| For more than three decades, proponents of
welfare reform have tried unsuccessfully to simultaneously
increase work, reduce poverty, and reduce welfare dependence
among public assistance recipients. Initiatives that provided
more income to people made them better off financially, but
discouraged work. Initiatives that required work lowered dependency
as recipients substituted work for welfare, but had little
effect on income. Confronted with this dilemma, policymakers
intensified their search for strategies that could both increase
work effort and increase total income without deepening dependency.
Two primary approaches have been tried to
accomplish welfare reform’s three goals: One approach
is to mandate participation in employment and training programs
as a condition of welfare receipt. Another approach makes
work pay by emphasizing financial incentives that allow recipients
to retain more of their welfare benefits when they go to work.
Until recently, these approaches have rarely
been used together. Consequently, a combination of mandating
work-focused activities and increasing financial incentives
to work has remained untested as a single strategy. The Minnesota
Family Investment Program (MFIP), a welfare reform initiative
aimed at increasing families’ employment and earnings
while increasing their total income and reducing poverty,
has combined the two approaches to meet its goals. Operating
in seven Minnesota counties since April 1, 1994, MFIP provides
an unusual opportunity to evaluate the combined effects of
financial incentives and mandated activities.
MFIP’s two-part strategy operates like
this: First, it enhances welfare recipients’ financial
incentives to get a job by allowing them to keep more of their
benefits while they are earning income than they would have
with the traditional Aid to Families with Dependent Children
(AFDC) program. Second, it requires long-term welfare recipients
to participate in employment-focused activities. This two-part
strategy was designed to achieve the goals of Minnesota policymakers:
to encourage work and to make working families better off
financially.
Previous research suggests that it is not
always possible to reach those goals simultaneously. Programs
that require participation in employment and training activities,
for example, have tended to increase employment and earnings
while reducing welfare costs — but recipients’ total
income has remained unchanged or, at best, has increased relatively
little because their benefit reductions have largely offset
their earnings gains. A financial incentives policy, on the
other hand, has the potential to generate two possible outcomes
that are somewhat different from the outcomes that are typically
produced by a mandatory activities strategy. First, like a
mandatory strategy, it can encourage people who would not
have worked to do so — but unlike a mandatory strategy,
it accomplishes this goal by making work pay. Under the traditional
AFDC program, welfare benefits are reduced almost a dollar
for every dollar earned, while under MFIP, the basic grant
is increased by 20 percent for those who are employed, and
then benefits are reduced by only 62 cents for every dollar
earned. MFIP’s financial incentives are relatively larger
for part-time work than for full-time work, with the hope
that allowing families to combine work and welfare will serve
as a stepping stone to full-time employment, eventually reducing
families’ dependence on welfare as their primary source
of income. The objective is to increase the incentive recipients
have to work, and to make those who work better off.
A second possible outcome of a financial incentives
policy is that it can provide more income to families who
would have gone to work without the incentive. In those cases,
families’ employment levels and/or earnings do not change,
although families have a higher total income because they
are keeping more of their welfare benefits. In fact, a financial
incentives policy might induce some working families to work
less because they are able to substitute increased welfare
income for earnings. This might happen, for instance, when
a mother’s time at home is more valuable to a family
than any extra income she might earn. In any of these scenarios,
welfare caseloads are likely to increase — at least in
the short run — because more employed families will stay
on welfare.
One way to mitigate the potential drawbacks
of operating either a mandatory employment-focused program
or a financial incentives program is to combine the two. Using
mandates reinforces the work message of incentives and facilitates
job entry through employment services, while using incentives
helps achieve the goals of increased income and poverty reduction.
It is the combination of these two strategies that makes MFIP
of particular policy interest.
This report is the second in an evaluation
of MFIP that the Manpower Demonstration Research Corporation
(MDRC) is conducting under contract with Minnesota’s
Department of Human Services (DHS) and with support from the
Ford Foundation, the U.S. Department of Health and Human Services,
the U.S. Department of Agriculture, the McKnight Foundation,
and the Northwest Area Foundation. The report examines the
implementation of MFIP and its effects on welfare recipients’
employment, earnings, welfare receipt, and total income during
their first 18 months in the study.
The results presented in this report should
be considered in the context of the environment in Minnesota.
Minnesota’s welfare benefit levels are relatively generous,
making it possible for a higher fraction of its welfare caseload
to be working than is true in other states. In addition, Minnesota’s
economy during the follow-up period (1994–96) was relatively
strong, with unemployment rates below the national average.
Furthermore, before MFIP was implemented, Minnesota had been
operating a primarily voluntary — as opposed to a mandatory
— welfare-to-work program. Finally, time limits are not
part of the MFIP program operating in the seven counties,
but the state’s recently passed legislation to operate
a modified version of MFIP statewide includes a five-year
time limit on receipt of federally funded cash welfare.1
I.
