The final results from a comprehensive, rigorous evaluation of Minnesota’s welfare reform initiative — the Minnesota Family Investment Program (MFIP) — show that the program brought substantial, far-ranging improvements in the lives of single parents who were long-term welfare recipients. The program not only increased these parents’ employment, but also reduced their poverty, decreased their levels of domestic abuse, and improved their children’s behavior and school performance. MFIP is also perhaps the first program of its kind that was found to increase marriage and marital stability, another central goal of many welfare reformers. MFIP had fewer effects on families newly applying for welfare. It was also found to be more costly than the AFDC system it replaced.

The study was released today by the nonprofit, nonpartisan Manpower Demonstration Research Corporation (MDRC), which evaluated MFIP. "MFIP’s positive effects on economic outcomes and on family and child well-being are unprecedented," said Gordon Berlin, Senior Vice President at MDRC. "By supporting people when they work, MFIP has succeeded where other reforms have failed — increasing work, income, and marriage together."

MDRC evaluated the program under a contract with the Minnesota Department of Human Services, with support from the Ford Foundation, the U.S. Department of Health and Human Services, the U.S. Department of Agriculture, and the Charles Stewart Mott, Annie E. Casey, McKnight, and Northwest Area foundations.

The Minnesota Family Investment Program

The study released today is the final report from an evaluation of the pilot phase of MFIP, which operated from April 1994 to June 1998 in the three urban counties of Hennepin (Minneapolis), Anoka, and Dakota, and the four rural counties of Mille Lacs, Morrison, Sherburne, and Todd. The program was unusual among welfare reform efforts because its goal was not only to move recipients into work and reduce dependence on public assistance, but also to help working families leave poverty. To achieve this ambitious agenda, MFIP combined two strategies that had not previously been rigorously tested as a package:

• Financial incentives to reward work and reduce poverty. MFIP offered welfare recipients financial incentives to get a job by allowing them to keep more of their benefits when they had earnings, compared with the traditional Aid to Families with Dependent Children (AFDC) program that MFIP replaced. In MFIP, working recipients were allowed to continue receiving some benefits until their income was 40 percent above the poverty line. In addition, child care subsidies were paid directly to child care providers for parents who worked.

• Mandatory participation in employment services to encourage and require work and reduce reliance on welfare. The program required long-term recipients¹ to participate in employment-related activities if they did not already work at least 30 hours per week or have a child under the age of one. Single parents were required to participate after 24 months on welfare, whereas one parent in each two-parent family was required to participate after six months on welfare.

For purposes of the evaluation, people who were receiving (or applying for) welfare in the seven counties were assigned at random, in a lottery-like process, to MFIP (the "MFIP group") or the traditional AFDC system (the "AFDC group"). (The AFDC was still in place during the period of the pilot program.) MFIP’s effects were estimated by following the two groups over time and comparing their employment, welfare receipt, and other outcomes. The difference in outcomes between the two groups is the effect, or impact, of the program. For example, an "increase" in employment means that the MFIP group achieved a higher employment rate than the AFDC group. The two groups included more than 14,000 families.

A modified version of MFIP was implemented as Minnesota’s statewide welfare system in early 1998, after the landmark federal welfare reform law was enacted. Along with changes intended to contain costs, the new program requires parents to work or participate in work-related activities soon after entering the welfare system, and includes the five-year time limit on welfare benefits that is part of Temporary Assistance for Needy Families (TANF), the federal program that replaced the AFDC system. Because the pilot program and the statewide version of MFIP share many components in common, the evaluation provides a starting point for predicting the effects of a statewide MFIP. However, the researchers cautioned that these evaluation results cannot be assumed to apply directly to the new statewide version of the program.

Consistently Positive Results for Single Parents Who Were
Long-Term Welfare Recipients

MFIP’s designers set out to increase employment, reduce poverty, and reduce dependence, a set of goals rarely achieved by any previous program. For single parents who were long-term recipients — the key group for many policymakers — MFIP succeeded in achieving the first two of these goals, and, by some measures, the third. Long-term recipients have historically had difficulty finding jobs and leaving welfare, raising concerns that they may be left with little income when welfare time limits are implemented.

The report found that improvements in families’ financial status held up for the two and a quarter years that families were tracked. [See Table 1 and Figure 1.] On average, quarterly employment went up by 35 percent (49.9 percent of the MFIP group worked vs. 36.9 percent of the AFDC group), and quarterly earnings increased by 23 percent ($955 vs. $779) throughout the follow-up period. Moreover, the increase in employment was in full-time, stable jobs. Because of MFIP’s financial incentives, families in MFIP averaged a 15 percent higher quarterly income from earnings and welfare combined ($2,700 vs. $2,348). Correspondingly, the percentage of families with above-poverty income rose by 68 percent (from 14.7 percent for the AFDC group to 24.6 percent for the MFIP group). While the incentives resulted in more families continuing to receive welfare while working, 21 percent fewer families in the MFIP group (42.9 percent) than in the AFDC group (54.5 percent) relied on welfare with no earnings, a step toward self-sufficiency.

