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Chapter Eight
INCOME AND POVERTY
8.1. BACKGROUND
As we move from the topics covered by the prior four chapters–welfare participation, participation in other social welfare programs, labor market outcomes, and fertility and marriage–to the focus of this chapter–income and poverty–we begin to consider the broader impacts of welfare reform on families and children. (Other outcomes that also capture broader concepts of well-being, such as material well-being and child well-being, are covered in subsequent chapters.) Income is one gauge of a family’s command over resources, and poverty is one widely used metric to identify the fraction of families with resources below a specified needs standard. Thus, for some, these outcomes are among the most important to consider when evaluating the effects of welfare reform.
The impact of welfare reform on income and poverty will be determined, in part, by the effects on the outcomes covered in Chapters 4, 5, and 6. The two most significant sources of income for low-income families with children are earnings and cash transfers from means-tested social welfare programs. If welfare reform raises both income sources, we would expect total family income to increase and poverty rates to fall. Conversely, income would rise and poverty would fall if welfare reform increased earnings and transfer payments. The relationship will not be exact because other sources of income (e.g., earnings from other family members; other non-means-tested public transfers, such as unemployment insurance or disability payments; or private transfers, such as child support payments) may increase or decrease as well, thereby reinforcing or undoing the contribution of changes in earnings and means-tested programs to the changes in income and poverty. In addition, if some policies work to lower dependence on welfare while others raise earnings from work, incomes may rise or fall depending on which change is greatest.
Whether poverty rates change depends on where in the income distribution any income changes take place. If income changes are small or occur only among those already above or below the poverty line, then the poverty rate would remain unchanged. Alternatively, income changes may be small on average but still lead to changes in the proportion of families classified as poor. For example, small increases in income may be associated with reductions in poverty if the income gains occur among those with incomes near the poverty threshold.
Considering only the trends in income levels and poverty rates for the population at risk of welfare utilization (i.e., female-headed households), we find that the trends since welfare reform are quite favorable. Figure 8.1 plots the levels of annual earnings and annual income (measured off the left y-axis) and the rates of poverty and welfare utilization (measured off the right y-axis) for female-headed families between 1990 and 1999. As discussed in earlier chapters, the welfare participation rate has been steadily declining since the mid-1990s, and earnings have been on an upward trajectory over the same period. Total family income shows the same pattern as earnings, indicating that the earnings increases have been large enough to offset the decline in welfare benefits (or that other income sources have increased).62 The income gains have resulted in a decline in the poverty rate for female-headed families, which in 1999 stood at its lowest level–35.7 percent–since 1959. The child poverty rate has also fallen over this period (Haskins, 2001).
[D] |
A more focused look at the welfare population, and those who leave welfare, suggests that this positive assessment on average may not tell the whole story. Data from the eight USDHHS-funded welfare leaver studies with survey data on household income indicate that post-exit incomes remain relatively low both soon after leaving welfare (6—8 months) and also after more time has passed (26—34 months)–in the range of $1,000 to $1,500 per month (USDHHS, 2001a).63 Over one-half of the sample (57 to 58 percent) of leavers in two states and one county (Missouri and Washington, and Cuyahoga County, Ohio) were classified as poor after leaving welfare, in both the short time horizon (6—8 months) and longer time horizon (26—34 months), although this was lower than the rate of poverty for the stayers as calculated with data for Washington State.64 The post-exit poverty rate was somewhat lower in Iowa: 47 percent based on cash income, and 41 percent including the value of food stamp benefits.
There is also some evidence from these leaver studies that those whose income is above the poverty line after leaving welfare would still be considered "near poor," although some may be better off than they appear once the full range of support available to the working poor are taken into account (e.g., Medicaid, food stamps, child care, and EITC) (Haskins, 2001). At the same time, there is a small- to moderate-sized group that has very low income after leaving welfare, even accounting for these forms of support which they may or may not take advantage of. As would be expected, most income (70—80 percent) derives from the earnings of the former recipient or other family members.
A comparison of an early cohort of leavers in Wisconsin (1995) with a cohort that left two years later, shows that the later cohort–which had more barriers to work–had lower earnings and higher poverty rates after leaving welfare than the earlier cohort of leavers (Cancian et al., 2000). By comparing outcomes prior to welfare exit with those after welfare exit, Cancian et al. (2000) find that nearly two-thirds of leavers in both the early and late cohorts had higher earnings in the year after welfare exit, but only one-third had higher combined income from their own work and public assistance benefits in the post-exit period. Thus, the earnings gains were not sufficient to offset the loss of welfare benefits for most leavers. (The impact on earnings of other household members is not known in this study.) For both cohorts, poverty rates based on combined recipient income were above 65 percent in the year after exit. The early cohort, which could be tracked over three years post-exit, did show a modest improvement in own income and poverty rates over time.
