This is one in a series of 15 two-page, evidence-based framing memos on pressing education and social issues prepared by MDRC for the incoming Obama Administration and the new Congress.

Bottom Line

The welfare reforms of the 1990s are widely seen as a dramatic success, with welfare caseloads dropping by more than half and many former recipients moving into the labor force. The Temporary Assistance for Needy Families (TANF) program, created in the landmark 1996 federal welfare reform law, was reauthorized for another five years in 2006. But the job is not finished. States are searching for effective strategies to address three remaining challenges: (1) promote employment for recipients with serious barriers to employment (including health problems, criminal justice issues, and domestic violence), (2) help low-wage workers advance in the labor market and achieve self-sufficiency, and (3) meet the needs of those left behind — single-parent families who are poor enough for welfare but are neither working, nor receiving benefits. Going forward, the welfare and other systems should respond flexibly to meet these challenges, while still retaining the strong policy focus on employment and self-sufficiency that emerged in the 1990s.

What Do We Know?

Welfare reform changed the landscape. The decline in the welfare caseload that began in 1994 is one the most dramatic developments in recent social policy. The caseload peaked at 5 million families, dropped to 2.3 million families by 2000, and now stands at about 1.7 million, with almost half of that total consisting of families with no adult recipient (e.g., children living with a relative who does not receive assistance). Studies have reached somewhat different conclusions about the relative importance of different factors in causing the decline, but most experts agree that it was attributable to a combination of federal and state welfare reform policies, the strong labor market of the 1990s, and the expansion of supports for low-wage workers, such as the Earned Income Tax Credit.

We know how to move many welfare recipients into jobs. Less is known about how to (1) help low-wage workers advance in the labor market and (2) promote employment among “hard-to-employ” individuals. A rich body of rigorous research — conducted in a variety of labor markets, during healthy and not-so-ideal economic environments — suggests that the most effective welfare-to-work programs require recipients to participate in employment-related activities, provide a mix of job search assistance and short-term education/training, and use financial work incentives to supplement low-paying jobs. Ongoing studies sponsored by the Department of Health and Human Services are examining two key “next stage” questions: (1) how to promote stable employment and wage progression among former welfare recipients and other low-wage workers and (2) how to promote employment for the “hard to employ” — recipients facing serious barriers to steady work, such as mental and physical health problems and substance abuse. There have been some hints of success, but much remains to be discovered.

A growing share of low-income single mothers is “disconnected” from work and welfare. National data show that less than half of the families who are poor enough to qualify for TANF benefits are actually receiving assistance. Moreover, in 2005, between 20 percent and 25 percent of all low-income single mothers were neither working nor receiving cash assistance. It is not clear why so many poor families are not receiving welfare benefits for which they are eligible, and this situation implies that many poor children are at risk.

What’s Next?

In a post-welfare reform world, the federal government and the states face three related policy challenges: (1) helping low-income people in the low-wage labor market move up the career ladder, (2) finding effective ways to promote work among the hard-to-employ, and (3) learning more about single-parent families disconnected from work and the welfare system. Some policy and research options include:

• Build on the “hints of success” found in trials of strategies for improving employment retention and advancement. Develop second-generation versions of these programs, evaluate them, and try to bring them to scale. For instance, financial work incentives have been repeatedly shown to boost employment and income, and there’s emerging evidence that they can also increase participation in training or postsecondary education.
  
  
• Revise TANF participation rules to define “work” more flexibly to address the needs of recipients whose personal or health problems make it difficult for them to work steadily or full time. This may also involve building stronger links between the TANF program and the disability assistance system.
  
  
• Learn more about those poor families who have fallen off (or never gotten on) the welfare rolls but have not gained a foothold in the labor market. Test ways to reach out to families who could benefit from the financial assistance and employment support that the welfare system provides, even if this increases the welfare caseload somewhat.

Clearly, any new approaches attempted in all three areas should avoid weakening the strong focus on work and self-sufficiency that emerged in the welfare system in the 1990s.

Key References

Blank, Rebecca, and Brian Kovak. 2008. Helping Disconnected Single Mothers. Center on Children and Families Brief #38. Washington, DC. Brookings.

Bloom, Dan, Cindy Redcross, JoAnn Hsueh, Sarah Rich, and Vanessa Martin. 2007. Four Strategies to Overcome Barriers to Employment: An Introduction to the Enhanced Services for the Hard-to-Employ Demonstration and Evaluation Project. New York: MDRC.

Hamilton, Gayle. 2002. Moving People from Welfare to Work: Lessons from the National Evaluation of Welfare-to-Work Strategies. New York: MDRC.

Loprest, Pamela, and Karin Martinson. 2008. Supporting Work for Low-Income People with Significant Challenges. New Safety Net Paper #5. Washington, DC: Urban Institute.

Michalopoulos, Charles. 2005. Does Making Work Pay Still Pay? An Update on the Effects of Four Earnings Supplement Programs on Employment, Earnings, and Income. New York: MDRC.

Riccio, James, et al. 2008. Implementation and Second-Year Impacts for Lone Parents in the UK Employment Retention and Advancement (ERA) Demonstration. London: U.K. Department of Work and Pensions.