# IV. Employment and Earnings of Needy Families

## Employment

A key measure of the success of welfare reform is the effect on
employment. Analysis of all available sources of information shows that
the employment rate of current and former Temporary Assistance for Needy
Families (TANF) recipients has increased significantly.

Between 1996 and 1999, the employment rate of current and former adult
TANF recipients increased by 33 percent. In 1996, about one in four
prior-year recipients was working the following spring, whereas in 1999,
the figure had increased to more than one in three. Each March the
Current Population Survey (CPS), which is used to calculate unemployment
rates, collects information about households\' income and program
participation in the previous calendar year as well as employment and
earnings data reflecting individuals\' March employment status. As a
result, DHHS knows whether adults who received Aid to Families with
Dependent Children (AFDC) or TANF in the proceeding calendar year (who
may or may not still be receiving welfare) were employed the following
March. The employment rate increased from 27 percent in 1996 to 36
percent in 1999.

The percentage of working recipients reached 33 percent in Fiscal Year
(FY) 2000. Thus, one in three adult recipients was working in a typical
month, the highest level ever recorded and over a three-fold increase
since 1996. Eighty percent of recipients who were working were in paid
employment; others were engaged in work experience and community
service.

Large employment gains are also evident from rigorous waiver evaluations
that measure the effects of reform policies by comparing randomly
assigned individuals who were subject to either welfare reform or
standard AFDC rules. The CPS analysis, for example, does not separate
out the effects of State welfare reform policies from those of the
economy, other policies that promote employment such as the enhancement
of the Earned Income Tax Credit (EITC), or the expansion of child care
subsidies. The strength of experimental evaluation studies is that they
isolate the impacts of specific policies and thus enable researchers to
attribute outcomes directly to the policies put in place.

A number of such studies, e.g., those in Delaware, Florida, Iowa and Los
Angeles County, consistently show welfare reform strategies having
significant effects on employment for at least one major target group.
Furthermore, the Los Angeles County study, along with a synthesis of
twenty welfare-to-work programs, showed that these effects were obtained
across a very broad spectrum of welfare recipients, including those who
were the most disadvantaged, i.e., those who had low educational
achievement, little work experience and high welfare use.

Recent findings from ten studies of families leaving welfare funded by
the Assistant Secretary for Planning and Evaluation (ASPE) indicate that
between 45 and 65 percent of former TANF recipients found work in jobs
that were covered by their States' Unemployment Insurance program.
(Leavers, as defined in these DHHS studies, are single-parent cases that
are closed for at least two months.) Employment rates were even higher
-- 62 to 75 percent -- when measured as the percentage of those who were
*ever* employed within the first 12 months. These employment rates are
consistent with findings from many other leavers studies, although
methodological differences cause rates to be slightly higher in some
studies (e.g., rates are sometimes higher in studies using survey data,
or limiting study population to leavers who do not return to welfare).
While these employment rates are not radically different from the
patterns of AFDC leavers in earlier studies, they indicate a
dramatically large increase in the *absolute* number of families leaving
welfare with earnings, especially given the significant caseload decline
in the past few years. A variety of State studies summarized by the
General Accounting Office (GAO) found that between 63 and 87 percent of
adults have worked since leaving the welfare rolls.

Thus, each of these sources of information consistently points to higher
levels of employment among current and former welfare recipients.

## Earnings

Earnings are another important measure of how welfare reform is
succeeding. CPS data reveal that earnings for female-headed families
increased significantly between 1996 and 2000. These increases have been
particularly notable for the bottom two income quintiles, that is, the
40 percent of those families with the lowest income. These groups
include the women who are most likely to be former or present welfare
recipients. Thus, whereas in 1996 only 26 percent of all families in the
bottom income quintile (before counting the effects of government
transfers and taxes) of female-headed families with children had
earnings in the course of the year, in 2000 almost half did (48
percent). In 1996, the average annual earnings of these families was
\$315; in 2000 it was \$1,646 (both in constant 2000 dollars and
averaged over all families in the quintile). In the second quintile, 87
percent had earnings in 1996; 97 percent in 2000. For this group, real
aveage annual earnings almost doubled, from \$6,304 in 1996 to \$11,509
in 2000.

That welfare reform has played a role in these increases is also
supported by experimental evaluations both of broader welfare reform
programs and programs that focus just on mandatory welfare-to-work
activities. Although these evaluations produce a range of effects for
different groups of individuals, they quite uniformly suggest that
participants ranging from the most disadvantaged to the least have
higher earnings as a result of the programs.

TANF administrative data (which report information only on welfare
recipients who remain on the rolls) indicate that the average monthly
earnings of those employed increased from about \$466 per month in FY
1996 to \$553 in 1998, \$598 in FY 1999, and \$668 in FY 2000, increases
of 19, 28, and 43 percent respectively.

High Performance Bonus data show impressive job retention and earnings
gains. Based on the data from the 49 States that competed for the bonus
in FY 2000 (up from 46 States in the previous year), more than 1.2
million adults on welfare went to work between October 1998 and
September 1999. Seventy-seven percent of those who entered employment
were also working in the subsequent calendar quarter, a slight decrease
from the 80 percent achieved in the prior year. Average quarterly
earnings increased 22 percent for current and former welfare recipients,
from \$2,114 in the first quarter of employment to \$2,570 in the third
quarter.

