Academic journal article Brookings Papers on Economic Activity

The State of the Social Safety Net in the Post-Welfare Reform Era

Academic journal article Brookings Papers on Economic Activity

The State of the Social Safety Net in the Post-Welfare Reform Era

Article excerpt

ABSTRACT The 1996 welfare reform led to sweeping changes to the central cash safety net program for families with children. Along with other changes, the reform imposed lifetime time limits for receipt of cash welfare, effectively ending its entitlement nature for these families. Despite dire predictions, previous research has shown that program caseloads declined and employment increased, with no detectible increase in poverty or worsening of child well-being. We reevaluate these results in light of the severe 2007-09 recession. In particular, we examine how welfare reform has altered the cyclicality of the response of caseloads and family well-being. We find that use of food stamps and noncash safety net program participation have become significantly more responsive to the economic cycle after welfare reform, rising more when unemployment increases. By contrast, we find no evidence that cash welfare for families with children is more responsive, and some evidence that it might be less so. We find some evidence that poverty increases more with increases in the unemployment rate after reform, and none that it increases less. We find no significant effects of reform on the cyclical responsiveness of food consumption, food insecurity, health insurance, household crowding, or health.

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The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 made sweeping changes to the central cash safety net program in the United States. The Aid to Families with Dependent Children (AFDC) program had provided cash benefits to low-income, primarily single-parent families with children since 1935 and had come to be almost synonymous with "welfare." After 60 years with minimal changes, President Bill Clinton made good on his pledge to "end welfare as we know it," signing the 1996 legislation and thereby eliminating AFDC and replacing it with Temporary Assistance for Needy Families. TANF, or welfare as we know it now, imposes stringent work requirements, sanctions for noncompliance, and lifetime time limits for receipt of welfare. Importantly, the imposition of time limits effectively ended the entitlement nature of cash welfare for poor families with children.

In the wake of this landmark welfare reform legislation, a widespread concern was that the new policy would lead to increases in poverty and deprivation among disadvantaged families. Literally hundreds of studies evaluated the impacts of welfare reform on family and child well-being. A broad summary of that voluminous literature is that the reform led to a significant reduction in welfare participation and an increase in female employment, with little consistent evidence that it also led to an increase (or a decrease) in poverty or contributed materially to the observed decline in child poverty. (1) However, the literature also shows that the strong labor market of the late 1990s, along with the dramatic expansion of "in work" aid for low-income families with children through the Earned Income Tax Credit (EITC), may have softened the initial impact of welfare reform (Meyer and Rosenbaum 2001, Grogger 2003). Thus, at the end of the great expansion of the 1990s, cash welfare caseloads had fallen by more than 50 percent from their peak in 1994, to levels not seen since 1970. Between 1992 and 2000, the employment rate of single women with children increased by 15.3 percentage points, from 69.4 percent to 84.7 percent, and the child poverty rate declined by 6.1 percentage points, from 22.3 percent to 16.2 percent.

Of course, the expansion of the 1990s eventually ended. The nation entered a short recession in 2001, followed by a relatively weak expansion. Then, in December 2007, what has been called the Great Recession began, which was deeper and longer than any other postwar downturn to date. In this contraction and its aftermath, the national unemployment rate increased by more than 5 percentage points, from 5.0 percent in December 2007 to 10. …

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