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

Welfare Reform and New York City's Low-Income Population

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

Welfare Reform and New York City's Low-Income Population

Article excerpt


The goal of this paper is to evaluate the effects of welfare reform on the economic well-being of low-income families in New York City. To do so, it is important to examine changes in both the social safety net and the income and earnings of vulnerable households and families. For families with low earnings capacity, programs providing cash and/or in-kind assistance may be the source of all or most of the economic resources available, or they may provide vital supplements to earnings. To investigate the extent to which the safety net is still in place in New York City, we use the New York City sample of the Current Population Survey (CPS) to compare program receipt before and after the passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA). We use the income and earnings data from the CPS to compare economic status.

Cities around the country have benefited from the strong economic growth in the 1990s. The most recent data show that for the nation as a whole, between 1998 and 1999, the number of central-city residents in poverty fell by 1.8 million and household income of central-city residents, although still substantially lower than in the rest of the country, grew faster than elsewhere (U.S. Census Bureau 2000). Job growth has also been strong in New York City in this period, actually surpassing the national rate in the most recent years. From 1997 to 1999, New York City job growth exceeded 2 percent each year, outperforming any equal span of time during the past three decades. The expanding New York economy has increased demand and possibly wages for low-skilled workers. Increases in the earned income tax credit (EITC) and the minimum wage have also made work more attractive to low-skilled individuals in recent years, and New York State supplements the national EITC with its own refundable credit.1

It is difficult to disentangle the effects of welfare reform from the influence of these other factors on welfare receipt and incomes of the vulnerable groups in a single city. Moreover, without longitudinal data, it is not possible to trace the flows between work and benefits programs in detail. We can only observe net changes in program receipt, employment, and income. Our goal in this paper is therefore more modest: to compare public transfer program participation and economic status among New York City households before and after the 1996 welfare reform. We also investigate the extent to which the economic good news has translated into higher earnings and household income for families with low levels of education or single mothers. For those in the groups that have lost public assistance, we ask to what extent earnings have replaced the lost income. Are such families doing better, or about the same? Are more families able to combine public benefits programs with earnings, and how much has their household income changed?2

Although our analysis compares outcomes before and after PRWORA, it should be made clear that because the formal state plan for welfare reform did not take effect until 1999, we are not really evaluating welfare reform in New York City. Instead, our results primarily reflect the net effect of changes in city administrative policies-characterized as push factors-- and the pull of economic growth on the receipt of public assistance.

The plan of the paper is as follows. Section II discusses the changes in welfare law and administrative policy in New York and their potential effect on public assistance recipients. Section III describes the data source. Section IV addresses the issue of the packaging of programs and the extent to which the social safety net has been preserved. Section V considers differences among ethnic groups in changes in public assistance receipt. Section VI describes the changes in income and earnings among New Yorkers at risk of needing public assistance. The final section summarizes our findings and highlights the most striking results. …

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