What Role is Welfare Playing in this Period of High Unemployment?

Abstract

Temporary Assistance for Needy Families (TANF), the nation's cash assistance program for poor families with children, has not played much of a countercyclical role during the current recession. As unemployment has risen, TANF caseloads nationally have grown much more slowly and state TANF caseloads have not tracked state unemployment growth. Program rules and financing structures limit the responsiveness of TANF in a downturn. As TANF reauthorization is considered, this brief details some relatively small changes that could improve the program's effectiveness in future recessions.

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Introduction

Temporary Assistance for Needy Families (TANF), the nation's cash assistance program for poor families with children, has not played much of a countercyclical role during the current recession (figure 1). Since the start of the recession in 2007 through 2010, the unemployment rate increased by 88 percent while national TANF caseloads increased by only 14 percent. This pattern contrasts with the response of welfare before passage of TANF when caseloads rose as unemployment increased. While we don't know precisely why the response to rising unemployment has been modest, some reasons likely include the following:

• Unemployment benefits substitute for welfare: three in ten low-income (below 200 percent of the federal poverty level) single parents received unemployment benefits in 2009, double the share receiving in 2005. This suggests that as more single mothers went to work during the late 1990s and early 2000s, more could qualify for unemployment benefits in the event of job loss. Also, many states have recently expanded eligibility for unemployment benefits.
• State TANF policies discourage welfare use: TANF benefits have remained flat over the past 15 years in most states, diminishing the value to low-income families. Maximum TANF cash benefits are less than 30 percent of the federal poverty threshold in 30 states (Zedlewski and Golden 2010). Also, many states actively discourage applicants from enrolling in TANF.
• Attitudes are changing about participation: the share of families eligible for welfare assistance that enroll in the program has dropped from over 80 percent before TANF in 1996 to 40 percent in 2005.

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