to influence recidivism rates.
One reason that studies of welfare reform find such mixed results is that the packages of policies that comprise "reform" vary from state to state, and it can be difficult to measure these policies and disentangle their effects. In addition, states may adopt policies that have contradictory effects. For example, Moffitt (1996) uses a microsimulation model to demonstrate that mandatory employment and training programs could reduce welfare entry rates while voluntary programs might increase them in the long run.
Finally, nonwelfare policies directed at low-income households may also influence welfare entry. Indeed, Grogger (2003) finds that the EITC expansions during the 1990s reduce welfare entry rates.
These studies do not consider the circumstances of those who remain off welfare, an important consideration for fully assessing the implications of welfare reform. Indeed, Zedlewski (2002) finds that about 60 percent of all single mothers who are eligible for TANF but choose not to participate live in poor households.
One earlier study examines both welfare entry and the status of eligible nonparticipants. Blank and Ruggles (1996) use SIPP data from the late 1980s to estimate a model in which a woman who is eligible for AFDC can either start receiving AFDC or become ineligible for benefits.5 Essentially, they examine the length of eligibility "spells"—that is, how long women remain eligible for welfare without participating. An eligibility spell can end either because a woman enters welfare or because she becomes ineligible for welfare due to a change in circumstance. These include marriage, increases
in income, and the departure of children from the household.6 Most of these changes in circumstance represent economic improvements for women.
Blank and Ruggles (1996) find that never married, black, and disabled women are more likely to end an eligibility spell by entering AFDC than white, ever married, nondisabled women. Older and more educated women are more likely to improve their circumstances and not enter AFDC. Higher unemployment rates are associated with longer eligibility spells but not higher entry rates. And surprisingly, higher AFDC benefits are associated with lower entry rates and higher rates of improved circumstances.
This study builds on the work of Blank and Ruggles (1996) in several ways. It extends the analysis through the 1990s, focusing on how welfare reform has affected entry rates. Further, it uses decomposition techniques to assess the relative importance of various factors like the economy and the characteristics of low-income single mothers in accounting for changes in welfare entry rates throughout the decade.
Note: This report is available in its entirety in the Portable Document Format (PDF).
1 See, for example, Bell (2001); Blank (1997); Council of Economic Advisers (1997); Moffitt (1999); and Wallace and Blank (1999).
2 States have significant discretion at setting program rules under TANF. Policies that states have pursued under waivers to AFDC and TANF include changes in the amount of benefits recipients can keep as their earnings rise, strict work requirements, and financial sanctions for noncompliance with program rules. Also, to discourage fertility among welfare recipients, some states have imposed family caps; in these states a family's welfare grant does not increase if it has another child.
3 Oellerich (2001) and Grogger, Haider, and Klerman (2003) are exceptions. Oellerich (2001) uses administrative data and finds that since 1994, welfare entry declined while welfare exits rose. Grogger, Haider, and Klerman (2003) use both national data from the SIPP as well as administrative data from California and find that declining entry rates account for between 39.2 and 66.1 percent of the decline in welfare participation.
4 These studies differ substantially in the time periods and populations they consider and the other factors they include in the analysis. Some focus on the 1970s, others on the 1980s; some on all potential entrants, others only on initial entry into AFDC. In short, they are difficult to reconcile.
5 Specifically, Blank and Ruggles (1996) estimate a competing risk duration model of AFDC eligibility spells.
6 Married-couple families are not automatically disqualified from receiving welfare and the rules governing eligibility for married couples have been changing over the 1990s. Nevertheless, married couples are far less likely to receive welfare than single parent families.
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