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Welfare Reform Has Moved Millions Out Of Poverty

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Welfare Reform Has Moved Millions Out Of Poverty

June 20, 2016

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In 1996, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA). The legislation converted the primary federal cash welfare program, Aid to Families with Dependent Children (AFDC), to a new one—Temporary Assistance for Needy Families (TANF). After vetoing two previous iterations of the bill, President Bill Clinton signed PRWORA into law less than three months before the presidential election.

Whereas any family qualifying for AFDC was entitled to benefits by law, states now received a fixed amount of money for TANF, and beneficiaries faced time limits and work requirements. As a result, welfare reform dramatically reduced the number of families with children receiving cash assistance. And yet, child poverty declined.

A common refrain on the left this campaign season is that welfare reform has been a disaster—in the words of New York writer Annie Lowrey, for example, it was “a punitive policy whose consequences were papered over by an economic expansion, during which time everybody in Washington declared victory and walked away.”  It is true that cash welfare benefits fewer families than it used to, but poverty has declined since welfare reform, and the evidence strongly suggests that welfare reform was a crucial factor in this decline.

Critics of welfare reform such as the Center on Budget and Policy Priorities point to official statistics showing that the number of poor families with children is higher today than when welfare reform passed.  However, the number of Americans is also higher today than in 1996. Assessing how poverty has changed requires looking at the share of families with children that are in poverty.

That share, according to the Census Bureau’s official definition, was only slightly higher in 2013 than in 1996 (16.9 percent versus 16.5 percent), and the share of female-headed families with children that are in poverty fell slightly.  The poverty rate among single mothers also was a bit lower in 2013 than in 1996.

These numbers may appear to show hardly any progress or improvement. But official poverty statistics have well-known shortcomings that underestimate the extent to which hardship has declined.

According to the best available estimates, 29 percent of children were poor in 1993—no lower than in 1967. But child poverty then fell strongly, reaching 18 percent in 2000 and 17 percent in 2009. As of 2012, emerging from the Great Recession, 19 percent of children were poor.

Why did poverty fall even though welfare receipt plummeted? Other safety-net programs played a role. Even in 1996, AFDC was a smaller means-tested program than Medicaid, SSI, food stamps, and the EITC—and those programs expanded after welfare reform.

Much more important was the increase in work among single mothers. From 1980 to 1996, employment among never-married mothers rose by less than 10 percentage points. In the three years from 1996 to 1999, the rate jumped by roughly 15 percentage points. After 2000, employment among never-married mothers drifted downward; but in 2013, their employment rate was still over 10 percentage points higher than in 1996.

But was welfare reform responsible? Perhaps employment rates among single mothers would have risen anyway. Child poverty did begin to decline in 1994, and the number of families receiving cash welfare under the AFDC program started to fall in 1995. Many critics of welfare reform attribute the drop in poverty and rise in employment to the strong 1990s economic expansion.  But this explanation makes little sense. Poverty remained relatively low after the 1990s boom ended and rose only very slightly during the 2001 recession and the Great Recession.  If the 1990s economy were the explanation, then poverty should have risen back to 1996 levels once the economy turned south.

Furthermore, while employment among single mothers rose after 1993, employment among single women without children fell over the subsequent ten years, and employment among married mothers was flat.

No research suggests that the work-incentivizing effects of the EITC are strong enough to explain the unprecedented drop in welfare rolls during the 1990s. In truth, the EITC alone would not have increased employment or reduced poverty nearly as much if single mothers had not been confronted with greater pressure to work rather than receive welfare benefits.

Moreover, some of the decline in child poverty before 1996 should be attributed to welfare reform. The administrations of George H. W. Bush and Bill Clinton had already approved waivers to existing federal AFDC policy in more than 40 states by mid-1996. Thirty states had waivers related to work requirements, 32 had been granted waivers around time limits, and 19 states had waivers that limited benefits for additional children born to AFDC recipients. 

It is not unreasonable to say that some families would be better off today if welfare reform had not passed. But the evidence is conclusive that far more families were lifted out of poverty than were made poorer because of it.  The 1996 welfare reform, in short, was no disaster. It was instead a landmark achievement in antipoverty policy.

Scott Winship is the Walter B. Wriston Fellow at the Manhattan Institute for Policy Research. You can follow him on Twitter here.

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