Giving is Not Enough: Work and Work Supports Are Reducing Poverty

June 1, 2001

The essence of the 1996 welfare reform law was work. Under the new law, welfare recipients, previously subject to only loose requirements of any type, were to be strongly encouraged—even forced—to work. The legal entitlement to cash welfare was to be ended in favor of a system that required work and other signs of personal responsibility as a condition of receiving benefits. Previous welfare law had paid lip service to work but had imposed no work requirements for single mothers. For those few welfare recipients selected to meet a work participation standard, such as education, the law had exacted few consequences for failure. But in 1996, and even earlier as some states began to impose work requirements by obtaining waivers from federal law, the requirement to work became real. Recipients who refused to work or prepare for work had their benefits reduced; more than 30 states adopted sanction policy that terminated benefits completely. States that did not place a specific percentage of their recipients in work or work preparation programs suffered financial penalties. Recipients were also subjected to a five-year limit on benefits, a strong signal that self-support is a must.

From Welfare to Work

Coupled with a booming economy and public policies to help the working poor, these tough reforms have been associated with an historic decline in the welfare rolls—more than 50 percent from the peak welfare enrollment of 5.1 million families in the spring of 1994. So mothers are leaving welfare in record numbers. But are they finding work?

Brookings economist Gary Burtless has shown, using national employment data from the Census Bureau, that after a decade of stagnation at about 57—58 percent, the employment rate of single mothers increased slightly in 1994 and then shot up dramatically every year between 1995 and 1999 to 72 percent, an all-time high. More remarkable still, the employment rate of never-married mothers, who are the most likely to have little education or job experience and long stays on welfare, increased even more. Between 1992 and 1996, their employment rate rose gradually from around 43 percent to 49 percent. But in the three years after enactment of the 1996 legislation, the rate exploded. By 1999 it had risen to 65 percent, also an all-time high and an increase of 33 percent in just three years.

Is Poverty Falling?

Virtually everyone in the policy world agrees that since the 1996 reforms were enacted, welfare rolls have fallen dramatically and employment by female family heads, especially never-married heads, has risen impressively. But most obser-vers are not satisfied with declines in welfare and increased work. They want to know if the mothers and children formerly on welfare are financially better off.

Of the many measures that could be picked to examine financial well-being, one of the most useful is the poverty measure used by the U.S. Census Bureau. Although not without its critics, the measure stands out as a reasonable means to trace changes in family material well-being for two reasons. First, it is widely used by social scientists, reporters, and politicians. Second, it has been computed in a standard manner that produces a continuous data series on poverty from 1959 to 1999.

Figure 1 compares the annual percentage change in the welfare caseload, the Census Bureau measure of child poverty, and the Census Bureau measure of black child poverty during 1995—99. All three measures fell every year. Even the smallest annual decline in the welfare rolls during those five years, around 7 percent in 1995, exceeds those of any year before 1995, highlighting the historic nature of the decline in cash welfare.

The declines in overall child poverty and black child poverty are also impressive. Not only did both rates decline every year, but the black child poverty rate has been falling for seven straight years, the most sustained decline since the Census Bureau began measuring it in 1974. Further, the declines in black child poverty in 1997 and 1999, 6.8 percent and 9.8 percent respectively, are the largest ever recorded and the rate today is the lowest it has ever been. In fact, between 1974 and 1992, the general drift of black child poverty was up. Over this 17-year period, as Congress greatly increased spending on welfare programs, poverty among black children fell in nine years and grew in eight; overall the rate increased from 39.9 percent to 46.6 percent, well over 15 percent. Indeed, during the prolonged economic expansion of the 1980s, as the American economy added nearly 20 million jobs, black child poverty never fell below 43.1 percent, as compared with 33.1 percent in 1999.

Despite this historic progress against poverty, the Census Bureau’s official poverty measure understates the progress the nation is now making against child poverty because it does not take into account in-kind federal benefits (such as food stamps) or tax benefits (such as the earned income tax credit) for which low-income working families generally qualify. Indeed, by not counting these two benefits alone, the official poverty measure ignores at least $35 billion in benefits enjoyed by low-income working families. Fortunately, the Census Bureau also publishes an experimental poverty measure that includes these and a few similar benefits like housing. Figure 2 uses this alternative measure to show the true progress the nation made in reducing children’s poverty during the economic expansions of the 1980s and the 1990s. In both expansions, child poverty declined. But it fell more than twice as much during the 1990s as during the 1980s—35.5 percent as against 15.5 percent.

Was It the Economy?

