Chapter I. Introduction and Overview

The Welfare Indicators Act of 1994 (Pub. L. 103-432) directed the
Secretary of Health and Human Services (HHS) to publish an annual report
on welfare dependency. This 2001 report, the fourth annual report, gives
updated data on the measures of welfare recipiency, dependency, and
predictors of welfare dependence developed for previous reports. It is
the first report to provide welfare dependency indicators for the
1996-1998 period, reflecting changes that have taken place since
enactment of the Personal Responsibility and Work Opportunity
Reconciliation Act (PRWORA) in August 1996.

The purpose of this report is to address questions concerning the extent
to which American families depend on income from welfare programs. Under
the Welfare Indicators Act, HHS was directed to address the rate of
welfare dependency, the degree and duration of welfare recipiency and
dependence, and predictors of welfare dependence. The Act further
specified that analyses of means-tested assistance should include
benefits under the Aid to Families with Dependent Children (AFDC)
program, now the Temporary Assistance to Needy Families (TANF) program;
the Food Stamp Program; and the Supplemental Security Income (SSI)
program.

The first annual report was produced under the oversight of a bipartisan
Advisory Board on Welfare Indicators, which assisted the Secretary in
defining welfare dependence, developing indicators of welfare
dependence, and choosing appropriate data. Under the terms of the
original authorizing legislation, the Advisory Board was terminated in
October 1997, prior to the submission of the first annual report.
Subsequent annual reports have provided updates for the measures
developed for the first report. The report was shortened last year, in
keeping with Congressional interest in a smaller set of indicators and
predictors of dependency.

This 2001 report provides updated measures through 1998 for several
dependency measures, a significant update from the 1995 measures
reported last year. This update was possible because of a change in data
source for a half-dozen indicators, from the Survey of Income and
Program Participation (SIPP) to the Current Population Survey (CPS).
Whereas the SIPP data are only available through 1995, the CPS data are
available for more recent years, allowing examination of indicators and
predictors of dependency since the 1996 enactment of welfare reform.
Concurrent with the change in data source, the report has been
reorganized slightly, with the annually updated figures now presented at
the beginning of each section, followed by the measures that are updated
less frequently.

## Organization of Report

This introductory chapter provides an overview of the specific summary
measures of welfare dependence proposed by the Advisory Board. It also
discusses summary measures of poverty, following the Board's
recommendation that dependence measures not be assessed in isolation
from measures of deprivation. Analysis of both measures is important
because changes in dependence measures could result either from
increases in work activity and other factors that would raise family
incomes, or from sanctions or other changes in welfare programs that
would

reduce welfare program participation but might not improve the material
circumstances of these families. The introduction concludes with a
discussion of data sources used for the report.

Chapter II of the report, Indicators of Dependence, presents a dozen
indicators of welfare dependence and recipiency. These indicators
include dependency measures based on total income from all three
programs -- AFDC/TANF, SSI, and food stamps, as well as measures of
recipiency for each of the three programs considered separately. The
labor force participation among families receiving welfare and multiple
receipt across programs are also shown. The second half of the chapter
also includes longitudinal data on transitions on and off welfare
programs and spells of dependency and recipiency.

Chapter III, Predictors and Risk Factors Associated with Welfare
Receipt, focuses on predictors of welfare dependence \-- risk factors
believed to be associated with welfare receipt in some way. These
predictors are shown in three different groups:

> \(1\) **Economic security** -- including various measures of poverty,
> receipt of child support, food insecurity, and health insurance
> coverage -- is important in predicting dependence in the sense that
> families with fewer economic resources are more likely to rely on
> welfare programs for their support.
>
> \(2\) Measures of the **work status** and barriers to employment of
> adult family members also are critical, because families must
> generally receive an adequate income from employment in order to avoid
> dependence without severe deprivation.
>
> \(3\) Finally, data on **non-marital births** are important since
> history has shown that a high proportion of long-term welfare
> recipients became parents outside of marriage, frequently as teen
> parents.

