The Future of Children, Princeton - Brookings: Providing research and analysis to promote effective policies and programs for children.

Policies that increase work incentives and make work pay clearly have been enhanced since welfare reform, but the data suggest that not all low-income families have benefited from these changes. Two somewhat different pictures of family income in the TANF era have emerged so far. Studies that base their assessment solely on cash income conclude that poverty has declined as a result of welfare reform. Other studies, which base their assessment on total family income, including noncash benefits, conclude that a significant segment of families are worse off as a result of welfare reform. The potential of government supports to augment earnings and pull many working families out of poverty is not yet a reality.

An analysis of data from the Census Bureau's Current Population Survey (CPS) found that between 1995 and 1997, disposable income increased for most single-mother families but not for those among the poorest income groups.³⁸ (See Figure 4). Total resources declined by $814 annually for the lowest income group and by $319 for the second-lowest group. As Figure 4 shows, this decline occurred primarily because of a drop in the number of families receiving TANF and food stamps.

Other analyses of CPS data from 1976 to 1998 point in the same direction.³⁹ They show that overall, recent welfare reforms increased family earnings and decreased poverty, but that the lowest-income families are worse off since welfare reform. For example, researchers found that, following the passage of the 1996 legislation, "poverty among female high school dropouts appears to have declined by 2 percentage points more than it would have in the absence of policy changes...."⁴⁰

However, such analyses also revealed that income gains did not occur in the post-TANF era among less skilled mothers in the bottom fifth of the income distribution. The data showed a substantial decline in income for women in this group, although the effects were not precisely estimated. One study found an increase in deep poverty (below 50% of the federal poverty line) among children between 1995 and 1997.⁴¹

In short, the picture of actual incomes in the TANF era is mixed: Some families have gained as a result of welfare reform and other policies designed to make work pay, whereas others at the bottom of the income distribution seem to be worse off. These findings highlight the importance of increasing wages and resources for working poor families and making it easier for them to participate in government support programs. Strategies may also focus on increasing the number of hours of work among single-parent families by ensuring the availability of low-cost, high-quality child care.⁴²

Work Increasing, but at Low Wages

Motivated by a strong economy and policies that help make work pay, many more single mothers are working now compared to earlier periods.⁴³ Between 1995 and 1999, the labor force participation rate for single mothers with children under age 6 increased from 53% to over 68%, and rates for single mothers with older children rose from 67% to 83% (see Figure 5).⁴⁴ Among welfare recipients, participation in the paid labor force increased from about 9% to 28% over the same period.^45,46 Studies show that the proportion of families who are employed after leaving welfare has also increased. A nationally representative Urban Institute study found that 75% of families who left welfare between 1995 and 1997 included at least one employed adult, as did 79% of those who left between 1997 and 1999.⁴⁷ In studies from eight states, employment rates among single-parent welfare leavers ranged from 50% to 64% in the first three months after leaving welfare.⁴⁸

Studies to date indicate that earnings for families leaving welfare are generally low, barely reaching the poverty line. The Urban Institute study of welfare leavers found that median monthly wages were $1,093 in 1999, just under the federal poverty level for a family of three.⁴⁹ According to studies in eight states, average monthly earnings of former welfare recipients during the first three months after leaving welfare were even lower, generally ranging from $733 to $900.⁵⁰ It is clear that many low-income working families do not earn enough to support a family of three.

In addition, few studies compare postwelfare income with the income families would have received if they had remained on aid. Based on individuals' assessments of their family income, some studies suggest that one-half to two-thirds of families who leave welfare have higher incomes after leaving the rolls. A study in Wisconsin, however, estimated that more than half the families leaving welfare in that state have lower incomes than they would have if they had stayed on welfare.⁵¹ No studies have been able to provide information about changes in income for those who have never become welfare recipients because of new policies adopted since reform.

Work Supports Often Not Received

For families earning low wages, government supports such as the EITC, food stamps, health insurance, and subsidized child care are essential to maintaining sufficient economic resources. Studies show that participation in the EITC is generally strong. At least 85% of eligible families receive the EITC, according to rough estimates.^52–54 But the same is not true of other programs intended to help make work pay. Studies show that a substantial number of families leaving welfare do not avail themselves of other, nontax supports to augment their earnings.

