Poverty and Welfare Reform
Vol. 2, No. 6
Poverty in America
poverty may well be the richest country's most serious social
problem. According to the March 2000 Current Population Survey,
over 32 million Americans - 11.8 percent of the population
- were poor. A family, and every individual in it, is considered
poor if its total income is below the poverty threshold, which
was $17,029 for a family of four in 1999. A typical poor family
needed an extra annual income of $6,687 to escape poverty.
poverty experience varies by family type and age group. Female-headed
families with no husband present had the highest poverty rate
- 28 percent of those families were poor, compared with only
5 percent of married families. Although only 18 percent of
all families were female-headed families, they made up 53
percent of poor families. Children (under 18 years old), regardless
of their race or ethnicity, are especially vulnerable. In
1999, about one in six American children lived in poverty,
representing 38 percent of the total poverty population.
the racial and ethnic groups, blacks and Hispanics suffered
particularly high rate of poverty (24 percent and 23 percent,
respectively), about three times higher than the rate for
non-Hispanic whites in 1999 (8 percent). The poverty rate
for Asians and Pacific Islanders was 11 percent.
is not a recent social problem. It has a long history in the
United States. In 1960, 22.2 percent of American population
lived below the federal poverty threshold; between 1970-1990,
roughly 11 percent to 15 percent of the population experienced
poverty. The poverty rate of 1999 was the lowest in two decades.
Poverty weighs on the national conscience because the poor
are primarily the most vulnerable members of the American
population - single parent families, children, the least well
educated, the aged, and the handicapped. Poverty is also interwoven
with other costly social problems such as crime, substance
abuse, homeless, out-of-wedlock births, poor education achievement,
and domestic violence. It is also a costly social problem
in that each year federal and state governments spend billions
of dollars on programs that assist the poor.
The History of Aid to Families with Dependent Children
the size, cost, and consequence of poverty, the government
and the public have a substantial stake in preventing this
situation and in helping as many of the poor as possible to
become self-sufficient. The first government welfare programs
were established in response to the Great Depression, which
started in 1929. The Social Security Act of 1935 created Aid
to Dependent Children (ADC) program, which was later renamed
Aid to Families with Dependent Children (AFDC) in 1950. Since
single mothers and children living with them have long been
the most vulnerable population, AFDC was designed to provide
cash assistance to single parents with children (mostly single
mothers with children). Beginning in the 1940s, more and more
federal welfare programs have been created, especially in
the years after 1965. Besides AFDC, there are Medicaid, Food
Stamp, Supplemental Security Income (SSI), and Women, Infants,
and Children (WIC), etc. The term "welfare", however,
has long been identified with the AFDC
primary reason that a poor family became eligible for AFDC
was that the father was absent. Until the early 1980s, divorce
or separation had been the major reason for the absence of
the father. By 1983, out-of-wedlock births became the primary
reason of being a single mother. By 1995, almost 60 percent
of all AFDC families were headed by unmarried mothers, while
only slightly more than 24 percent were divorced or separated.
The huge increase in the number of unwed mothers and their
children was the most significant and unexpected change in
AFDC recipients in the history of the program. Another significant
change in welfare recipients was that a growing percentage
of all AFDC families resulted from births to teen mothers.
In sum, the composition of welfare mothers shifted from separated,
divorced women to poorly educated, never-married women who
had no income other than welfare.
the expectation of welfare was that the program would only
serve a small number of single-mother families, AFDC placed
little emphasis on job training or support services to help
single mothers leave welfare and become self-sufficient through
employment. Consequently, it became a huge program that supported
millions of families headed by single mothers who were unattached
to the work force.
public supports giving assistance to those who cannot expect
to support themselves, along with temporary assistance to
the able-bodied to help them establish in the labor force.
However, the huge shift in the composition of single mothers
invariably changed the public's conception of the welfare
system. Both the public and the government fear that welfare
contributes to the high non-marital births and low work effort
among welfare recipients.
August 1996, President Clinton signed the Personal Responsibility
and Work Opportunity Reconciliation Act (PRWORA), promising
to "end welfare as we know it." The 1996 welfare
reform legislation completely changed the philosophy of welfare
policy and substantially altered the structure of income support
for poor families in the United States. Among other changes,
PRWORA replaced Aid to Families with Dependent Children, then
commonly known as welfare, with the Temporary Assistance for
Needy Families (TANF) program. TANF imposes strict work requirement
and time limits on the receipt of cash assistance. By September
30, 2002, TANF must receive congressional reauthorization.
