Assessing the Impact of Welfare Reform on Single Mothers

THE PERSONAL RESPONSIBILITY and Work Opportunity Reconciliation Act (PRWORA), signed into law in 1996, transformed the U.S. welfare system. PRWORA replaced the Aid to Families with Dependent Children (AFDC) program with Temporary Assistance for Needy Families (TANF). Since its inception in 1935 as part of the Social Security Act, AFDC had been the main welfare program providing assistance to low-income single mothers. But a number of factors, particularly the rapid growth in the never-married single-mother population and a resumption of growth in caseloads in the early 1990s (following the surge of the late 1960s and early 1970s; figure 1), rendered the program unpopular. (1) Under the new TANF program, welfare participation among single mothers has dropped dramatically, from 25 percent in 1996 to 9 percent today. At the same time, the fraction of single mothers who work has increased from 74 percent in 1996 to 79 percent today. The goal of this paper is to ascertain what features of welfare reform, if any, have been most responsible for this decline in welfare participation and increase in work among single mothers. [FIGURE 1 OMITTED] Two factors complicate our task. First, a key feature of PRWORA was that it reduced federal authority over welfare policy, giving the states much greater leeway in the design of their own individual TANF programs. A great deal of program heterogeneity has emerged across states, making it difficult to develop a set of variables that comprehensively characterize the different state TANF programs. Second, a number of other recent developments may also have contributed to the changes in welfare and work participation since 1996. These factors, such as the strong U.S. economy of 1996-2000 and the significant expansion of the earned income tax credit (EITC) after 1993, must be controlled for in order to isolate the impact of particular elements of state TANF policies. One important fact lends credence to the idea that factors other than PRWORA may account for the lion's share of recent caseload declines: the dramatic drop in welfare participation (and the dramatic increase in work) among single mothers actually began in 1993-94, before PRWORA's enactment (figure 2). From 1993 to 1996 AFDC participation fell from 32 percent to 25 percent. On the other hand, beginning around 1993, many states began to obtain federal waivers allowing them to adopt TANF-like reforms of their AFDC programs. Such reforms included work requirements, time limits on benefits, sanctions for failure to meet work requirements, and family caps. These changes may have contributed substantially to caseload declines even before PRWORA. [FIGURE 2 OMITTED] At the same time that PRWORA delegated greater control of welfare policy to the states, it also mandated nationwide many of the popular features introduced under state waivers, such as time limits and work requirements. To understand the sense in which the federal law "mandates" certain features of state TANF programs, one must understand how federal TANF funds are distributed to the states. Under AFDC, states received federal matching funds based on their AFDC expenditures. PRWORA converted these matching funds to block grants. The block grant for a state was fixed at a level related to federal funding of AFDC benefits and other related programs in the year when that funding had been highest in that state. States were given substantial leeway in how the block grant funds could be used: for example, they may use it to support child care (an important postreform development to which we will return). However, to avoid fiscal penalties on the federal block grant, states must adhere to a "maintenance of effort" (MOE) rule: states must maintain their spending on assistance for needy families at no less than 75 to 80 percent of their pre-1996 level. (2) PRWORA requires that state TANF programs set a five-year lifetime limit for any individual receiving federally funded aid, although states may exempt up to 20 percent of their caseload from the limit. …