The Findings in Brief
To determine the effects of MFIP compared
with AFDC, this report uses data on employment, earnings,
and welfare receipt for more than 9,000 individuals randomly
assigned to MFIP or to the traditional AFDC program from April
1, 1994, through December 31, 1994 — about two-thirds
of the full sample that will eventually be studied. The data
are used to track the outcomes of individuals for the first
18 months after they entered the study, focusing primarily
on MFIP’s effects on single-parent families.2
The findings — based on field observations
and interviews, staff surveys, surveys of families in MFIP
and AFDC, and administrative records data — indicate
that MFIP was implemented as intended and produced important
changes in the way benefits and services are provided to new
welfare applicants (those applying for welfare when they entered
the study) and recipients (those already receiving welfare
when they entered the study). In addition, after 18 months
MFIP did meet its goals for single parents living in urban
areas who were long-term welfare recipients when they entered
the program. These individuals, who were receiving welfare
for at least 24 of the prior 36 months when they entered the
study, represent the most disadvantaged segment of the welfare
caseload and one that has traditionally been hard to help.
For these long-term recipients, MFIP’s
combination of financial incentives and mandatory services
substantially increased employment and earnings; 18 months
after random assignment, the proportion of recipients in the
MFIP program who were employed was nearly 40 percent higher
than among recipients in the AFDC program. In addition, the
financial incentives allowed working families to supplement
their earnings with partial welfare grants. The net result
over the 18-month period was a 13 percent increase in total
family income and a 16 percent reduction in poverty among
these families, although it came at the cost of an 8 percent
increase in welfare payments.
MFIP was not as successful for single parents
in urban areas who were applying for welfare when they entered
the program (applicants). Because participation in MFIP’s
employment services is mandatory only for people who have
received welfare for two or more years, these new applicants
received only MFIP’s financial incentives for their first
18 months in the program. The financial incentives had only
a modest effect on their employment behavior, with no significant
effect by the end of follow-up, most likely because many of
them would have worked anyway. Furthermore, MFIP increased
welfare payments by 27 percent, primarily because the enhanced
incentives enabled families to continue to receive benefits
while working. When families were allowed to combine work
with some welfare benefits, their total income increased by
nearly 7 percent and the incidence of poverty declined by
more than 6 percent.
MFIP was also not as successful among long-term
welfare recipients in rural areas.3
It had no lasting effects on their employment or earnings
— although it increased welfare receipt because, again,
families were allowed to combine welfare and work, and the
increase in benefits substantially reduced poverty.
To date, the results suggest that the increases
in income and reductions in poverty come, in large part, from
MFIP’s financial incentives. Adding a mandate to participate
in employment-focused activities along with a reinforced "it
pays to work" message is primarily responsible for generating
the employment and earnings gains. Thus, it is the combination
of these two policies that achieves the multiple goals of
increased employment and earnings and reduced poverty for
long-term recipients.
Although the results so far indicate success
for one group and mixed results for others, it is important
to remember that these results are short-term and that the
pattern of MFIP’s effects could change over time. MFIP
might affect the employment of people who entered the program
as applicants, for example, once they become subject to the
combined "package" of incentives and participation
requirements. Similarly, it is impossible to say at this point
whether the promising gains achieved among long-term urban
recipients so far will persist in the long run. In particular,
will MFIP succeed at increasing employment and job retention
over time? Future reports, using longer-term follow-up data,
will address these and other questions. In addition, a benefit-cost
analysis will examine how the benefits of this program compare
with the costs.
II. The
MFIP Evaluation
MFIP was implemented
on a field trial basis on April 1, 1994, in the three urban
counties of Hennepin (which includes Minneapolis), Anoka,
and Dakota, and the four rural counties of Mille Lacs, Morrison,
Sherburne, and Todd. In order to test MFIP against the traditional
AFDC system, MFIP and AFDC have been operated side-by-side
in the counties under evaluation, with public assistance applicants
and recipients randomly assigned to each of the two systems.
The use of random assignment ensured that
there were no systematic differences between the two groups’
members when they entered the study. Thus, any differences
in outcomes, such as employment and earnings, that emerge
between the MFIP and AFDC groups during the follow-up period
can reliably be attributed to the MFIP program. The different
outcomes between the two groups reflect the "impact"
of MFIP. Unless otherwise noted, all impacts mentioned are
statistically significant. "Statistical significance"
is a measure of the degree of certainty that some non-zero
impact actually occurred. If an impact estimate is statistically
significant, then one may conclude with some confidence that
the program had a real effect. If an impact estimate is not
statistically significant, then the non-zero estimate is more
likely to be the product of chance.