Key Elements and Impacts of Temporary Assistance for Needy
theme of the 1996 welfare reform is the change in federal
funding. Under AFDC, the federal government used to match
state expenditure on welfare programs at a specific matching
rate. The 1996 welfare reform abandoned open-ended federal
matching funding. Instead, each state receives a lump sum
of federal funds, roughly the amount the state received in
AFDC and AFDC-related funds during 1994-95. To receive this
grant, each state must meet a maintenance-of-effort requirement
- they must spend at least 75 -80 percent of a state's previous
spending for low-income benefits and services. States must
also meet other federal requirements, such as work requirements,
sanctions, and a cumulative five-year time limit on federal
cash assistance. Nationally, TANF lump sum funds to states
have totaled about $16.5 billion per year for six years. States
are given broader discretion and greater flexibility in using
TANF funds and designing programs than under AFDC.
second theme is that federal entitlements to cash welfare
were eliminated under TANF. Under the AFDC program, all families
whose income fell below state income standards were entitled
to receive cash assistance. Now they must meet certain work
requirement to be eligible.
essence of the new welfare system is work requirement and
the emphasis is placed on helping recipients become self-support
through employment. Adult welfare recipients are required
to begin work within two years, or a shorter period of time
at state discretion. Recipients who fail to meet the work
requirement will have their benefits reduced, and more than
30 states have adopted sanction policy that terminates their
entire cash TANF benefits. States that do not place a specific
percentage of their welfare recipients in work or work preparation
programs suffer federal financial penalties.
crucial feature of the 1996 welfare reform is to put five-year
lifetime limit on welfare recipients. States may not provide
TANF assistance to families that have an adult who has received
federal-funded TANF assistance for five years. This feature
establishes welfare's temporary nature and pushes recipients
to work and leave the program to preserve their lifetime months
of eligibility. States may exempt up to 20 percent of their
recipients from time limits.
work requirement, TANF also encourages family formation by
promoting marriage and two-parent families and reducing out-of-wedlock
births. States are given more flexibility to serve two-parent
families, and those with the highest reduction in their non-marital
birth ratio and also reduction in abortion rate are rewarded
through the establishment of "illegitimacy bonus."
In addition, TANF includes $85 million a year in federal and
state financing for "abstinence only" programs for
the purpose of the 1996 reform is "to end dependency
of needy parents on government benefits by promoting job preparation,
work and marriage." Welfare is intended to provide assistance
only temporarily and should not be a way of life.
examining the impacts of welfare reform tell a mixed story.
The most widely cited impacts of welfare reform are the decline
in the welfare caseload and the increase in the employment
rate of single mothers. The national welfare caseload reached
its peak in 1994, with 5.1 million families receiving welfare.
In June 2000, the caseload declined to 2.2 million, more than
50 percent reduction since the peak in 1994, and about 60
percent of those who left welfare were working. The employment
rate of single mothers has risen to a historically high level,
and by 1999, 71 percent of single mothers were employed, exceeding
that of married mothers. Not all these changes can be ascribed
to the welfare reform, of course. Strong economy and public
policies that "make work pay" also played a substantial
role in both the decline of the caseload and the increase
impact on earnings and income is less encouraging. Former
welfare recipients who left welfare for employment typically
enter jobs with low wages and do not receive employer-provided
benefits such as health insurance, paid sick leave, or vacation.
For many families the total income has increased very little,
as the increase in the earnings is offset by the loss of welfare
benefits. Another concern is that although overall poverty
rate and child poverty rate have declined to the lowest level
since 1979, they have not fallen as much as the caseload.
The incomes of the poorest one-fifth of single-parent families
have continued to fall, and many poor families have become
with the evaluations on caseload, employment, and poverty,
the impacts of the 1996 reform on family formation have received
much less attention, and the few studies that have taken place
show little impact.
TANF Reauthorization Issues
program will receive congressional reauthorization in the
fall of 2002. Many issues have been raised for consideration
in the TANF reauthorization debate. Among them, the followings
have received special attention from researchers, advocates,
and policy makers.
Focus of TANF
The current focus of TANF is caseload reduction. While it
is successful in the sense that the overall caseload has declined
by 50 percent, the reduction in poverty is not as much. Many
liberals argue that the focus of welfare reform should be
shifted from caseload reduction to poverty reduction. However,
many conservatives argue that the welfare reform should focus
on reducing out-of-wedlock births.