Additional data are presented in four appendices. Appendix A provides
basic program data on each of the main welfare programs and their
recipients; Appendix B shows how dependency is affected by the inclusion
of benefits from the SSI program; Appendix C includes additional data on
non-marital childbearing; and Appendix D provides more information about
the change in data sources in this 2001 report. The main welfare
programs included in Appendix A are:

-   The **Aid to Families with Dependent Children (AFDC)** program, the
    largest cash assistance program, provided monthly cash benefits to
    families with children, until its replacement by the **Temporary
    Assistance for Needy Families (TANF)** program, which is run
    directly by the states. Data on the AFDC and TANF programs are
    provided in Appendix A, with AFDC data provided from 1977 through
    June 1997, and TANF data from July 1997 through 1999, or when
    available, 2000.

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-   The **Food Stamp Program** provides monthly food stamp coupons to
    all individuals, whether they are living in families or alone,
    provided their income and assets are below thresholds set in Federal
    law. It reaches more poor people over the course of a year than any
    other means-tested public assistance program. Appendix A provides
    historical data from 1970 to 1999, or when available, 2000.

-   The **Supplemental Security Income (SSI)** program provides monthly
    cash payments to elderly, blind, or disabled individuals or couples
    whose income and assets are below levels set in Federal law. Though
    the majority of recipients are adults, disabled children also are
    eligible. Historical data from 1974 through 1999 are provided in
    Appendix A.

## Measuring Welfare Dependence

As suggested by its title, this report focuses on welfare "dependency"
as well as welfare "recipiency." While recipiency can be defined fairly
easily, based on the presence of benefits from AFDC/TANF, SSI or food
stamps, dependency is a more complex concept.

Welfare dependence, like poverty, is a continuum, with variations in
degree and in duration. Families may be more or less dependent if larger
or smaller shares of their total resources are derived from welfare
programs. The amount of time over which a family depends on welfare
might also be considered in assessing its degree of dependency.
Nevertheless, a summary measure of dependence to be used as an indicator
for policy purposes must have some fixed parameters that allow one to
determine which families should be counted as dependent, just as the
poverty line defines who is poor under the official standard. The
definition of dependence proposed by the Advisory Board for this purpose
is as follows:

A family is dependent on welfare if more than 50 percent of its total
income in a one-year period comes from AFDC, food stamps and/or SSI, and
this welfare income is not associated with work activities. Welfare
dependence is the proportion of all families who are dependent on
welfare.

This measure is not without its limitations. The Advisory Board
recognized that no single measure could fully capture all aspects of
dependence and that the proposed measure should be examined in concert
with other key indicators of dependence and deprivation. In addition,
while the proposed definition would count unsubsidized and subsidized
employment and work required to obtain benefits as work activities,
existing data sources do not permit distinguishing between welfare
income associated with work activities and non-work-related welfare
benefits. As a result, the data shown in this report overstate the
incidence of dependence (as defined above) because welfare income
associated with work required to obtain benefits is classified as
welfare and not as income from work. This issue may be growing in
importance under the increased work requirements of the TANF program. In
1999, the percentage of welfare recipients who were working (including
employment, work experience, and community service) reached an all-time
high of 28 percent, compared to the 7 percent recorded in 1992.[^1]

This proposed definition also represents an essentially arbitrary choice
of a percentage (50 percent) of income from welfare beyond which
families will be considered dependent. However, it is relatively easy to
measure and to track over time, and is likely to be associated with any
very large changes in total dependence, however defined. For example, as
the recent changes in welfare law move more recipients into employment
or work-related activities, dependence under this definition is expected
to decline.

As shown in Figure SUM 1, 3.8 percent of the population would be
considered "dependent" on welfare in 1998 under the above definition.
This is less than one-third of the percentage (13.5 percent) who lived
in a family receiving at least some AFDC/TANF, food stamp or SSI
benefits during the year. Both dependency and recipiency rates have
fallen since 1994: dependency rates fell from 5.8 to 3.8 percent, while
recipiency rates fell from 17.2 to 13.5 percent. The drop in recipiency
rates is consistent with administrative data showing a peak in AFDC
caseloads in 1993 and in food stamp caseloads in 1994 and a steady
decrease in both programs since that time. What is not apparent from
administrative records, but is shown in these national survey data, is
that the dependency rate also peaked in 1993, with particularly strong
declines in dependency between 1996 and 1998.