A. The MFIP Group
Single-parent families on welfare who are
assigned to the MFIP group are eligible for the following
MFIP financial incentives and benefits, and are subject to
the following requirements:
- Financial incentives. In both MFIP and AFDC,
welfare benefits decrease as earned income rises, although a certain
amount of income is disregarded (i.e., not counted) when benefits
are calculated. Working families in MFIP, however, can keep more of
their monthly financial benefits because more of their earnings are
disregarded when their benefit amount is calculated. Moreover, while
the AFDC disregards decrease over time, the relatively higher benefits
for working MFIP families are available as long as the family stays
on MFIP.
- Mandatory employment-focused activities.
Long-term welfare recipients must participate in MFIP’s employment
and training activities, unless they are working more than 30 hours
per week, have a child under the age of one, or meet other "good
cause" criteria. Single parents in AFDC are under no such obligation.
MFIP includes a menu of job search, short-term training, and educational
activities, with a strong focus on entering employment quickly. Individuals
who fail to comply with the participation mandate in MFIP can be sanctioned
— that is, their monthly welfare payments are reduced by 10 percent.
- Direct child care payments. MFIP pays child
care expenses directly to the child care providers, rather than requiring
families to pay the cost up-front and reimbursing them later, as the
AFDC program does.
- Simplification. MFIP simplifies public assistance
rules and procedures by combining AFDC, Minnesota’s Family General
Assistance (FGA),4 and
Food Stamps into a single program and by providing Food Stamps as
part of the cash grant.
As mentioned above, the report focuses on
two types of single parents who participated in the program:
(1) applicants, or those participants who were applying for
welfare for the first time when they entered the program,
and (2) long-term recipients, or those who had been receiving
welfare for two or more years when they entered the program.5
The primary reason for looking at applicants and long-term
recipients separately is that MFIP’s mandatory activities
are conditional upon two years of welfare receipt. Thus, the
applicants were not mandated to participate during the follow-up
period for this report, while long-term recipients were required
to participate immediately after entering MFIP.
Although "long-term recipients"
are defined in this evaluation as those who received welfare
for at least two years during the previous three years, this
sample of long-term recipients also contains families with
much longer stays on welfare. At the time they entered the
study, over one-half of the long-term recipients had received
welfare for at least five years, and one-fifth had received
welfare for at least ten years. In addition, only one-third
had worked in the year prior to random assignment.
B. The AFDC Group
Families assigned to the AFDC group are potentially
eligible to receive the benefits and services offered under
Minnesota’s AFDC system, including cash assistance from
AFDC or FGA, Food Stamps, and the opportunity to enroll in
STRIDE, Minnesota’s traditional welfare-to-work program.6
STRIDE is a primarily voluntary program that enrolls a relatively
small proportion of the AFDC caseload in mostly longer-term
education and training services.
III. 18-Month
Impacts for Single-Parent Families
A.
Impacts for Long-Term Recipients in Urban Areas
- For single-parent, long-term recipients, MFIP substantially
increased employment and earnings during the first 18 months and somewhat
increased the payout of welfare benefits.
Table 1 presents MFIP’s
impacts on employment and earnings, welfare receipt, income,
and poverty. By the last three months of the 18-month follow-up
period, 52 percent of single parents in the MFIP group were
working, compared with only 38 percent of single parents in
the AFDC group. This 14.5 percentage point difference translates
into a nearly 40 percent increase in employment. Earnings
during the 18 months were $4,912 for the MFIP group, compared
with $3,871 for the AFDC group. This impact difference of
$1,041 represents a 27 percent increase in earnings for the
MFIP group. These employment and earnings impacts are among
the largest produced by previously studied welfare-to-work
programs. The impacts are also notable given that long-term
recipients represent the most disadvantaged segment of the
welfare population.
Although people in the MFIP group were more
likely to work and they earned more, the increase in earnings
came from jobs that were somewhat less than "full-time,"
primarily concentrated at 30 hours per week. This result may
be partly due to the fact that people had to work 30 or more
hours per week to become exempt from MFIP’s mandatory
employment and training activities.
MFIP also increased welfare receipt somewhat,
as shown in Table 1. During the last
three months of the follow-up period, 77 percent of the people
in the AFDC group were receiving welfare, compared with 81
percent of those in the MFIP group resulting in a 5 percent
increase in welfare receipt. Average welfare benefits were
also higher for those in the MFIP group ($11,074) than in
the AFDC group ($10,256), primarily because more individuals
in the MFIP group combined work and welfare.
- MFIP substantially reduced poverty
for long-term, single-parent recipients in urban areas,
by increasing their earnings and limiting the reduction
in their welfare benefits (compared with AFDC) when they
worked.