While the leaver studies provide a useful perspective on the experiences of those who left welfare at a particular point in time, they are not designed to assess the contribution that welfare reform made to the observed changes. To what extent are the changes observed in the national data or those captured in the leaver studies the direct result of the welfare reforms that began with waivers and continued as part of PRWORA? Like the other outcomes we have considered thus far, confounding factors such as the economy and other policy changes (e.g., the minimum wage and EITC) may have contributed to the observed changes. Thus, our goal in this chapter is to assess what we know about the effects of welfare reform on income and poverty after accounting for these and other confounding factors.
The causal impact of welfare reform on income and poverty has been evaluated using both experimental and econometric evidence. These two outcomes typically cannot be measured accurately by relying solely on administrative data, so both experimental and observational studies also rely on survey data to construct measures of income and to calculate poverty rates. Conceptually, the ideal income measure would capture all sources available to the recipient in her own name, as well as sources available through income pooled at the family or household level. Those income sources would include earnings, cash and noncash government means-tested transfers (e.g., welfare, food stamps, Supplemental Security Income, general assistance, and Medicaid), other government transfers (e.g., unemployment insurance, disability insurance, Social Security), private transfers (e.g., child support or alimony), and income from assets (e.g., interest and dividends). Income would also be measured net of taxes paid and tax credits received (e.g., EITC).65 Family income is typically defined as all income sources for the unit of individuals who are related by blood, marriage, or adoption. A cohabiting partner of the recipient might be considered part of the family group as well, especially if income is pooled. To the extent that income pooling occurs within the household, between related or unrelated individuals–for example, in a three-generation household–the income for the entire household would be measured.
The complexities of income measurement, both conceptually and in practice, mean that such an ideal measure is rarely available. In the studies we review in this chapter, the measures of income and poverty vary between and within the experimental and econometric studies. All the econometric studies we review rely on the CPS; thus, they use a fairly comprehensive measure of family income, although they typically do not account for taxes and tax credits and noncash transfers (including food stamps).
To draw on administrative data, experimental studies often measure income just for the recipient and count only earnings, cash assistance (e.g., welfare payments and any financial work incentives such as wage subsidies from the program), and food stamps. We refer to this concept as "combined income." In some cases, taxes and tax credits such as the EITC are imputed based on the administrative data, and some evaluations have access to administrative earnings records for other family members. Some experimental studies also collect information on a broader array of income sources directly from participants. These survey data alone, or in combination with administrative data, are used to measure a broader concept of income that might include other public and private transfers sources for the recipient, and earnings and unearned income of other family members, possibly just the spouse or partner and perhaps for all other adults in the household.
Thus, in comparing studies, it is important to keep in mind that the measurement of income (and hence poverty) may be incomplete (i.e., not all sources are measured or imputed) or suffer from underreporting of certain income sources for those that are measured.66 Measures of family income in some studies may include cash sources only, while income measures in other studies may include the value of in-kind benefits such as food stamps. Income may be measured before taxes, so that taxes paid or tax credits received (e.g., the EITC) are not accounted for in the measure of well-being. Income data collected through survey methods may be measured using a recall period as short as one month, or as long as a year. Finally, the unit of observation may vary, from the narrowest perspective of the recipient’s income, to the broadest perspective of income for the family or household.
In those studies that calculate a poverty rate, the standard approach is to compare the measure of income to a needs standard that is usually specific to the family type (size and composition in terms of the number of adults and children). Almost all studies use the poverty cutoffs defined by the Census Bureau to calculate the official poverty rate, even though the income concept they use may differ from the official measure used by the Census Bureau (family pretax cash income). In some cases, the measure of income is more comprehensive than the official measure (e.g., the EITC and value of food stamps are included). In other cases, it is less comprehensive (e.g., income from assets, private transfers, and non-welfare-related public transfers are excluded). The income measure may also be based on a different unit of analysis, for example, individual income only, whereas the Census Bureau poverty cutoffs are intended to apply to a measure of family income. Thus, the concept of poverty as applied in these studies does not necessarily capture the same concept as the official measure, and the concepts are not necessarily comparable across studies.67
With this background, the next section focuses first on the results from random assignment studies with respect to income, income sources, and poverty. In that section, we also briefly summarize the results in Appendix A with respect to differential impacts for subgroups. A discussion of the econometric studies that consider these outcomes follows in the third section. The results from both types of studies are synthesized in the fourth section. A final section concludes the chapter.