• Food Stamps
  For example, many families do not continue to receive food stamps once they leave welfare. One study found that 57% of families leaving welfare were not receiving food stamps, even though they were eligible.⁵⁵ (See Figure 6.) More surprising, even half the families with incomes below 50% of poverty were not receiving food stamps. State studies that examine participation across government programs also confirm this result. Only about half the families leaving welfare used food stamps in the first three months after exit, and receipt was significantly lower in most states after families had been off the rolls for a year.⁵⁶


• Medicaid
  Recent studies indicate similar trends in Medicaid coverage. Although Medicaid offers a transitional benefit of 12 months' coverage to adults who leave welfare for work, states report that continued coverage among this group varied from about 30% to 60% in the first three months after exit, and declined significantly after leavers were off welfare for a year. Data from the Urban Institute's National Survey of America's Families show that although more than half of welfare leavers had Medicaid coverage in the first six months of leaving the rolls, this rate of coverage dropped quickly.⁵⁷ About half the mothers were uninsured one year after leaving welfare. (See Figure 7.)


• Child Care
  Child care is a critical issue for families' economic resources; the cost of child care can be a significant strain on low-income families, consuming as much as 20% of their income.⁵⁸ At the same time, information about low-income families' receipt of child care assistance is relatively scant, although it seems that help in paying for child care is infrequent. For example, in the Urban Institute study of families leaving welfare between 1995 and 1997, only 19% reported receiving government help in paying for child care after three months.⁵⁹ This figure rose to 22% for families leaving welfare between 1997 and 1999.⁶⁰ The recent expansion of child care funding through both TANF and the Child Care and Development Fund should help to expand assistance to low-income families, but many policy analysts argue that funding is not adequate. Rough estimates suggest that about 2 million children are served through current funding streams, although as many as 15 million children live in families that meet the federal eligibility standards.⁶¹ (For further discussion of child care and welfare reform, see the article by Fuller and colleagues in this journal issue.)


• Child Support Enforcement
  Stronger child support enforcement was a goal of welfare reform, as child support can be an important supplement to single-parent families' income and help them move off welfare. One study found that among poor, nonwelfare families who received child support, it provided 35% of their income.⁶² Unfortunately, most poor children eligible for child support do not receive it.⁶³ The Urban Institute study of families leaving welfare between 1995 and 1997 found that of those who stayed off welfare, only 34% received child support.⁵⁸ Moreover, state studies report that only 13% to 36% of families leaving welfare receive child support.⁶⁴ Although federal and state government policies devoted to strengthening child support enforcement over the last two decades have increased child support receipt significantly among both never-married and previously married single mothers,⁶⁵ the poorest children have received only modest increases.⁶⁶ It is difficult to expand child support for poor children because absent parents who do not pay support are, on average, more disadvantaged than absent parents who do pay.⁶⁷ (See the article by McLanahan and Carlson in this journal issue.)

In sum, low participation rates are found across many government programs designed to support the working poor. Researchers conducting field studies attribute families' lack of participation to a number of factors. Some blame states' failure to develop effective administrative systems to deliver assistance to the working poor.⁶⁸ State and local offices seldom get the word out about benefit eligibility to low-income families; administrative hurdles can be formidable, especially for working families, and many caseworkers do not understand the complex eligibility rules that vary across different benefit programs. Some critics argue that the low participation rates, especially the drop over time in Medicaid coverage, may be due to administrative complexities.⁶⁹ Eligibility for the full 12 months of Medicaid benefits requires submitting information on earnings and child care costs in the 4th, 7th, and 10th months after leaving welfare. Stigma can also play a role; for most benefits, the point of entry is still the local welfare office. To ensure that stigma does not present a barrier to obtaining nonwelfare assistance among working poor families, some states are developing alternative entry points, such as local health clinics and child care referral programs.

Meanwhile, the continuing demand for emergency food and shelter assistance, even among working families, emphasizes the critical need for income support programs. In a survey of city officials conducted in December 2000, it was estimated that 32% of adults requesting food, and 26% of those requesting shelter, were employed.⁷⁰ Moreover, officials estimated that about 62% of those requesting emergency food and 36% of those requesting emergency shelter were families with children. Between 1995 and 2000, the proportion of families with children seeking such emergency assistance remained fairly constant, but a growing number of cities reported increased demand from families for these services.