The Effects of Welfare Policy and the Economic Expansion on Welfare Caseloads

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The Effects of Welfare Policy and the Economic Expansion on Welfare Caseloads

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The Effects of Welfare Policy and the Economic Expansion on Welfare Caseloads: An Update

August 3, 1999

A Report by the Council of Economic Advisers

Summary Report | Technical Report

This study could not have been completed without the generous assistance of the Department of Health and Human Services in providing data and program information.

The Effects of Welfare Policy and the
Economic Expansion on Welfare Caseloads: An Update

Executive Summary

This study investigates the causes behind recent changes in welfare caseloads, updating a 1997 CEA report of caseload change.

The fall in welfare caseloads has been unprecedented, wide-spread, and continuous, and employment of welfare recipients has increased. 14.1 million people received welfare in January 1993, and this number had fallen to 7.3 million by March 1999, according to estimates released today (August 3, 1999). In 31 states the caseload is less than half of what it was when President Clinton took office, and all states have experienced double-digit percentage declines. For 22 states, the percent drop during 1998 was larger than during 1997 (from January to December). Previous analyses by the Department of Health and Human Services show that the percentage of welfare recipients working tripled between 1992 and 1997, and an estimated 1.5 million adults who were on welfare in 1997 were working in 1998.
The 1996 legislation has been a key contributor to the recent declines. PRWORA produced a dramatic change in welfare policy: work and self-sufficiency became a primary goal; state and local governments were given much greater control of their programs; and states experimented with a host of program designs. The evidence suggests that these changes caused a large drop in welfare participation, a drop that is independent of the effects of the strong labor market. The estimates imply that TANF has accounted for roughly one-third of the reduction from 1996 to 1998, the last year of data analyzed in this study. In the earlier years, 1993-1996, most of the decline was due to the strong labor market, while welfare waivers played a smaller yet important role.
The strong labor market has made work opportunities relatively more attractive, drawing people off welfare and into jobs. The unemployment rate has not declined as much in the post-TANF period as it did in the 1993-96 waiver period. As a result, the share of the decline in the caseload that is attributable to improvements in the labor market was much higher in the 1993-96 period (roughly 26 to 36 percent) than in the 1996-98 period (8 to 10 percent).
Past increases in the minimum wage have made work more attractive and, as a result, caused welfare participation to decline.The estimates imply that about 10 percent of the caseload decline was due to increases in state and federal minimum wages.
The specific program design adopted by a state can affect its caseload declines. The study examines the effects of a number of specific policies, including family caps, earnings disregards, time limits, work exemptions, and work sanctions on the size of the caseload.

The large sustained declines in caseloads provide one piece of evidence about the effectiveness of welfare reform efforts. However, there are multiple indicators of the impact of welfare reform, including changes in work and earnings among welfare leavers, in marriage rates and out-of-wedlock pregnancies, and in poverty rates. The Clinton Administration is collecting and tracking information on all of these measures in order to fully assess the impact of welfare reform.

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