8.2. RANDOM ASSIGNMENT STUDIES OF THE EFFECTS OF WELFARE REFORM ON INCOME, INCOME SOURCES, AND POVERTY
With the exception of the four programs that focus on other reforms (AWWDP, FDP, PPI and PIP), all the experimental studies reviewed in previous chapters also include at least one measure of income in their impact analyses, while some also include a measure of poverty. Table 8.1 summarizes the findings from this literature. For the relevant experiment and population served, the table indicates whether administrative or survey data are used to measure a particular income concept and then whether the income concept is used to calculate a poverty rate. In some cases, the same income measure is reported for different points in time to determine if impacts fade out or grow stronger with time; some studies report multiple income measures for the same or different follow-up periods. Since incomes are measured over varying time intervals, we also normalize all estimated impacts to a monthly concept.
In addition, we also consider the sources of income to the extent they are reported in the experimental studies. Since earnings are reported in Chapter 5, we do not repeat those results here. We do tabulate in Table 8.2 the impacts for the amount of welfare payments and food stamp payments, ideally for the same follow-up interval as the income measures. (Chapters 4 and 6 previously covered participation rates in welfare and food stamps, respectively.) Welfare payments are reported in all the studies that report income, and the same is true for food stamp payments with two exceptions: MFIP (where the Food Stamp Program was cashed out) and the Canadian SSP (where food stamps do not apply). For both income sources, the measures are typically based on administrative data for the recipient. In a few cases, survey data are used to collect information about benefits received for other family or household members. In a few studies, data on other sources of income (e.g., earnings from other household members, child support payments, and other public transfers) are collected as part of a follow-up survey. While we do not report those results in a table, we note in the text when significant impacts on these other income sources are measured.
Finally, to assess individual or family self-sufficiency, we also report in Table 8.2 program impacts for earnings’ share of total income. In some cases, this outcome is measured directly. In other cases, the fraction of the sample with 50 percent or more of income from earnings is reported. The earnings share is not available for all the studies that report income.
We follow the structure used in previous chapters and review studies by the reform policy or policies they evaluate, considering income, poverty, welfare and food stamp payments, and earnings share for each group of studies.
8.2.1. Programs That Focus on Financial Work Incentives
Three studies assess the impact of financial work incentives: WRP-IO, CWPDP, and MFIP-IO. CWPDP does not report a combined income measure, so the estimated impact in year three reported in Table 8.1 is based on the separate impacts for the recipient’s earnings (Table 5.1) and welfare and food stamp payments (Table 8.2). (Consequently, the significance level is not known.) The impact estimate for recipient combined income is close to 0, a negative $3 per month. Food stamp payments are the only combined income component that has a significant positive impact; earnings and welfare payments have negative but insignificant impacts. The negative welfare payment impact is despite the fact that there is a positive (but insignificant) impact on welfare use (Table 4.1), which reflects the fact that this program also reduced benefit levels.