These changes in financial outcomes led to remarkable changes in family life: Domestic abuse of mothers decreased 18 percent (49.1 percent of the MFIP group vs. 59.6 percent of the AFDC group); marriage rates increased from 7 percent for the AFDC group to 10.6 percent for the MFIP group); and children’s behavior and school performance improved. [See bottom panel of Table 1 and Figure 2.] "The positive effects on seemingly intractable problems like domestic abuse make more sense if you consider that the program didn’t just give families more income," said Virginia Knox, Project Director of the MFIP evaluation at MDRC and lead author of the summary report. "The extra income from the incentives was available only if you worked; the program was presented as a very positive opportunity; and the program’s staff encouraged people to use that opportunity to move ahead. All of this may have helped people change their lives in multiple ways."

Surprising Effects on Marriage for Two-Parent Families Receiving Welfare

MFIP had a different, but also dramatic, set of effects for two-parent families who were receiving welfare. [See Table 2 and the top left part of Figure 2.] For these families, MFIP’s extra benefits relieved some of the financial pressure they felt to have both parents working. The program did not change the likelihood that someone in the family worked, but some second earners reduced their hours or delayed entering the workforce. As a result, family earnings decreased, although the program still increased family income through its financial incentives and less restrictive (than AFDC’s) eligibility rules for two-parent families. Perhaps most striking, two-parent families in MFIP were more likely to maintain their marriages without separation or divorce throughout the three years after the start of the program. At the end of year three, 67 percent were married, compared with 48.5 percent of AFDC families — a 38.1 percent increase.

"Social scientists have argued for years about whether or not the welfare system discourages marriage or encourages parents to split up," said Lisa A. Gennetian, lead author of the report on MFIP’s effects on children. "This is the first solid evidence that changing the rules of the welfare system can actually increase the likelihood that single parents get married and that parents in two-parent families stay together."

Fewer Effects for People New to the Welfare System

The report also assessed the program’s effects for families who had recently applied for welfare when they entered the study. [See Tables 3 and 4.] The program had fewer effects for these families, for two reasons. First, the distinction between MFIP and the old AFDC program was more limited for applicants than for recipients because applicants were not immediately subject to mandated participation in employment-related activities. Second, applicants are more likely to go to work or leave welfare than are recipients, leaving less room for the program to affect them.

Implications for Welfare Reform Nationally

The evaluation’s summary report outlines several lessons for the more than 40 states that have incorporated variations of Minnesota’s "make work pay" approach into their welfare reform programs:

The results suggest that changing the generosity of welfare for working families can bring substantial benefits even beyond what states may have anticipated when they enacted these changes. Not only did MFIP’s policies help families leave poverty, as the program’s designers hoped, but they also brought changes in areas in which political rhetoric has often exceeded rigorous evidence of what works — marriage, domestic abuse, and children’s well-being.

At the same time, policymakers should be aware that financial incentives do not bring the same employment effects for all families — MFIP’s incentives had the greatest effect on the employment of parents who were least likely to go work on their own. For other families, incentives may provide an important reward for working, but may not change (or may even decrease) parents’ work effort.

In addition, states that have implemented both financial incentives and time limits should be aware that the two policies are not fully consistent with each other. Incentives enable working families to extend their stays on welfare, while under time limits it may make sense to encourage families to leave welfare as quickly as possible, to "bank" their allowed months on welfare and reserve the welfare safety net as a last resort. Some solutions to this dilemma include "stopping the clock" for full-time workers or extending the assistance for such workers beyond 60 months; gradually phasing out incentives over time; or providing supports for low-income families outside the welfare system, where time limits do not apply.

The study also indicates that work requirements or participation requirements are important complements to financial incentives. MFIP’s participation requirements were responsible for much of the program’s increase in employment and all of the increases in earnings, and thereby helped to keep welfare use and welfare costs lower than they would have been had incentives been implemented by themselves.

Finally, the improvements MFIP brought for family life did cost money, at least in the short run. For different types of families, MFIP added between $1,900 and $3,800 in annual government costs per family, over a five-year period. However, the study did not estimate savings that may accrue to the government in the future because of reduced child poverty, reduced domestic violence, or other effects that may continue to produce benefits for society in the future.

"The study provides new evidence that redesigning the welfare system can bring important, intergenerational effects," said Cynthia Miller, lead author of the report on MFIP’s effects on adults. "A crucial remaining task is to find out whether these encouraging results can be replicated in other parts of the country and in the era of time limits on welfare receipt."

About MDRC

MDRC is a nonprofit, nonpartisan research organization with a quarter century’s experience designing and evaluating social policy initiatives, including many state and federal welfare reforms. The new report, titled Reforming Welfare and Rewarding Work: Final Report on the Minnesota Family Investment Program, is being issued in three volumes: Volume 1, which presents MFIP’s effects on adults; Volume 2, which presents MFIP’s effects on children; and a summary report. The authors are Virginia Knox, Cynthia Miller, Lisa A. Gennetian, Martey Dodoo, Jo Anna Hunter, and Cindy Redcross.

NOTE:

¹"Long-term" was defined by MFIP and the evaluation as receipt of welfare for at least two of the prior three years, but more than half of the long-term recipients in the evaluation sample had received welfare for at least five years in their adult lives.