Two developments explain the vast differences in poverty reduction during the two decades. But before examining them, I address one widely cited factor in explaining the difference—namely, the economy. During the boom of the 1980s, the American economy added a net of almost 20 million jobs. If, as many analysts and pundits claim, a hot economy plucks people off welfare, then we would expect the welfare rolls to have declined during the 1980s. But let’s look at the data. When the economy first began adding jobs in the spring of 1983, the welfare rolls were growing. As the economy added a net of about 1 million jobs over the next year, they continued to climb. Between 1984 and the winter of 1988, as the economy added another 9 million jobs, the welfare rolls remained relatively flat, moving up and down in no apparent pattern. By 1988, they stood at about 3.7 million families, about the same as at the beginning of recovery in 1983 when a total of 16 million fewer Americans held jobs. Then over the next 18 months, as the economy added another 3 million jobs, the rolls shot up nearly 12 percent to more than 4 million families. During the entire 1980s expansion, the American economy added 20 million jobs and the welfare rolls grew by nearly half a million families. Those who want to attribute the recent remarkable decline in welfare rolls to the booming economy of the 1990s must account for why an economy that was almost as superb during the 1980s failed to reduce, and on the contrary, was associated with an actual increase in welfare rolls.

What Made the 1990s Different?

The 1990s have been a different story. For the first two-plus years of the recovery, between roughly December 1991 and March 1994, as the economy added about 6 million jobs, the welfare rolls grew by a surprising 700,000 families. But then, as more than half the states implemented work programs by 1994 and especially after enactment of the sweeping federal welfare reform legislation in 1996, the welfare rolls began a sustained decline that has yet to stop. Even more interesting, the nation is also in a sustained period during which poverty is declining more sharply than at any time since the 1950s.

Here’s why. First, the mandatory work requirements outlined above spurred people to leave welfare and take jobs. Before the 1996 reforms, families accumulated on the welfare rolls and stayed for long spells. In fact, the average stay, counting repeat spells, for families on the rolls at any given moment was a shocking 12 years. Thus, even though the economy might expand rapidly, as it did during the 1980s, most families on welfare could not possibly benefit from the rising opportunity because they weren’t even in the job market. And public policy did not encourage or, where necessary, force them into the job market. In the 1990s, by contrast, in large part because of the much more demanding welfare system, many families who would have been on welfare in previous years entered the job market and found jobs.

But the jobs they found generally paid low wages. So how did so many of them escape poverty? The answer brings us to the second cause for the great drop in poverty during the 1990s. Since roughly 1985, Congress has been quietly building a work support system that provides public benefits for low-income working families, especially those with children. This work support system includes housing, food stamps, the earned income tax credit, Medicaid, the Child Health Insurance Program, the child tax credit, child care, child support enforcement, and a variety of nutrition benefits for children such as school lunch, food subsidies for day care, and a major food program for mothers and infants. All have one feature in common: working families can receive benefits as long as their income is below a cutoff point that varies by program but is quite high. For example, the cutoff for food stamps is around $18,000; that for the EITC is more than $29,000. Thus, a mother with two children leaving welfare and earning $10,000 a year can supplement her income by $4,000 in cash from the EITC and by more than $2,000 in food stamps, bringing her total pretax income to $16,000 and lifting her and her children out of poverty.

Build on Success

As the time approaches to reauthorize the 1996 welfare reform legislation, it is important that members of Congress, their staffs, and the public realize how successful the 1996 legislation has been in reducing poverty. Although Congress created scores of new programs and increased spending by billions of dollars in the decades leading up to welfare reform, no progress was made against children’s poverty. Government action in simply giving away money, in-kind benefits, and social services—some on an entitlement basis—turned out to be a lousy way to reduce poverty. But the 1996 legislation marks a departure from providing guaranteed benefits to an approach demanding individual responsibility and then providing public subsidies for work. The result is historic declines in welfare, increases in work, and declines in poverty.

To continue and even expand this new approach, both liberals and conservatives must recognize that their favorite solutions to poverty are inadequate. Giving people benefits leaves them in poverty, reduces their propensity to work, and arguably impedes family formation. But pushing people to leave welfare for work does not ensure that they and their families will avoid poverty. Such are the work skills of millions of American parents that the value of their labor in the market is inadequate to support a family. In view of this stubborn reality, the best strategy is to require work and then provide public subsidies that lift working families out of poverty. As experience since the seminal 1996 reforms shows so clearly, only the combination of work and work subsidies will both promote personal responsibility and effectively fight poverty. At last, after three decades of failing to help families leave poverty by giving them lots of cash and in-kind welfare, we have found that both material and behavioral poverty are best attacked by the policy of mandatory work supplemented by government work supports.