During the follow-up period, members of the
MFIP group earned more than those in the AFDC group and received
more in welfare benefits. As shown in Table
1, this combination of higher earnings and welfare resulted
in measured income (earnings plus welfare) that was $1,859
higher among the MFIP group ($15,986) than among the AFDC
group ($14,127). Moreover, earnings contributed more than
welfare did to the increased income for the MFIP group; $1,041
of the $1,859 income difference came from increased earnings,
while $818 came from higher welfare payments. Finally, the
increase in measured income over the 18-month follow-up period
resulted in a substantial reduction in poverty: 71 percent
of the MFIP families had measured income below the poverty
line, compared with 85 percent of AFDC families.
- It is MFIP’s combination
of financial incentives and mandatory employment-focused
activities — delivered with a reinforced incentive
message — that achieved the goals of increased employment
and reduced poverty.
In order to examine the effects of MFIP’s
financial incentives alone compared with the effects of combining
the incentives with mandatory activities, the evaluators randomly
assigned a subset of individuals to a third research group
— called "MFIP Incentives Only" — in addition
to the MFIP and AFDC groups. People assigned to the MFIP Incentives
Only group received the enhanced financial incentives but
were not subject to MFIP’s participation mandates —
although they could opt to take advantage of the employment
and training services offered through the AFDC system (i.e.,
STRIDE) or by other programs in the community.
Long-term recipients in the MFIP Incentives
Only group were generally told in person about the enhanced
financial incentives at their annual eligibility reviews,
with some additional communication of the program’s employment
message by telephone or mail between the in-person interviews.
In contrast, long-term recipients in the MFIP group, who were
required to participate in employment-focused activities,
met repeatedly with case managers, who arranged for employment
services and, as part of the overall effort to move participants
into employment, reinforced the program’s incentives
component by discussing it with recipients.
Table 2 presents the
results of disaggregating MFIP’s effects — that
is, looking at the impacts of the program’s individual
components. The impacts of the full MFIP program (incentives
plus mandated activities), which were presented in Table
1, are shown in column 3 of Table 2.
These impacts are measured as the difference in outcomes between
the MFIP and AFDC groups.
The impacts of financial incentives without
strong "marketing" or "reinforcement"
are shown in column 1 (measured by comparing outcomes for
people in the MFIP Incentives Only group with outcomes for
those in the AFDC group). As column 1 indicates, the primary
effect of the MFIP incentives alone was to increase benefits
for working families. People in the MFIP Incentives Only group
were 7.7 percentage points more likely to receive welfare
in months 16 through 18, and they received an average of $1,472
more in welfare benefits. In contrast, the financial incentives
program had only a 4.3 percentage point effect on employment
in the last 3 months and had no effect on average earnings
over the 18 months.
Comparing outcomes for the MFIP group with
those for the MFIP Incentives Only group gives an estimate
of the effect of adding the mandatory activities to the financial
incentives and reinforcing the incentives message. As shown
in column 2, when mandatory activities were added to the financial
incentives, employment in the last three months of follow-up
rose by 10.2 percentage points. The full MFIP impact of 14.5
percentage points is the sum of the effects of financial incentives
alone plus the effects of a mandate and a reinforced message
regarding financial incentives. In a similar fashion, Table
2 indicates that the increase in earnings achieved by
the full MFIP program comes largely from adding the mandatory
services to the incentives; $158 of the total impact of $1,041
comes from providing MFIP financial incentives only, although
this impact is not statistically significant, and an additional
$882 comes from adding the mandates and reinforced incentives
message.
It is important to note that the impacts shown
in column 2 cannot be solely attributed to the mandatory employment
activities since they were offered in combination with financial
incentives. As observed earlier, the employment and training
activities provided an avenue to further promote MFIP’s
financial incentives. A second and possibly more important
factor is that the enhanced incentives may interact with the
activities in positive ways. For example, someone provided
with employment services may be more likely to take a job
if she can keep more of her benefits while working. Furthermore,
staff may promote work enthusiastically because they believe
the financial incentives make employment beneficial to families
with whom they work.
In summary, most of the employment and earnings
gains for long-term urban recipients come from the mandatory
services and reinforced message about incentives. In contrast,
all of the increase in welfare benefits comes from the pure
financial incentives component. The combination of both policies
is responsible for the large earnings and income gains, and
thus for MFIP’s meeting its goals of increased employment
and reduced poverty.
B. Impacts for Applicants in Urban Areas7
- For applicants in urban areas, MFIP produced a modest
increase in employment and no increase in earnings during the first
18 months, and it increased the payout of welfare benefits.
