Assessing the Impact of Welfare Reform on Single Mothers∗

Since the implementation of Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) in 1996, the prevalence of welfare participation among single mothers has dropped dramatically, from 25% in 1996 to 9% today. At the same time, the fraction of single mothers who work increased from 74% in 1996 to 79% today. But these trends actually began as early as 19931994. The goal of this paper is to ascertain the contributions of various components of welfare reform, and other contemporaneous economic and policy changes, to the huge decline in welfare participation and increase in work among single mothers from 1993-2002. To this end, we have constructed an extensive data set that characterizes changes in welfare policy, as well as other important determinants of welfare participation and work, at the State level for the 1980-2002 period. Using these data, we develop a model that rather successfully explains both levels and changes in welfare and work participation rates across States, time, and various demographic groups, for the whole 1980-2002 period. Simulations of the model imply that: • The key economic and policy variables that contribute to the overall 23 percentage-point decrease in the welfare participation rate from 1993-2002 are, in the order of relative importance, work requirements (57%), the EITC (26%), time limits (11%) and the macro economy (7%). This importance ranking holds for all years since 1997, although the quantitative contributions of these factors differ by demographic group. • The key economic and policy variables that contribute to the overall 11.3 percentage-point increase in the work participation rate from 1993-2002 are, in the order of overall relative importance, the EITC (33%), the macro economy (25%), work requirements (17%) and time limits (10%). However, there are interesting differences in the relative importance of these variables across demographic subgroups, and by time period. ∗ We thank the editors, Bill Brainard and George Perry, and the discussants, Rebecca Blank and Jeff Grogger, for many helpful comments and suggestions. Brandon Wall provided outstanding research assistance. Raquel Bernal helped us construct some of the welfare policy variables used in the analysis. We are grateful to Nina Campbell, Karen Clairemont, and Evelyn Mills at ACF of DHHS, and Catherine Hine and Patrick Waldron at USDA, for providing us with additional policy data. We also thank Gretchen Rowe at the Urban Institute for clarifying some questions about the SPDP database.