Declining Caseloads/Increased Work: What Can We Conclude about the Effects of Welfare Reform?

n 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act, or PRWORA, which substantially restructured public assistance programs. PRWORA gave states almost entire discretion to design and operate cash assistance programs for families with children, reducing the role of the federal government in program operation and regulation. The federal government did continue to help states fund these programs through the newly created Temporary Assistance for Needy Families (TANF) block grant. In addition, the federal government required states to move an increasing share of their caseloads into work and also, for the first time in history, implemented time limits on how long most families could receive TANF-funded assistance. As a result of this legislation, states have made major changes to the structure of their family assistance programs. States have increased the incentives for public assistance recipients to move into work by reducing the rate at which benefits fall as earnings rise, by implementing more extensive job placement welfare-to-work programs, and by reinforcing the message of time limits that cash assistance will come to an end. States have also increased the penalties and sanctions for those who do not comply with work efforts, and have begun serious “diversion” programs aimed at diverting applicants from public assistance in the first place. Different states have chosen different “packages” of these policies, so that one must understand the entire mix of policies in order to characterize the welfare programs in any state.1 For instance, states with low benefit-reduction rates—a more generous policy that allows clients to keep a higher share of benefits as they go to work— may offset this generosity with very strict sanction policies for those who do not participate in welfare-to-work programs. States with strong diversion programs may reinforce this “discouraging” effect on caseloads by also implementing short time limits. States with generous welfare benefit levels may run more intensive welfare-to-work efforts in an attempt to move people into work faster. These major policy changes in public assistance programs did not occur in a vacuum, but coincided with two other important changes in the economic environment in the mid1990s. First, the U.S. economy entered a period of strong and sustained growth. Unemployment rates fell to their lowest levels in thirty years, employment grew rapidly, and inflation remained relatively restrained. These economic changes disproportionately helped less skilled workers, cutting unemployment rates among high-school dropouts by more than half. By the late 1990s, unemployment rates among black and Hispanic workers were at all-time lows. As part of this boom, starting in the mid-1990s, wages among less skilled workers also began to rise for the first time in two decades. Average real weekly earnings among full-time Rebecca M. Blank