Recipiency and dependency rates are higher for non-Hispanic blacks and
Hispanics than for non-Hispanic whites, as shown in Table SUM 1, which
shows these rates for various racial and age categories. Recipiency and
dependency also are higher for young children than for adults.

Dependency on assistance also varies depending upon which programs are
counted as "welfare programs." Dependency would be lower -- 2.1 percent
-- if only AFDC/TANF and food stamp benefits were counted (as shown in
Appendix B). In general, 70 to 75 percent of individuals who are
dependent under the standard definition also are dependent under an
alternative definition that considers AFDC and food stamps alone (as is
done in some measures in this report). In general, non-whites and the
very young were more likely to be dependent than other racial and age
categories, and they are primarily dependent on AFDC and food stamps.
Even in these populations, however, the vast majority of families do not
meet the criteria for dependence.

Another factor affecting dependency is the time period observed. The
summary measures shown in Figure and Table SUM 1 focus on recipiency and
dependency rates over a one-year time period. Long-term dependency is
more rare, as shown in the longitudinal measures in the second half of
Chapter II. Indicator 9, for example, shows that only 4 percent of those
who were AFDC recipients in 1982 were dependent (i.e., received more
than 50 percent of their income from AFDC and food stamps) for nine or
ten years. This represents less than 0.5 percent of the total
population. Half of the 1982 recipients were not dependent in any year
over the 1982-1991 time period.

![](media/image1.wmf)**Figure SUM 1. Recipiency and Dependency Rates:
1993-1998**

Note: Recipiency is defined as living in a family with receipt of any
amount of AFDC/TANF, SSI, or food stamps during year. Dependency is
defined as having more than 50 percent of annual income from AFDC/TANF,
SSI and/or food stamps. Dependency rates would be lower if adjusted to
exclude welfare assistance associated with working.

Source: March CPS data, analyzed using the TRIM3 microsimulation model.

  ----------------- ---------- ---------- ---------- ---------- ---------- ----------
  **Table SUM 1.                                                           
  Recipiency and                                                           
  Dependency Rates:                                                        
  1993-1998**                                                              

                                                                           

                    1993       1994       1995       1996       1997       1998

                                                                           

  **Recipiency                                                             
  Rates (Rates of                                                          
  Any Amount of                                                            
  AFDC/TANF, Food                                                          
  Stamps, or SSI)**                                                        

                                                                           

  **All Persons**   **16.6**   **17.2**   **16.9**   **16.0**   **14.8**   **13.5**

                                                                           

  **Racial                                                                 
  Categories**                                                             

  Non-Hispanic      10.3       10.9       10.0       9.9        9.7        8.6
  White                                                                    

  Non-Hispanic      38.0       38.3       38.6       35.6       30.2       29.6
  Black                                                                    

  Hispanic          34.6       34.9       35.0       32.0       28.0       24.5

                                                                           

  **Age                                                                    
  Categories**                                                             

  Children Ages 0-5 30.5       31.5       31.6       28.2       25.1       22.4

  Children Ages     24.9       26.8       26.5       24.2       21.2       20.0
  6-10                                                                     

  Children Ages     22.1       23.6       21.7       21.1       19.4       17.0
  11-15                                                                    

                                                                           

  Women Ages 16-64  16.4       16.9       16.6       16.0       14.7       13.6

  Men Ages 16-64    11.5       11.9       11.8       11.7       11.1       10.0

  Adults Age 65 and 11.2       10.9       10.6       10.3       10.2       9.9
  over                                                                     

                                                                           

                                                                           

  **Dependency                                                             
  Rates (More than                                                         
  50 Percent of                                                            
  Income from                                                              
  Means-Tested                                                             
  Assistance)**                                                            

                                                                           

  **All Persons**   **5.9**    **5.8**    **5.3**    **5.2**    **4.5**    **3.8**

                                                                           