TANF funding was based on the size of caseload in 1994. Given
the dramatic decline in the caseload since then, some argue
that TANF funding should be reduced, while others argue that
the funding should be increased as child care, work programs,
and other supports funded by TANF will become more costly
dispute concerns how the lump sum funds would work in recession.
Fixed TANF funding shifts the financial risk to states, as
each state will have to bear the financial burden during an
economic recession when caseload increases. Although the welfare
law sets up a federal "emergency fund," which is
supposed to provide states with additional fund in a recession,
many believe it will be inadequate.
Time Limits and Sanctions
Time limits and sanctions are two of the most controversial
features of the 1996 welfare reform. Supporters argue that
five-year lifetime limit on federally funded welfare receipt
provides an important symbolic role in specifying that welfare
is temporary and not a way of life, and states can use their
own money to continue support of those families who reach
their time limit. Critics are worried that those families
could face hardship when they are forced off welfare and have
no other income source.
states use sanctions to cut benefits to families who do not
meet work requirements. Many of the sanctioned families are
the most vulnerable in that they are the least well educated
and face severe barriers to employment.
From Welfare to Work
The 1996 welfare reform emphasized the "work first"
approach, and most states gave priority to helping welfare
recipients find a job, but placed little emphasis on education
and job training. Welfare evaluation studies find that welfare
leavers generally hold low-paid jobs, face high levels of
job instability, and have very poor chance of job promotion.
Moreover, about 40 percent of those who have left welfare
are not working. Families who stay on welfare and families
who left welfare without work appear to have severe and multiple
barriers to employment, such as poor education, lack of work
experience, poor physical or mental health, substance abuse,
or a chronically ill or disabled child.
welfare researchers and advocates argue that "work activities"
should place more emphasis on education and training, and
expand the education and training opportunities for low-wage
workers. More emphasis should also be placed on the support
for poor working families in areas such as child care, tax
relief, and transportation assistance. The needs of the "hard
to employ" families should also be recognized and addressed.
One of the purposes of the 1996 welfare reform was to reduce
non-marital births and promote marriage and two-parent families.
Although the law explicitly urged states to "encourage
the formation and maintenance of two-parent families, "
this provision has received little attention and very few
states have made any attempt to promote marriage or reduce
the out-of-wedlock births. It is widely expected that conservatives
will fight hard to allocate millions of dollars for marriage
promotion, including marriage education, requiring states
to end income tests that discourage parents from getting married,
and rewarding single mothers with cash bonus if they marry
the child's father. A very radical notion that comes up during
the debate is for states to offer women at high risk of out-of-wedlock
childbearing $5,000 if they get married, with an additional
$1,000 in each of the next five years if they stay married.
many Democrats, the marriage promotion issue is very difficult.
They acknowledge that two-parent families help lift children
out of poverty, but many fear that the assistance to the needs
of single families will be reduced or denied under marriage
promotion programs. Opponents also argue that government involvement
in marriage is not appropriate, as marriage is a very important
and personal behavior. Feminist groups generally are suspicious
of marriage-promoting programs, arguing the government should
encourage work and self-sufficiency among poor women, not
to marry them out of poverty. They point out that marriage-promotion
initiative has little regard for the women who leave marriage,
or choose not to marry, because of domestic violence.
the debate over the appropriateness of promoting marriage
as a way to reduce poverty is controversial, and often veers
into a discussion of politics, religion, and traditional values.
issues that have been debated include supporting non-custodial
parents (most of them fathers), keeping fragile families (headed
by cohabiting couples) together, different impacts of welfare
reform on racial and ethnic groups, and the accessibility
and quality of child care.
replacement of Aid to Families with Dependent Children by
Temporary Assistance for Needy Families in 1996 is a dramatic
turning point in American poverty policy. It transformed the
way people think about welfare. It is widely agreed that welfare
reform reduced caseload dramatically and increased the employment
of single mothers to a historically high level; child and
family poverty has declined, though not as much as the decline
in caseload; it improved the financial well-being of many
current and former recipients, but also had adverse effects
on the most vulnerable population.
the fall of 2002, Congress must decide upon the future of
TANF and also review other programs critical to low-income
families. The national debate about welfare, poverty, and
other public policies affecting low-income families is heated,
but few liberals are pushing to restore the old system and
few conservatives are pressing to cut the support for the
poor. It is expected that policy makers would reach a convergence
around a reasonable, effective set of policies designed to
assist low-income families trying to work their way out of
author is an economist at the Institute for Women's Policy
Research, a public policy research organization in Washington,
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