Making the 1996 Welfare Reform Work: The Promise of a Job

April 2010

Anthony J. Mallon, Virginia Commonwealth University and Guy V.G. Stevens, Federal Reserve Board (ret.)

Download 'working_paper10-03.pdf'.


Abstract

While it is well known that Temporary Assistance for Needy Families (TANF) caseloads have shrunk by 50 percent or more since the passage of the 1996 welfare reform act (PRWORA), information regarding the economic circumstances and overall well-being of those who leave the welfare roles is less publicized. The extensive evidence examined in this paper presents a consistent picture: although approximately 60% of welfare leavers exited with a full-time job, within a year or two approximately half of all leavers fall into poverty. There is some evidence that the percentage living in poverty has increased for more recent leavers. These findings all date to periods prior to the recent severe economic recession.

The proximate cause of this high rate of poverty, as revealed in the data, is that welfare leavers end up working, on average, too few hours over the course of a year. Behind these low hours are the more fundamental causes of the measurable “barriers to work” limiting many leavers, and the limited supply of appropriate private-sector jobs, even during the so-called full-employment years of the late 1990s.

In a search of potential solutions to this problem, the present paper examines the results, design, and costs for a large number of transitional-job and welfare-to-work programs. Based on this examination, and proceeding on the assumption that any contemporary policy proposal must be “work-based,” we propose and cost-out a program of jobs-of-last-resort, one that represents an extension and expansion of existing transitional jobs programs. The program, called Promise of a Job (POJ), addresses the two fundamental causes noted above, by including a job guarantee and by providing training and monitoring before and after the initial job placement. We are aware that such a program carries the danger of a sizable “displacement effect,” and our program design tries to minimize this problem. We estimate the costs per participant and the overall costs of applying Promise of a Job to a number of relevant economic situations.

Since the focus of POJ is our attempt to correct the critical failings of PRWORA, we attempt to calculate the impact of combining POJ with TANF at two important points in time: in 2007, the most recent year for which we had adequate data, and in 1996, the first year of welfare reform. We estimate the costs and benefits for a number of scenarios, varying the eligibility requirements for POJ, the rate at which adults on TANF become participants in POJ, and the rate at which participants find a full-time private-sector job. Among the most important benefits of this composite program is the reduction of adult and, especially, children’s poverty. The assumption of participants exiting TANF with a full-time job, either in the private or public sector, leads, as expected, to significant reductions in the relevant poverty rates. Interestingly, however, the reductions in poverty differ significantly between 1996 and 2007.



Keywords:
Education and Training Programs, Welfare Reform and the Administration of Welfare Programs