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Report

How Welfare and Work Policies Affect Employment and Income

A Synthesis of Research

05/2001

During the past two decades — particularly since the mid 1990s — Congress and the states have dramatically reshaped the nation’s system of cash welfare assistance for low-income families. Many studies and journalistic accounts have examined these changes, but only a handful have been expressly designed to assess what difference the new policies make.

This monograph addresses this critical question by synthesizing the results from studies of 29 welfare reform initiatives conducted by the Manpower Demonstration Research Corporation (MDRC). Each study focused on one or more of three key program features: mandatory employment services, earnings supplements, and time limits on welfare receipt. Although the programs under study were launched prior to passage of the landmark federal welfare reform law of 1996, these three features are central to most states’ current welfare reform programs. This document focuses on the effects of these features on adults’ employment and income; a companion document examines their effects on children’s well-being.

All the studies used a rigorous random assignment research design in which people (most of them single mothers receiving welfare) were assigned at random to a program group, which was subject to the welfare reforms, or to a control group, which was not. The groups were tracked over several years and compared with respect to a number of outcomes, including employment, welfare receipt, and income. Because people were assigned to the groups at random, it can be assumed that, within each study, the groups did not differ systematically at the outset and went on to experience the same general economic and social conditions. Thus, any differences that emerged between the groups during the studies can be attributed to the programs being tested (the “increases” and “decreases” reported here refer to these differences).

Together these studies provide a wealth of information on the effects of different welfare reform strategies and a strong foundation for future programmatic decisions and legislative deliberations. This synthesis is particularly timely because Congress will soon begin to debate reauthorization of the Temporary Assistance for Needy Families (TANF) block grant, the federal welfare program created in the landmark federal welfare law of 1996.

Key Lessons

  • A number of programs that provided only mandatory employment services were effective, but the most successful of these programs used a mix of services — including some education and training — and strongly emphasized the need to find work.

Almost all states now require adult welfare recipients to work or prepare for work, but there is much debate about the best way to do this. Over the past two decades, the pendulum has swung between an emphasis on rapid job placement and a focus on education or training.

Side-by-side tests of programs at opposite ends of the spectrum — those requiring most recipients to look for work (“job search first”) and those requiring most to enter education or training (“education first”) — in three counties revealed that they ultimately produced similar overall gains in employment and earnings. However, the job-search-first programs produced larger immediate gains and, in the medium term, led to larger gains for more disadvantaged groups, such as people without a high school credential. The job-search-first programs were also less expensive to operate.

The most effective programs fell in the middle of the spectrum. In these programs, some recipients started by looking for work, while others started with education or training. This finding suggests that a more individualized approach may be most promising, but — given that not all the programs that used the mixed approach were highly successful — the types of services provided and the basis on which people are assigned to services appear to be also critical.

Although programs across the spectrum increased employment for a variety of groups, most people who went to work obtained low-wage or part-time jobs; some left welfare without finding work; and most of the programs had rules that reduced people’s welfare benefits by a dollar for each dollar they earned. As a result, programs that included only mandatory employment services usually left families no better off financially than they would have been without the programs, even after accounting for the federal Earned Income Credit (EIC, the federal tax credit that supplements the earnings of low-income families). There is also little evidence that the programs benefited or harmed children.

The only programs that both increased work and made families financially better off were those that provided earnings supplements to low-wage workers.

In contrast to the programs that used only mandatory employment services, two programs that supplemented the earnings of working recipients boosted both employment and income relative to control group levels. One of these programs allowed welfare recipients who went to work to keep more of their benefits than under the old welfare system (an approach now used in many states), while the other supplemented earnings outside the welfare system. Both approaches cost more than traditional welfare, but they also produced a range of positive effects for children — for example, higher levels of school achievement.

  • Relatively little is known about the effects of welfare time limits, but the available data suggest that time limits need not cause widespread hardship, at least not in the short term.

Two of the programs under study provided earnings supplements by allowing working recipients to keep more of their benefits but also imposed time limits on welfare receipt. Although these programs initially increased employment and income, the income gains disappeared after families began to reach the time limit. In fact, the programs reduced income for a small group of families, although the only such program whose evaluation has been completed did not appear to increase material hardship. However, there are not yet enough data to warrant firm conclusions about the effects of time limits. Moreover, how families fare may depend on how time limits are implemented (for example, whether and under what conditions exemptions or extensions are granted).

These results suggest that policymakers face a critical choice. Recall that the programs that provided only mandatory employment services increased work and reduced welfare use but usually did not lead to notable improvements in families’ economic circumstances or make children better off than they would have been without the programs — even after accounting for the EIC. Achieving these goals may require further supplementation of families’ earnings. Most states already do this by allowing working recipients to keep part of their benefits, but the income-enhancing effects of such policies are undermined by welfare time limits. Federal and state policymakers who aim to improve outcomes for families and children may need to develop new ways of providing ongoing financial support to low-wage workers — an approach that may raise costs — while continuing to test strategies for raising wages through education and training.