Table 3 presents impacts
and outcomes for applicants. MFIP produced modest increases
in employment during the middle period of follow-up (not shown
in table), but these increases did not persist to the end
of follow-up. During months 16 to 18, 57 percent of applicants
in the MFIP group were employed. However, 53 percent of applicants
in the AFDC group were also employed. Large employment gains
were not expected for these urban applicants, since many new
applicants for welfare receive benefits for only a short time
and return to work. In addition, because MFIP’s employment
and training activities become mandatory only after two years
of welfare receipt, single-parent applicants were not required
to participate in these activities during their first 18 months
in the study.
Table 3 also indicates,
however, that MFIP increased welfare receipt for single-parent
applicants. During months 16 to 18, 53 percent of applicants
in the MFIP group were receiving welfare, compared with 45
percent of applicants in the AFDC group, for an impact of
8 percentage points. Families in the MFIP group received an
average of $1,433 more in welfare payments during the follow-up
period.
- MFIP increased income and reduced
poverty among single-parent applicants. In contrast to
long-term recipients, applicants’ increased income
came entirely from the increase in welfare payments to
applicants who worked.
The higher welfare payments that the MFIP
group received increased their incomes to $14,600, compared
with $13,691 for the AFDC group, for an impact of $909. The
increase in income reduced poverty among MFIP families by
6 percent. Since people in the MFIP group earned no more than
those in the AFDC group, MFIP raised the incomes of applicants
solely by allowing them to retain more of their welfare benefits
when they worked. Thus, MFIP made these families better off,
even though the incentives did not induce many additional
people to work.
Given that applicants were applying for welfare
when they entered the study, they are more likely than long-term
recipients to have recent work experience. Thus, the financial
incentives may have had little effect on their employment
because most would have worked anyway. However, it is possible
that MFIP will increase employment among applicants who did
not go to work once they reach the point at which participation
in activities becomes mandatory. The effect on applicants
of the full program will be assessed in a future report that
covers a longer follow-up period.
C. Impacts for Long-Term Recipients in Rural Areas
- MFIP produced no sustained increase in employment
or earnings among long-term recipients in rural areas, but it did
increase welfare receipt.
In general, MFIP was not as successful in
rural areas as it was in urban areas. Urban and rural labor
markets tend to be different, as do recipients in urban and
rural areas, and these differences may have influenced MFIP’s
effectiveness. As shown in Table 4,
by the end of the follow-up period, MFIP had produced no significant
employment gains for long-term recipients in rural areas:
during months 16 to 18, 47.5 percent of the MFIP group was
employed, compared with 43.6 percent of the AFDC group. The
difference of 3.9 percentage points is not statistically significant.
Although recipients in the MFIP group had significantly higher
employment rates than those in the AFDC group in the early
months of the follow-up period, these gains did not persist,
in part because people in the control group began to "catch
up" with people in the MFIP group.
Welfare receipt was higher for the recipients
in the MFIP group; by the last three months of follow-up,
just over 84 percent of the rural recipients in the MFIP group
were receiving welfare, compared with nearly 73 percent in
the AFDC group, for an increase of 12 percentage points. In
addition, people in the MFIP group received an average of
$1,666 more in welfare benefits during the 18 months than
did people in the AFDC group.
-
MFIP reduced poverty among long-term,
rural recipients, as a result of the increase in welfare
payments to people who worked.
The increase in welfare payments resulted
in income for the MFIP group of $15,629, compared with $13,696
for the AFDC group, a difference of $1,934. The increase in
income, in turn, reduced the incidence of poverty by 12 percent;
76 percent of the MFIP group had an income below the poverty
line, compared with 87 percent of the AFDC group.
IV. Implementation
Findings
- Two
different types of workers — financial workers and
case managers — are responsible for delivering MFIP’s
messages and services.
Both financial workers and case managers work
with the MFIP caseload. As in AFDC, MFIP financial workers,
most of whom were formerly financial workers in the AFDC system,
are responsible for determining eligibility and processing
welfare grants. They are also responsible for informing the
caseload about the MFIP financial incentives and explaining
that going to work is financially advantageous. All MFIP applicants
and recipients meet at least once a year with an MFIP financial
worker to have their eligibility for welfare verified. In
the course of that interview, the financial worker tells them
about MFIP’s financial incentives. The financial worker
may also discuss employment or the financial incentives, primarily
by telephone or mail, at other times during the year.
The MFIP case managers work with the long-term
recipients, who are immediately required to participate in
MFIP’s employment and training component. The case managers
are responsible for developing individual employability plans
and monitoring the caseload’s progress in employment
and training activities. Case managers are also supposed to
reinforce the message that "work pays" under MFIP.
In many cases, the same organizations that provide services
through STRIDE (Minnesota’s regular welfare-to-work program)
also conduct the MFIP employment and training activities.