  **Racial                                                                 
  Categories**                                                             

  Non-Hispanic      3.0        2.9        2.3        2.6        2.5        2.1
  White                                                                    

  Non-Hispanic      17.8       16.7       15.5       13.8       11.4       10.5
  Black                                                                    

  Hispanic          11.8       12.5       12.2       10.9       9.1        6.6

                                                                           

  **Age                                                                    
  Categories**                                                             

  Children Ages 0-5 13.9       13.7       12.9       11.2       9.3        7.8

  Children Ages     11.2       11.2       10.5       9.5        8.4        6.7
  6-10                                                                     

  Children Ages     9.3        9.2        7.6        8.1        7.4        5.7
  11-15                                                                    

                                                                           

  Women Ages 16-64  5.9        5.7        5.2        5.2        4.6        3.9

  Men Ages 16-64    2.7        2.7        2.5        2.7        2.5        2.1

  Adults Age 65 and 2.4        2.7        2.2        2.4        2.1        2.1
  over                                                                     

                                                                           

  Note: Recipiency                                                         
  is defined as                                                            
  living in a                                                              
  family with                                                              
  receipt of any                                                           
  amount of                                                                
  AFDC/TANF, SSI,                                                          
  or food stamps                                                           
  during year.                                                             
  Dependency is                                                            
  defined as having                                                        
  more than 50                                                             
  percent of annual                                                        
  family income                                                            
  from AFDC/TANF,                                                          
  SSI and/or food                                                          
  stamps.                                                                  
  Dependency rates                                                         
  would be lower if                                                        
  adjusted to                                                              
  exclude welfare                                                          
  assistance                                                               
  associated with                                                          
  working.                                                                 

                                                                           

  Source: March CPS                                                        
  data, analyzed                                                           
  using the TRIM3                                                          
  microsimulation                                                          
  model.                                                                   
  ----------------- ---------- ---------- ---------- ---------- ---------- ----------

**Measuring Deprivation**

Changes in dependence may or may not be associated with changes in the
level of deprivation, depending on the alternative sources of support
found by families who might otherwise be dependent on welfare. To assess
the social impacts of any change in dependence, changes in the level of
poverty or deprivation also must be considered. One way of measuring
deprivation is to look at changes in the level of need over time.
Elsewhere in this report, for example, measures of food insecurity and
lack of health insurance are presented.

The deprivation measure presented in this report, however, focuses
directly on changes in the poverty rate, both under the official poverty
rate and under expanded measures that take into account cash benefits,
non-cash benefits and taxes. These measures also show the degree to
which welfare and related programs are effective in moving people out of
poverty. The data, shown in Figure SUM 2 illustrate two primary points.
First, cash welfare and non-cash welfare benefits reduce the number of
poor families. Second, under any of the poverty measures presented in
Figure SUM 2, poverty rates have been decreasing since 1993, as economic
conditions have improved and policies have promoted and rewarded work.
Each of these points is discussed below.

Three different concepts of income are used in Figure SUM 2, which shows
alternative measures of poverty rates for all persons between 1979 and
1999. (The table underlying this graph is presented in Chapter III,
under the Economic Security Risk Factor, ECON 4). The three measures in
the graph are as follows:

The bold line shows the official poverty rate, based on total cash
income, including earned and unearned income. The official poverty rate
was 11.8 percent in 1999.

The dotted line with unfilled circles shows what poverty would be if
means-tested cash assistance (primarily AFDC and SSI) were excluded from
cash income. Under this measure, income includes earnings and other
private cash income, plus social security, workers' compensation, and
other social insurance programs. Poverty under this measure would be
almost one percentage point higher, 12.7 percent in 1999. This indicates
that many more families would be poor if they did not receive welfare
benefits.

The lowest line shows how poverty would be lower if the cash value of
non-cash benefits (food and housing) and taxes (including refunds under
the Earned Income Tax Credit) were counted as income.[^2] Under this
definition, poverty rates would fall by more than two percentage points,
to 9.8 percent in 1999.

