Imposing work requirements on recipients of public assistance is a topic that comes up frequently. Most recently, Republican lawmakers suggested enforcing stricter work requirements on food stamp recipients as part of debt limit negotiations. On the surface, these sorts of policy changes sound reasonable. Most people — conservative or liberal — don’t want recipients to be on public assistance forever. It seems better for both the recipient and society if beneficiaries can transition to work, begin earning more money, and eventually not need any help. In the mid-1990s, this notion led both Democrats and Republicans to take on welfare reform.
In this post, I want to first describe what the original “welfare” program was like, and why reform was likely necessary. Then, I want to discuss the reforms themselves. Finally, I want to talk about how well the reforms worked, where they succeeded, and where they fell short.
[Also, if you want to reform your knowledge of the U.S. economy, my book is a good way to do it. I’ve been told it’s a great book to read on vacation. Ok, I might have had a dream that someone told me that.]
Pre-Reform: Aid to Families with Dependent Children
First of all, when I say “welfare,” I am using a popular nickname for the United State’s main cash benefit program for single mothers. Prior to 1996, that program was called Aid to Families with Dependent Children, or AFDC. The program worked pretty simply. If your household made below a certain amount of money — called a “needs standard” — and had dependent children, then you got a benefit. For example, in 1994 the average needs standard was $655 per month and the average maximum benefit about $400 per month ($1,362 and $832 in 2023 dollars, respectively).
The word “maximum” above is necessary because the benefit was reduced as people earned more money. Most government programs work this way. For AFDC, the reduction was extreme. Each dollar earned above $90 per month reduced the welfare benefit on a 1:1 basis. Imagine someone making $5 an hour in 1994 (just above minimum wage at that time). Once they worked 18 hours in that month and hit the $90 threshold, their next 80 hours of work had no value. After all, if you worked 18 hours, you got $90 in earnings + $400 in welfare. If you worked 98 hours, you got $490 in earnings, the exact same amount. That’s a 100 percent effective tax.
On top of this work disincentive, the Medicaid income limits were often tied to AFDC limits. So, earning money not only reduced the welfare benefit, it also resulted in the loss of Medicaid. And since the sort of low paying jobs that welfare recipients often can get do not provide insurance, working might mean going without health insurance. With these sorts of incentives, it’s not surprising transitions off of welfare to work were rare. As my favorite Professor Andy Kozak used to say: “Poor people may be poor, but they’re not stupid.” So, some welfare reform was deemed in order.
After Welfare Reform: Temporary Aid to Needy Families
When welfare reform was signed into law, AFDC became Temporary Aid to Needy Families, or TANF. One of the biggest changes to the program is right there in the new name. AFDC could be received forever, as long as the income threshold was met. TANF is a temporary program, with benefits limited to 60 months in a lifetime. In addition, recipients are expected to engage in some work activity within 24 months of receiving benefits.
In addition to these strict rules, welfare reform also introduced some positive incentives to work. For example, the 1:1 reduction in benefits for each dollar earned was removed, with states given considerable flexibility in how they would treat earnings. Another change was to decouple Medicaid and TANF, so that more people could be on Medicaid without qualifying for TANF. Again, states were given discretion in implementation, but moving off of welfare was no longer a guaranteed loss of insurance. TANF also gave states flexibility to provide support for childcare as parents made the transition to work. So, the law imposed some tough penalties, but also tried to encourage work in kinder ways as well.
The ultimate question though is: did this work? Well, let me pull on my economist pants and say: it depends how you measure success.
Success Measure #1: Welfare Caseloads
If you view the goal of welfare reform as simply getting people off of welfare, then the reforms succeeded. The data below comes from the Center on Budget and Policy Priorities, a non-partisan think tank that focuses on economic issues. The data show clearly and unambiguously: caseloads dropped by 75 percent since 1996.
Figure 1. Number of Families Receiving AFDC/TANF Cash Assistance
OK, so cases dropped. Success? Well, not so fast. That reduction could come for two reasons. First, it could be that former recipients started working, got some work experience, and started earning drastically more money. So, they no longer needed the assistance. Or, the reduction could be due to the strict time limits winnowing off recipients who might still benefit from the help. Let’s see.
Measure of Success #2: Employment and Wages
On the employment and wages front, the reform looks much less successful. Figure 2 below shows the share of single mothers with a high school degree or less who worked at least part time in the given year. This group of women is most often cited as being targeted by welfare reform. The figure clearly shows, well, nothing. In 1996, about 56 percent of this group worked. Today, it’s about 54 percent. You will notice that right after the reforms, the number of these women working ticked up quite a bit, leading some to hail the reforms a success. But, more likely than not, it was simply the very strong economy of the 1990s drawing more people into the labor force. The trend reversed during tougher economic times.
Figure 2. Share of Non-college Educated Single Mothers Working at Least Part Time
On the income front, things were similarly stagnant. In 1996, the year welfare reform was passed, the typical working single mother without any college made $19,156 (in 2020 dollars). In 2020, that number was $21,950. A very slight increase. Still, the poverty line in the U.S. for a family of 3 is about $23,000. So, the typical single mom without any college doesn’t make enough to exceed poverty. Which gets me to the final measure of success: did welfare reform pull single moms out of poverty?
Measure of Success #3: Poverty
The figure below shows two measures related to welfare reform and poverty. The first measure is the number of families with children in poverty (red line, left axis of the figure). The second measure is the share of those families actually served by AFDC/TANF (black line, right axis of the figure).
Figure 3. Number of Families in Poverty and Share in AFDC/TANF
The figure shows that between 1996 and 2020, the number of families in poverty did drop by about 20 percent, from 6.4 to 5.0 million. Then again, it’s hard to attribute that fact to welfare reform. After all, in the figure, poverty seems more driven by the economy. It hit a low right before the 2001 recession, peaked just after the Great Recession, and fell again through the 2010s.
The other part of the figure shows the consequence of those harsh time limits. Prior to welfare reform, around 70 percent of families in poverty benefitted from the program. Today, just 21 percent of families in poverty actually receive a benefit from this program. 1 in 5.
Taken together, figures 1, 2, and 3 paint a pretty clear picture. Welfare reform reduced caseloads not by drastically altering the economic situation of single mothers. Welfare reform reduced caseloads by keeping people off the rolls, ultimately becoming a less important part of the safety net.
What Can Welfare Reform Teach Us?
When politicians talk about “work requirements,” for programs like food stamps, I think that they have it in their minds that the people on these programs are lazy. That some awesome job is out there for beneficiaries, if they were just forced to go get it. To me, the primary lesson of welfare reform is that this isn’t true.
In making welfare temporary, the 1996 reformers bet that taking away this benefit would make single moms work more, and that by working more they would earn more and ultimately not need the program. Underlying this bet is the notion that earning one’s way out of poverty is as easy as finding a job. Instead, we see a lot families still in poverty that now lack this benefit. The structural barriers of requiring childcare and lacking higher education are real. Future policymakers would do well to remember that the barriers to making a decent living may not be a simple lack of effort.