| Income | Poverty | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Name | Cases served | Data | Measure | Control mean |
Impact | % | Normalize to monthly | Control mean | Impact | % |
| A. Programs that focus on financial work incentives | ||||||||||
| CWPDP | Single-parent recipients | A | Avg. annual recipient E+W+FS income in year 3 of 42-mo FU | $8,421 | -$30n.a. | -0.4% | -$3 | |||
| WRP-IO | Single-parent recipients and applicants | A | Avg. quarterly recipient E-W-FS income over 42-mo FU | $2,256 | $5 | 0.2% | $2 | |||
| A | Avg. quarterly recipient E-W-FS income in last 3 mos. of 42-mo FU | $2,307 | $7 | 0.3% | $2 | |||||
| S | Avg. mo. HH income in mo. prior to 42-mo FU | $1,410 | $145** | 10.3% | $145 | |||||
| S | Avg. mo. HH income + EITC in mo. prior to 42-mo FU | $1,501 | $139** | 9.3% | $139 | |||||
| MFIP-IO | Urban single parents recipients | A | Avg. quarterly recipient E-W-FS income in last 3 quarters of 10-quarter FU | $2,525 | $243*** | 9.6% | $81 | 77.7 | -8.3*** | -10.7% |
| A | Avg. quarterly recipient E-W-FS income + EITC/taxes in last 3 quarters of 10-quarter FU | $2,613 | $299*** | 11.4% | $100 | 70.5 | -6.6*** | -9.4% | ||
| S | Avg. mo. family income in month prior to 36-mo FU | $1,459 | -$11 | -0.8% | -$11 | |||||
| Urban single parents applicants | A | Avg. quarterly recipient E-W-FS income in last 3 quarters of 10-quarter FU | $2,578 | $138 | 5.4% | $46 | 66.0 | -4.0*** | -6.1% | |
| A | Avg. quarterly recipient E-W-FS income + EITC/taxes in last 3 quarters of 10-quarter FU | $2,556 | $177*** | 6.9% | $59 | 59.7 | -3.6*** | -6.0% | ||
| S | Avg. mo. family income in month prior to 36-mo FU | $1,838 | $86 | 4.7% | $86 | |||||
| B. Programs that focus on financial work incentives tied to hours of work | ||||||||||
| New Hope (a) | Poor families employed FT at RA | A | Avg. annual recipient E+W+FS +EITC for year 1 of 2-yr FU | $14,561 | $187 | 1.3% | $16 | 58.5 | -5.2 | -8.9% |
| A | Avg. annual recipient E+W+FS +EITC for year 2 of 2-yr FU | $15,294 | -$1,148 | -7.5% | -$96 | 56.2 | -6.9 | -12.3% | ||
| Poor families not employed FT at RA | A | Avg. annual recipient E+W+FS +EITC for year 1 of 2-yr FU | $9,843 | $1,347*** | 13.7% | $112 | 89.3 | -5.6** | -6.3% | |
| A | Avg. annual recipient E+W+FS +EITC for year 2 of 2-yr FU | $9,915 | $1,298*** | 13.1% | $108 | 81.4 | -8.2*** | -10.1% | ||
| SSP (b) | Single-parent recipients | A | Avg. mo. recipient E-W income in Q 5 and 6 | $932 | $179*** | 19.2% | $179 | |||
| A, S | Avg. mo. family income at 18-mo FU | $1,286 | $199*** | 15.5% | $199 | 89.8 | -12.2*** | -13.6% | ||
| A, S | Avg. mo. family income in 6 mos. prior to 36-mo. FU | $1,432 | $153*** | 10.7% | $153 | 86.2 | -9.4** | -10.9% | ||
| SSP Plus (b) | Single-parent recipients | A, S | Avg. mo. family income in 6 mos. prior to 18-mo FU | $1,171 | $156*** | 13.3% | $156 | |||
| SSP Applicants (b) | Single-parent applicants | A, S | Avg. mo. family income in 6 mos. prior to 30-mo FU | $1,686 | $286*** | 17.0% | $286 | 68.5 | -11.3*** | -16.5% |
| C. Programs that focus on mandatory work-related activities | ||||||||||
| LA Jobs-1st GAIN | Single-parent recipients and applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $9,920 | $136 | 1.4% | $11 | |||
| A | Avg. annual recipient E+W+FS +EITC/payroll taxes in year 2 of 2-yr FU | $10,262 | $206 | 2.0% | $17 | 75.6 | -4.5 | -6.0% | ||
| A, S | Avg. mo. HH income + EITC/payroll taxes in last month of 2-yr FU | $1,001 | $86* | 8.6% | $86 | 67.6 | -9.7*** | -14.3% | ||
| Atlanta LFA | Recipients and applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $7,549 | $191 | 2.5% | $16 | 87.1 | -1.6 | -1.8% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $699 | $24 | 3.4% | $24 | 80.1 | -1.2 | -1.5% | ||
| Grand Rapids LFA | Recipients and applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $7,746 | -$303** | -3.9% | -$25 | 86.5 | -1.2 | -1.4% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $833 | -$42 | -5.0% | -$42 | 68.6 | -0.4 | -0.6% | ||