- MFIP financial workers succeeded
in conveying the message that work is financially advantageous
in MFIP. Nevertheless, financial workers’ overall
responsibilities did not greatly change in MFIP, compared
with their counterparts’ responsibilities in AFDC.
A survey of staff attitudes showed that all
MFIP financial workers believed that their caseload was better
off financially if they worked, while only about half the
AFDC workers believed this about their caseload. Consequently,
the MFIP staff were significantly more likely than their AFDC
counterparts to stress that it pays to work and to encourage
caseload members to get a job. In contrast, AFDC staff said
they found it difficult to talk to their caseload about work
because they do not feel that women on AFDC who get jobs will
necessarily be better off. These AFDC workers were more likely
to advise single mothers to get more education before looking
for a job than were the MFIP staff.
MFIP financial workers felt that being able
to talk to MFIP applicants and recipients about work made
dramatic differences in how they interacted with their caseload.
They did not, however, spend much more time than did AFDC
financial workers talking with or advising recipients; their
traditional duties of reviewing eligibility and processing
grants remained their primary focus.
A survey of MFIP sample members one year after
they had enrolled in the program indicated that most understood
they would be financially better off if they worked, even
if they did not understand all of the details about how their
grant would be affected.
- MFIP case managers, by reinforcing
the information about the MFIP incentives, sent long-term
recipients an even stronger message about the advantages
of working.
MFIP case managers were much more likely than
the STRIDE case managers to believe that work was financially
advantageous for their caseload. Consequently, they were more
likely to talk about the advantages of work, to urge recipients
to go to work quickly instead of raising their skill levels
first, and to encourage them to take a job even if the recipient
would not earn enough to leave welfare. They were also much
more likely to mention the benefits of working as a way to
motivate the caseload. They were able to reinforce at frequent
intervals the message that work pays under MFIP, since they
had monthly contact with most of their caseload.
- MFIP’s staff succeeded in
focusing more strongly on work and quick job entry —
in the context of the program’s employment and training
component — than was true in STRIDE. MFIP’s
participation mandate and greater emphasis on employment
are reflected in the participation rate and patterns of
the long-term recipients in the urban counties in the
evaluation.
The survey data presented in Table
5 show that long-term recipients in the MFIP group in
the urban counties had a higher overall participation rate
(58.7 percent) within 12 months of enrolling in the program
than their counterparts in the AFDC group who could volunteer
for services (43.7 percent). Compared with the AFDC group,
long-term recipients in MFIP were also more likely to participate
in activities geared toward early entry into the labor market
(job search and career workshops) and less likely to participate
in lengthy education and training programs. Many of the participants
in the AFDC group enrolled in services offered through STRIDE,
but a substantial proportion enrolled on their own in programs
offered by other community organizations. About 22 percent
of the long-term recipients in the MFIP group reported on
the survey that they had been sanctioned for not complying
with the participation mandate, a much higher rate of sanction
than that reported by the AFDC group.
- Offering incentives without requiring
participation in employment and training activities had
little effect on applicants’ participation in those
activities.
Survey data in the urban counties show no
significant differences within a 12-month follow-up period
between the participation patterns of applicants in the MFIP
group (who would not be subject to the mandatory participation
requirement for two years) and their AFDC counterparts who
could volunteer for services (Table 5).
Participation rates are relatively high for both groups and
reflect activities conducted, for the most part, by organizations
or programs other than MFIP or STRIDE. The applicants in MFIP
were just as likely to participate in at least one activity,
no more likely to participate in job search, and no less likely
to participate in education activities than their AFDC counterparts.
A comparison of the data in the top and bottom panels of Table
5 suggests that adding the mandate to participate in MFIP’s
employment and training services to the financial incentives
affected decisions about participating in employment-related
activities; offering an incentive alone had no effect on participation
during the 12-month follow-up period.
V. Policy Implications
The early MFIP findings
point to several important policy lessons for states interested
in offering financial incentives to welfare recipients who
go to work. This information will be especially useful as
states consider how to apply the flexibility offered in the
Personal Responsibility and Work Opportunity Reconciliation
Act of 1996 to reshape their welfare programs. In response
to the early findings, Minnesota has already modified the
MFIP design in preparation for expanding it into a statewide
program to replace AFDC.
- It was MFIP’s combination
of financial incentives and mandated activities that produced
the increases in employment and earnings and the reductions
in poverty for long-term urban recipients. Offering either
component alone would not have achieved gains of this
magnitude in both areas simultaneously.
MFIP provides important new evidence that
allowing families to retain more of their welfare grant when
they go to work and requiring them to participate in a mix
of activities geared toward work can boost their employment
and earnings and make them better off financially.