It is also important to note that earnings levels remain low for many
women even after these large increases. Looking again at the CPS data,
for the bottom quintile, although work has expanded, it is still too
sporadic for most of those who work (the average number of weeks worked
is a little less than 26 weeks per year), and about half of all families
have no one who had earnings in the course of a year. For the second
quintile, although work is nearly universal, average earnings are still
below poverty and government supports, such as the EITC, are necessary
to bringing families out of poverty.

The Department is funding a number of rigorous and in-depth evaluations
that examine the effects of alternative State welfare reform strategies
on families and children. As final reports are completed over the next
two years, it will be important to review their results.

At a national level, recent expansions in the EITC have had a
significant impact on low-income working families, including former
welfare recipients. Recent data from the Census Bureau show that the
EITC raised 4.3 million people out of poverty in 1998.

There may also be a link between the increases in labor force
participation of single mothers and EITC expansions though it is hard to
distinguish the impact of EITC from broader welfare reforms. It is
probably no coincidence that, after remaining steady for many years, the
percentage of single mothers that were working and the percentage of
single mothers who were not on welfare, but working, both increased
substantially between 1992 and 1998.

When earnings are combined with the EITC and other benefits, most
families who go to work have a higher income than if they had remained
on welfare. In the average State, a woman with two children could be
better off working 20 hours a week than she would be on welfare.
However, not all eligible families are accessing tax credits or other
services and assistance that they might need. The reasons for this are
not entirely clear but it is widely held that many people who leave
welfare to work prefer to avoid other government aid as well.

As indicated by the findings of studies of former welfare recipients by
the GAO, the Urban Institute, and Department of Health and Human
Services (DHHS) grantees, a low-wage job may be the first step for many
welfare recipients. In fact, given the work experience and skill level
of many recipients, it is likely that a low-wage job will be the likely
first successful step for many parents. That is why it is important for
some families to have access to other programs, such as Food Stamps,
Medicaid, the EITC, child support, and subsidized child care. These
programs can help families with sub-poverty and above poverty wages get
access to services, enabling them to work and progress in careers. A key
area that States are pursuing now is employment advancement strategies,
and job retention that can move families who enter the workforce at low
wages up to higher wage jobs.

Employment retention and advancement are critical elements in the
success of TANF. The goal of these elements is to move families who
enter the workforce at low wages into more stable, higher-paying, and
self-sustaining employment. To support this goal, DHHS has incorporated
job retention and advancement objectives into a number of our
activities, including the criteria we have developed for the TANF High
Performance Bonus system. In addition, in partnership with State and
local TANF agencies, DHHS has launched a major, national evaluation of
employment retention and advancement strategies. Through this multi-year
initiative, we will work with State and local officials to design and
test varied strategies to assist current and former TANF recipients and
other low-income working families to sustain employment and advance in
the labor market.

### Participation in Medicaid and Food Stamps

Five years after welfare reform severed the link between Medicaid
eligibility and receipt of cash assistance, States have made significant
progress to both ensure that eligible families receive Medicaid and to
eliminate many of the barriers that existed when Medicaid was linked to
welfare. Much of this progress can be attributed to States' efforts to
correct the problems identified in the on-site reviews that the Centers
for Medicare and Medicaid Services (CMS) conducted in 1999 to determine
how well States had delinked Medicaid eligibility from receipt of cash
assistance and to determine why Medicaid enrollment levels were
decreasing significantly nationwide. The site visits confirmed that the
degree of investment States made to redesign their enrollment and
retention strategies, both to adapt to welfare reform changes and to
address longstanding problems in the Medicaid program, profoundly
affected whether or not eligible families received Medicaid.

While many States were slow to implement the 1996 changes brought about
by welfare reform, once their attention was focused on the need to make
changes, most have taken action and some have adopted significant
reforms in their Medicaid enrollment and retention processes that should
markedly improve participation of families over time. However, some
States continue to subject families who want Medicaid and TANF to the
cash assistance procedural requirements such as participation in a
face-to-face interview and providing documentation to support
eligibility, which can deter their participation in Medicaid. CMS
recently released a guide titled, *Continuing the Progress: Enrolling
and Retaining Low-Income Families and Children in Health Care Coverage*
that draws heavily from the on-site review findings to clarify Federal
Medicaid requirements, provide States with guidance on a range of issues
and process concerns specific to Medicaid/TANF delinkage, and to explain
options States can choose to expand Medicaid coverage of low-income
families and simplify the Medicaid rules. This guide is intended to
provide guidance and technical assistance to State administrators as
they continue their efforts to further refine their Medicaid programs.

While States have other options to expand coverage of low-income
families and children through the State Children's Health Insurance
Program (SCHIP) and increased flexibility through research and
demonstration waivers, the declining economy and rising unemployment
rate are forcing fiscal constraints that have led States to consider
limiting the scope of Medicaid and or SCHIP services or coverage. CMS is
currently exploring ways States can save Medicaid dollars while
preserving benefits during the current budget crises.

In the case of the Food Stamp Program (FSP), enrollment has declined
steadily since the early 1990s as declines in poverty have leveled off.
Historically, households that received program benefits such as SSI and
AFDC have had relatively high participation rates in the FSP and
low-income working families have had generally low FSP participation
rates. Thus, it is not surprising that the declines in the AFDC/TANF
caseloads (and the movement from welfare to work) have been accompanied
by declines in food stamp participation.

## Conclusion

Welfare reform has resulted in impressive gains in employment and
earnings of aided families. Building on this success, States are now
moving to help recipients retain employment and advance in their
careers.

## Appendices

Table 4:1 Employment Status of Single And Married Mothers, 1988 -- 2000

![](media/image1.png){width="5.8909722222222225in"
height="8.995833333333334in"}