| Riverside LFA | Recipients and applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $7,874 | -$358*** | -4.5% | -$30 | 83.5 | -1.0 | -1.2% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $867 | $19 | 2.2% | $19 | 72.6 | -6.3*** | -8.7% | ||
| Portland | Recipients and applicants; no cases with substantial barriers | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $8,110 | $238 | 2.9% | $20 | 83.4 | -4.0 | -4.8% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $843 | $59 | 7.0% | $59 | 70.8 | -6.4 | -9.0% | ||
| Atlanta HCD | Recipients and applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $7,549 | $235 | 3.1% | $20 | 87.1 | -2.0* | -2.3% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $699 | $26 | 3.7% | $26 | 80.1 | -0.6 | -0.7% | ||
| Grand Rapids HCD | Recipients and applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $7,746 | -$91 | -1.2% | -$8 | 86.5 | -0.3 | -0.3% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $833 | -$28 | -3.4% | -$28 | 68.6 | 0.1 | 0.1% | ||
| Riverside HCD | Recipients and applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $7,768 | -$619*** | -8.0% | -$52 | 86.4 | -0.2 | -0.2% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $859 | -$10 | -1.2% | -$10 | 76.8 | -3.5 | -4.6% | ||
| Columbus Integrated | Recipients and applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $8,332 | -$41 | -0.5% | -$3 | 79.3 | 0.0 | 0.0% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $806 | -$9 | -1.1% | -$9 | 76.1 | -3.3 | -4.3% | ||
| Columbus Traditional | Recipients and applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $8,332 | $29 | 0.3% | $2 | 79.3 | -0.3 | -0.4% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $806 | $17 | 2.1% | $17 | 76.1 | -4.5 | -5.9% | ||
| Detroit | Recipients and applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $8,892 | $101 | 1.1% | $8 | 84.1 | -1.2 | -1.4% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $766 | $10 | 1.3% | $10 | 79.1 | -3.7 | -4.7% | ||
| Oklahoma City | Applicants | A | Avg. annual recipient E+W+FS in year 2 of 2-yr FU | $5,238 | -$137 | -2.6% | -$11 | 92.8 | -0.5 | -0.5% |
| S | Avg. mo. Recipient income +EITC + CC in last month of 2-yr FU | $737 | -$40 | -5.4% | -$40 | 74 | 0.6 | 0.8% | ||
| IMPACT Basic Track | Recipients and applicants, less job ready | A | Avg. annual recipient E-W-FS income over year 2 of 2-yr FU | $5,645 | $336 | 6.0% | $28 | 91.2 | -3.0 | -3.3% |
| D. Programs that focus on financial work incentives and mandatory work-related activities | ||||||||||
| WRP | Single-parent recipients and applicants | A | Avg. quarterly recipient E-W-FS income over 42-mo FU | $2,256 | $41 | 1.8% | $14 | |||
| A | Avg. quarterly recipient E-W-FS income in last 3 mos. of 42-mo FU | $2,307 | $25 | 1.1% | $8 | |||||
| S | Avg. mo. HH income in mo. prior to 42-mo FU | $1,410 | $10 | 0.7% | $10 | |||||
| S | Avg. mo. HH income + EITC in mo. prior to 42-mo FU | $1,501 | $27 | 1.8% | $27 | |||||
| MFIP | Urban single-parent recipients | A | Avg. quarterly recipient E-W-FS income in last 3 quarters of 10-quarter FU | $2,525 | $296*** | 11.7% | $99 | 77.7 | -12.4*** | -16.0% |
| A | Avg. quarterly recipient E-W-FS income + EITC/taxes in last 3 quarters of 10-quarter FU | $2,613 | $382*** | 14.6% | $127 | 70.5 | -12.1*** | -17.2% | ||
| S | Avg. mo. family income in month prior to 36-mo FU | $1,459 | -$24 | -1.6% | -$24 | |||||
| Urban single-parent applicants | A | Avg. quarterly recipient E-W-FS income in last 3 quarters of 10-quarter FU | $2,578 | $162*** | 6.3% | $54 | 66 | -6.9*** | -10.5% | |
| A | Avg. quarterly recipient E-W-FS income + EITC/taxes in last 3 quarters of 10-quarter FU | $2,556 | $187*** | 7.3% | $62 | 59.7 | -6.1*** | -10.2% | ||
| S | Avg. mo. family income in month prior to 36-mo FU | $1,838 | $75 | 4.1% | $75 | |||||
| TSMF | Single parent recipients | A | Avg. annual family E+W+FS over 4-yr FU | $8,849 | $118*** | 1.3% | 10 | |||
| Single parent applicants | A | Avg. annual family E+W+FS over 1-yr FU | $8,558 | $10 | 0.1% | 1 | ||||
| A | Avg. annual family E+W+FS over 2-yr FU | $8,414 | -$163 | -1.9% | -14 | |||||