The importance of coupling incentives with
mandatory activities to increase work is illustrated by the
fact that recipients in the MFIP Incentives Only group —
who were offered incentives outside the context of mandatory
employment activities — showed no increase in earnings.
This finding is also supported by the fact that the MFIP applicants
— who were offered the financial incentives but not immediately
required to participate in employment-related activities —
did not show sustained increases in employment and earnings.
The results for applicants are only suggestive, since applicants
differ in many ways from long-term recipients.
Conversely, the fact that the increase in
total income among the long-term recipients was derived from
welfare payments as well as from increased earnings suggests
that mandating participation in activities without offering
financial incentives would not have produced such big increases
in total income. Few evaluations of programs that impose participation
mandates without changing the financial incentives for working
have shown employment and earnings impacts that are higher
than MFIP’s. While such programs often save taxpayers
money, they frequently do not leave families much better off
or reduce poverty because benefit reductions offset most or
much of the earnings increases. Under MFIP, welfare costs
do go up in the short run, but policymakers in Minnesota anticipated
this increase and have been willing to spend more on supporting
working families if the additional expense produces increases
in employment, earnings, and total income. The long-run costs
and benefits are not yet known.
- MFIP’s success with long-term
recipients is particularly noteworthy. Conversely, the
absence of a sustained increase in employment or earnings
among applicants suggests the program might need to be
structured differently for them.
MFIP’s success with long-term recipients
is impressive because improving outcomes for this part of
the welfare caseload has proved difficult in the past and
will be of prime concern to states running programs under
the new Temporary Assistance for Needy Families (TANF) block
grant, which replaces AFDC.
In contrast, the financial incentives offered
to MFIP applicants provided them with more welfare benefits
but did not increase their work effort. In order to minimize
these costs, a program might delay the offer of financial
incentives until individuals have been on the caseload for
some period of time. Alternatively, single parents might be
offered financial incentives as soon as they begin receiving
welfare, but they could be required to participate in employment
and training activities before the two-year mark — after
six months or a year, for example. Minnesota has adopted this
alternative — offering incentives to new welfare recipients,
but mandating participation in activities after six months
of welfare receipt — for its statewide version of MFIP.
Although this modification might boost employment and earnings
among the targeted group and reduce welfare receipt, it is
also likely to add to the short-term cost of providing employment
and training services.
- The implementation evidence suggests
that the financial incentives were instrumental in shaping
the employment focus of the mandated activities and services.
As implemented, MFIP employment and training
services place greater emphasis on quick job entry than on
long-term education and training. To a great extent, this
emphasis was reinforced by staff response to the MFIP financial
incentives. Convinced that there was a financial pay-off to
working, case managers found it easier to communicate a strong
work message: They were more likely to urge their caseload
to take jobs in the short run and to steer women into activities
that would move them relatively quickly into the job market.
It is not clear that staff — or welfare recipients —
would have responded the same way to a program that mandated
participation but did not offer special incentives for working.
- In the short term, MFIP recipients
stayed on welfare longer than their AFDC counterparts
because they were able to combine welfare and work. It
is unclear whether, over the long term, recipients will
extend their work hours and go off welfare completely.
This result has implications for imposing time limits
on welfare receipt.
Since the MFIP incentives are more generous
for people who work part-time, and since those who worked
at least 30 hours were exempt from MFIP’s participation
mandates, the increase in work effort was concentrated at
30 hours of work per week. In addition, MFIP recipients are
staying on welfare longer than their AFDC counterparts. Allowing
MFIP recipients to combine work and welfare was acceptable
to policymakers in Minnesota for several reasons. First, combining
work and welfare was seen as a way of increasing total income.
Second, the MFIP designers felt that, if full-time work was
not possible, part-time work was better than no work at all.
Finally, policymakers believed that part-time work would give
individuals on welfare an opportunity to establish themselves
in the job market and achieve stability; having gained a foothold,
they would, in time, be able to increase their work hours
and/or attain higher-paying jobs and eventually become self-sufficient.
The unanswered question at this time is whether a large proportion
of those who were working part-time at the end of 18 months
will increase their hours or earnings over the longer term.
Among the individuals in MFIP who are working
part-time, the ability to establish an earnings progression
will be particularly important when Minnesota implements the
five-year time limit on receipt of federally funded cash welfare
required by TANF. (Time limits were not operative in Minnesota
during the evaluation period covered in this report. They
were implemented statewide in July 1997, but will not affect
the people in this study during the remainder of the research.)
