Academic journal article Federal Reserve Bank of New York Economic Policy Review

Changing Caseloads: Macro Influences and Micro Composition

Academic journal article Federal Reserve Bank of New York Economic Policy Review

Changing Caseloads: Macro Influences and Micro Composition

Article excerpt

The unprecedented decline in the caseload of the Aid to Families with Dependent Children (AFDC) program, retitled the Temporary Assistance for Needy Families (TANF) program in 1996, has been, by common agreement, remarkable. The caseload has declined by 50 percent since its peak in 1994 and is now at a level roughly similar to what it was in the late 1970s. It is also generally agreed that welfare reform has played a role in this decline, albeit simultaneously with the effects of the strong economy and of other policy measures. The welfare reform movement that was solidified in the 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) actually began in the early 1990s, and contributed to the caseload decline prior to 1996. The economy played a stronger role in that period than did welfare reform. However, subsequent to 1996, the economy has played the lesser role, according to estimates from currently available studies (Mayer 2000; Moffitt 1999; Schoeni and Blank 2000; Council of Economic Advisers 1997, 1999). Also playing a role of rather uncertain magnitude have been expansions of the earned income tax credit and Medicaid eligibility; both of these reforms greatly increased the amount of resources made available to families off welfare.

Research studies to date have also examined the effect of welfare reform on employment outcomes and other individual and family outcomes, as well as effects on the caseload. Two types of studies have been conducted. By far, the more numerous have been studies of welfare leavers: women who have left the AFDC or TANF rolls after welfare reform began. These studies generally have shown leavers to have employment rates in the range of 50 to 70 percent, considerably higher than expected (Brauner and Loprest 1999; U.S. General Accounting Office 1999; Isaacs and Lyon 2000; Acs and Loprest 2001). Unfortunately, these studies do not estimate the effect of welfare reform per se because they do not control for the influence of the economy, which has improved considerably over the same period and could have contributed to these favorable outcomes.1 A second strand of research study examines the effect of welfare reform on employment and other outcomes of all single mothers, or sometimes all less educated women, regardless of their welfare participation status (Moffitt 1999; Schoeni and Blank 2000). These studies control for the state of the economy, and typically have found positive effects on employment and earnings.2

The issue addressed in this paper is how welfare reform has affected the types of women who have remained on the welfare rolls (sometimes called stayers, as opposed to leavers). This group has not been examined by either of the two types of studies just referred to. Yet those women remaining on the rolls are also of policy interest. By and large, it is expected that those women are the most disadvantaged recipients who have not yet been able to find jobs in the growing economy or who have some significant health or other problem that prevents them from being able to leave the rolls or to work. If this is the case, such a disadvantaged group, still in need of a safety net, deserves attention and calls for the development of policies to address its needs. However, as was the case in studies of leavers, ascertaining that more disadvantaged women remain on the rolls does not say whether that is a result of the economy or of welfare reform; a low unemployment rate would also tend to draw women with more labor market skills off the welfare rolls. Determining the net effect of welfare reform requires controlling for the business cycle, as some of the other studies cited above have done for other outcomes.

Our analysis is composed of three parts. First, we provide a discussion of what the effects of welfare reform on the composition of the caseload-primarily measured by labor market skill level-should be, in principle. Perhaps surprisingly, we argue that different welfare reform policies have different effects on more skilled versus less skilled recipients, and that the net effect of the policies taken together is mixed and ambiguous. …

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