##  {#section .unnumbered}

**Figure SUM 2. Percentage of Total Population in Poverty with Various
Means-Tested Benefits Added to Total Cash Income: 1979-1999**

![](media/image2.wmf)

Source: Congressional Budget Office tabulations of March CPS data.
Additional calculations by DHHS. See ECON 4 in Chapter III for
underlying table and further notes.

The combined effect of means-tested cash assistance, food and housing
benefits, and EITC and taxes was to reduce the poverty rate in 1999 by
2.9 percentage points, from 12.7 percent to 9.8 percent (the difference
between the top and bottom lines in Figure SUM 2). The net effectiveness
of means-tested benefits (including cash assistance, food and housing
benefits, and the EITC and other taxes) in reducing the poverty rate has
averaged about three percentage points during most of the past decade.
Net reductions in poverty rates were somewhat lower during the recession
of the early 1980s, and somewhat higher in the mid 1990's, largely due
to expansions in the EITC.

As economic conditions improved during the mid-1990s, poverty rates
decreased under all three concepts of income. Poverty rates continued to
decline after enactment of PRWORA in 1996. In fact, a comparison of SUM
1 and SUM 2 suggests that deprivation decreased at the same time as the
large declines in caseloads and welfare dependency. In 1998, the final
poverty rate was 10.4 percent after adding in non-cash benefits and
taxes, a decline from 13.3 percent in 1993. Over the same time period,
the dependence measure also declined, from 5.9 percent to 3.8 percent.
The combined effect of welfare reform and the strong economy has been to
reduce dependence on welfare at the same time as reducing poverty. It
will be important to continue to track changes in these dependency and
deprivation rates over the next several years, to see how they are
affected by future changes in economic conditions.

**Data Sources**

This 2001 report relies more heavily than past reports on data from the
Annual March Demographic Supplement to the Current Population Survey
(CPS). Several of the indicators and predictors of dependence are now
based on CPS data rather than data from the Survey of Income and Program
Participation (SIPP). This change was necessary because the Census
Bureau was unable to update the SIPP data analyses beyond the 1995 data
presented in last year's report.

If it were not for the lags in data availability, the Survey of Income
and Program Participation (SIPP) would be considered the most useful
national survey for measuring welfare dependency. It was used most
extensively in the first three annual reports. Its strengths are its
longitudinal design, system of monthly accounting, and detail concerning
employment, income and participation in federal income-support and
related programs. These features make the SIPP particularly effective
for capturing the complexities of program dynamics and it continues to
be an important source of data in this report, particularly for measures
related to spell duration and transitions in and out of recipiency,
dependency and poverty.

For measures of receipt, dependency, and poverty at a single point in
time, however, this year's report primarily uses the March CPS, which
measures income and poverty over an annual accounting period. The CPS
data are available on a more timely basis than the SIPP, and have been
widely used to measure trends since the welfare reform legislation of
1996. However, because the CPS does not collect income in the same
detail as the SIPP, it has been subject to criticism for underreporting
of income, particularly welfare income. To address this concern, some of
the indicators in this report are based on CPS data that has been
analyzed by the Transfer Income Model (TRIM3), a microsimulation model
developed by the Urban Institute under contract to the Office of the
Assistant Secretary for Planning and Evaluation. Although its primary
purpose is to simulate program eligibility and the impact of policy
proposals, the TRIM model has also been used to correct for
underreporting of welfare receipt and benefits. Welfare caseloads in
TRIM3 are based on CPS data, adjusted upward to ensure that total
estimates of recipients equal the total counts from administrative data.
Even with these adjustments, some measurement differences between the
CPS/TRIM data and SIPP data remain.

As shown in Figure SUM 3, the overall measures of dependency and
recipiency are not greatly affected by the change in data sources. Both
data sources show a decline in dependency between 1993 and 1995, from
5.9 to 5.1 percent under the SIPP data, and from 5.9 to 5.3 percent
under the TRIM-adjusted CPS data. Still, readers are cautioned against
comparing measures for 1987-1995 from the SIPP data in last year's
report with the new measures for 1996-1998 from the TRIM-adjusted CPS
data. Therefore, indicators using the CPS data were analyzed over a
six-year period -- 1993 to 1998 -- providing a new time series of how
the indicators are changing over time from a consistent data source.
Further information about the change in data sources is provided in
Appendix D.