The implications of operating a program like MFIP in a time-limited
welfare system have not yet been tested, but two caveats are
important. First, welfare applicants and recipients might
respond differently to the incentives if they face a lifetime
limit on the number of years they can receive welfare. Second,
making it easier for recipients to supplement work with welfare,
thereby lengthening the period that employed individuals remain
on welfare, may make it more likely that welfare recipients
will use up their lifetime limit on welfare. Minnesota and
other states might therefore consider "stopping the clock"
for individuals who are working and still receiving welfare
benefits.
- Financial incentives may help
change the culture of the welfare office and of welfare
employment and training programs.
The MFIP implementation findings suggest an
important lesson about using a financial incentives policy.
This strategy is usually thought of in terms of its effect
on an individual’s decisions about employment. The MFIP
results suggest that financial incentives may have more wide-ranging
effects as well.
In recent years, welfare administrators and
policymakers have been skeptical about the feasibility of
operating a program that allows individuals to combine work
and welfare, because they feared it would be too burdensome
for financial workers to process the grants. MFIP shows that
it is not only feasible to do so, but also that it can create
advantages for staff and families. For example, both MFIP
financial workers and MFIP case managers stressed that it
was easier to talk about work and budgeting income and to
encourage single parents to go to work, because it was clear,
for the first time, that working made the welfare caseload
better off financially. Among other advantages, this facilitated
the shift from an education-oriented to a work-oriented employment
and training menu. In addition, because case managers and
financial workers need to share information about MFIP recipients
who are working, increasing the focus on work increased the
amount of interaction between the two types of staff. Thus,
the effect of an incentives policy can go beyond the individual
welfare recipient.
VI. Future Research
The results presented
in this report indicate that MFIP was successful in the short
run for single-parent long-term welfare recipients in urban
areas. The combination of incentives and mandatory services
moved substantial numbers of the long-term recipients into
the work force and increased their incomes by allowing them
to combine welfare and work. In contrast, MFIP had little
effect on employment among applicants for welfare but did
increase their incomes by allowing working families to keep
more of their welfare benefits. Furthermore, in the short
run, MFIP’s financial incentives produced the two outcomes
anticipated: More people were encouraged to go to work (the
case for long-term recipients) and welfare payments increased
for people who would have worked anyway (the applicant result).
MFIP did not have lasting effects on employment among long-term
recipients in rural counties.
Future questions for long-term recipients
are whether the gains will persist and whether those recipients
who are combining work and welfare will eventually leave welfare.
In particular, will the people who moved into the work force
under MFIP stay employed and, if so, will their continued
work experience allow them to move into full-time, higher-wage
employment and to leave welfare entirely? This issue is particularly
relevant in the new era of time-limited welfare. For applicants,
the next question is whether the combination of mandatory
activities with the incentives will increase employment among
those who reach two years of welfare receipt.
Another important question relates to the
program’s overall costs. The short-term results show
that the financial incentives increased welfare caseloads
and costs. These welfare costs may go down in the long run
as recipients move into full-time employment. In addition,
however, the welfare costs must be compared with the benefits
generated by the program, to determine the program’s
net cost to taxpayers. A future report in the evaluation will
examine this issue in a benefit-cost analysis.
Finally, the success of a welfare reform program
has typically been gauged by how it affects parents, with
little attention given to its effects on the children in these
families. It is well known that the level and stability of
family income during childhood can have lasting influences
on children, and welfare reform has the potential to dramatically
alter these and other aspects of children’s lives. A
future report in the evaluation will address MFIP’s effects
on the well-being of children and their parents using survey
data that cover several aspects of child well-being.
Notes
1. Policymakers in Minnesota plan to
implement a version of MFIP statewide in response to the federal legislation
that replaces Aid to Families with Dependent Children (AFDC) with Temporary
Assistance to Needy Families (TANF), which provides block grants to states.
2. Results for two-parent families are presented in the report,
but not discussed in this summary.
3. MFIP’s effects on applicants in rural areas will be
examined in a future report using the full sample.
4. A small fraction of families who do not qualify for
AFDC benefits receive benefits from Minnesota’s state-funded Family
General Assistance program.
5. A relatively small number of sample members were
welfare recipients who had not accumulated 24 months of welfare receipt
when they entered the study. Individuals in this group of "short-term"
recipients were not required to participate in mandatory services for
anywhere from 1 to 23 months. Because this group was fairly small, the
primary focus in this report is on applicants and long-term recipients.
6. The STRIDE program is Minnesota’s version of the federal-state
Job Opportunities and Basic Skills Training (JOBS) Program, established
by the Family Support Act of 1988. Although enrollment in STRIDE remains
voluntary, as of July 1995 individuals who volunteer for STRIDE activities
can be sanctioned if they later fail to participate.
7. In this report, impacts are not estimated for rural
applicants for welfare because the sample sizes for this group are too
small to yield reliable estimates.
|
