Does it pay to move from welfare to work? A comment on Danziger, Heflin, Corcoran, Oltmans, and Wang

Journal of Policy Analysis and Management, Vol. 24, No. 2, 399–409 (2005) © 2005 by the Association for Public Policy Analysis and Management Published by Wiley Periodicals, Inc. Published online in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/pam.20095 In a recent article in this journal, Danziger et al. (2002) reported findings from a study of Temporary Assistance for Needy Families (TANF) recipients in Michigan who have been followed over time as they either stayed on welfare or left, and either went to work or were not employed after leaving. Danziger and others reported that the difference in monthly income between “wage reliant” mothers who had left welfare and were working, and “welfare reliant” mothers who had stayed on welfare and were not working, was $635, equivalent to a large 63 percent gain. Compared to many panel studies of welfare recipients, the Michigan study has the advantage of having comprehensive measures of all income types in the household, not just wage and welfare income obtainable from administrative records, as is the case in the majority of other studies. In this Comment, we report findings from a study of welfare recipients in three cities (Boston, Chicago, and San Antonio) who were likewise followed over time as they moved off welfare or stayed on, and either went to work or did not. Like the Michigan study, our data are based on a survey that gathered a complete enumeration of family income from all sources. Our findings differ from those of the Michigan study. The difference in monthly income between working leavers and nonworking “stayers” ranges from $150 to $227, equivalent to only a 14 percent to 21 percent gain. The main reason for the smaller gain in our study compared to the Michigan study is that the women in our sample obtain less additional income from other family members after leaving welfare, not because they themselves have any smaller earnings gains after leaving. Our data also reveal that most of the income gain to be had from leaving welfare and going to work could be had from going to work and staying on welfare; the incremental income gain from leaving welfare, given that the recipient was already working on welfare, is modest, mainly because welfare income is completely lost. The Michigan study again has different results, showing much larger gains to leaving welfare even if having been working while on welfare; but again, the main reason for the difference is that there were greater increases in other family members’ income when leaving welfare in the Michigan data. We also examine how income changes when recipients leave welfare but are not employed. In our data, there is a significant drop in income for this group, whereas in the Michigan data income actually rises, again because there are extremely large increases in other family members’ income. Thus, our main finding is that the gains or losses from leaving welfare are very sensitive to whether significant additional income comes in from other members of the family. Not all recipients have gains as large as those in Michigan.