![](media/image3.wmf)**Figure SUM 3. Recipiency and Dependency Rates
from Two Data Sources: 1987-1998**

Note: Recipiency is defined as receipt of any amount of AFDC/TANF, SSI,
or food stamps during year. Dependency is defined as having more than 50
percent of annual family income from AFDC/TANF, SSI and/or food stamps.
Dependency rates would be lower if adjusted to exclude welfare
assistance associated with working.

Source: March CPS data, analyzed using the TRIM3 microsimulation model.

The Panel Study of Income Dynamics (PSID) is another source of data used
in this report. Like the SIPP it provides longitudinal data, but over a
much longer time period than the approximate three-year time period of
the SIPP. The PSID has collected annual income data, including transfer
income, since 1968, providing vital data for indicators of long-term
welfare receipt, dependence, and deprivation. As with the SIPP data,
there have been lags in obtaining updated PSID data for the mid- to
late- 1990s. Once again, the indicators that are based on PSID data
cover the same ten-year period (1982-1991) as in the last several
volumes. The Department plans to publish updated PSID analyses in next
year's report.

Finally, the report also draws upon administrative data for the
AFDC/TANF, Food Stamp and SSI programs. These data are largely reported
in Appendix A. Like the CPS data, administrative data are generally
available with little time lags; these data are generally available
through fiscal year 1999 (or, for some aggregate caseload statistics,
fiscal year 2000). To the extent possible, TANF administrative data are
reported in a consistent manner with data from the earlier AFDC program,
as noted in the footnotes to the tables in Appendix A. The fact remains
that assistance under locally designed TANF programs encompasses a
diverse set of cash and non-cash services designed to support families
in making a transition to work, and so direct comparisons between AFDC
receipt and TANF receipt must be made with caution. This issue also
affects reported data on TANF receipt in national data sets such as the
CPS and SIPP.

Most of the data sources allow analysis of the indicators and predictors
of welfare dependence across several age and race/ethnic categories.
Where the data are available, statistics are shown for three
racial/ethnic groups -- non-Hispanic whites, non-Hispanic blacks, and
Hispanics. In some instances, however, there are not sufficient data on
individuals of Hispanic origin, and so the measures are shown for only
two racial/ethnic categories.

Two other technical notes concern the unit of analysis and the
difference between annual and monthly measures. The individual, rather
than the family or household, is the unit of analysis for most of the
statistics in this report. The individual's dependency status, however,
is generally based on total family income, taking into account
means-tested assistance, earnings and other sources of income for all
individuals in the family.[^3] This chapter, for example, has reported
the percentage of individuals that are dependent (in SUM 1) or poor (in
SUM 2) according to annual total family income. Recipiency status is
also based on total annual family income in some instances; in SUM 1,
for example, recipients are individuals in families receiving assistance
at some point in the year. In most other indicators, recipiency is
measured as the direct receipt of a benefit by an individual in a month.
The difference between an individual and a family measure of recipiency
is largest in the SSI program, which provides benefits to individuals
and couples, not to families.

There also are differences between monthly and annual observation of
benefit receipt. For example, the measures of annual recipiency (that
is, any receipt over the course of a year) shown in Figure and Table SUM
1 are higher than the more traditional measures of recipiency in an
average month, as shown in several other indicators.

[^1]: The earnings of those in unsubsidized employment would be
    correctly captured as income from work in national surveys. Any
    welfare benefits associated with work experience, community service
    programs or other work activities, however, would be counted as
    income from welfare in most national surveys, an incorrect
    classification according to the proposed definition.

[^2]: The effects of non-cash benefits (food and housing) and taxes are
    shown separately in ECON 4 in Chapter III. Prior to 1993, taxes
    increased poverty. Since 1993, taxes, including the refunds through
    the Earned Income Tax Credit, have caused additional reductions in
    poverty.

[^3]: Family is generally defined as following the broad Census Bureau
    definition of family -- all persons related by blood, marriage, or
    adoption.