| FIP | Recipients | A | Avg. quarterly recipient E-W income in Q4 of 2-yr FU | $1,721 | $98*** | 5.7% | $33 | |||
| A | Avg. quarterly recipient E-W income in Q8 of 2-yr FU | $1,907 | $37 | 1.9% | $12 | |||||
| Applicants | A | Avg. quarterly recipient E-W income in Q4 of 2-yr FU | $2,004 | $218*** | 10.9% | $73 | ||||
| E. Programs that focus on other individual reforms | ||||||||||
| F. Programs that focus on TANF-like bundle of reforms (time limits with financial incentives, work-related activities, or both) | ||||||||||
| EMPOWER (c) | Recipients | A,S | Avg. mo. HH income in survey month approx. at 30-mo FU | $1,339 | $80 | 6.0% | $80 | |||
| IMPACT Placement Track |
Recipients and applicants, more job ready | A | Avg. annual recipient E-W-FS income over year 2 of 2-yr FU | $7,502 | $77 | 1.0% | $6 | 80.2 | -1.0 | -1.2% |
| VIP/VIEW | Recipients | A | Avg. annual recipient E-W-FS in year 2 of 2-yr FU | $6,482 | $128 | 2.0% | $11 | |||
| ABC | Single parent recipients and applicants | S | Avg. mo. HH income in month before survey 12-18-mo FU | $778 | $0 | 0.0% | $0 | |||
| FTP | Recipients and applicants | A | Avg. total recipient E-W-FS income in year 2 | $6,358 | $351* | 5.5% | $29 | |||
| A | Avg. total recipient E-W-FS income in year 3 | $6,137 | $496** | 8.1% | $41 | |||||
| A | Avg. total recipient E-W-FS income in year 4 | $6,310 | $253 | 4.0% | $21 | |||||
| A | Avg. total recipient E-W-FS income in 2nd Q of year 5 | $1,674 | -$52 | -3.1% | -$17 | |||||
| S | Avg. mo. HH income in month before 4-yr FU | $1,379 | $89 | 6.5% | $89 | |||||
| Jobs First | Recipients and applicants | A | Avg. annual recipient E-W-FS income in year 2 | $10,037 | $1,121*** | 11.2% | $93 | |||
| A | Avg. annual recipient E-W-FS income in year 3 | $10,647 | $172 | 1.6% | $14 | |||||
| A | Avg. annual recipient E-W-FS income in year 4 | $11,249 | -$132 | -1.2% | -$11 | |||||
| A | Avg. annual recipient E-W-FS + EITC/taxes income in yr. 3 and 4 | $10,828 | $150 | 1.4% | $13 | |||||
| S | Avg. total recipient income in month before 3-yr FU | $1,022 | $74*** | 7.2% | $74 | |||||
| S | Avg. total income of other HH members in month before 3-yr FU | $442 | $12 | 2.7% | $12 | |||||
| NOTES: For full program names and citations, see
Table 3.4. In calculating the poverty rates, the official poverty
lines are applied to the given income measure. This will not necessarily
correspond to the official poverty definition. Abbreviations: A=administrative
data; S=survey data; E=earnings; W=cash welfare payments; FS=Food
Stamp payments; EITC=Earned Income Tax Credit; CC=out-of-pocket child
care expenses; FU=follow-up; HH=household; Q=quarter. * = statistically significant at the 10 percent level; ** = statistically significant at the 5 percent level; *** = statistically significant at the 1 percent level. (a) Poverty line based on earnings-related income only (earnings, EITC, earnings supplement). (b) Results in Canadian dollars. (c) Phoenix site only, cash assistance. |
Vermont’s WRP-IO program shows no gain for the treatment group over the control group in recipient combined income, measured using administrative data over the full four-year follow-up or in the last quarter only. However, a large and significant treatment-control difference in household income is measured at the 42-month follow-up survey, equal to $139—$145 per month depending on the income measure. Panel A of Table 8.2 reveals that WRP-IO did not result in a significant difference in welfare or food stamp payments, and the program had no significant impact on earnings at the 42-month follow-up (Table 5.1). The only income source that shows a sizeable increase is reported earnings from other family members, but the treatment-control difference for this income component was not significant (not shown). Likewise, while the fraction of treatment group members with more than one-half of household income from earnings was higher than the control group, the difference was not significant (Table 8.2).
MFIP-IO shows some favorable impacts for both income and poverty. The MFIP-IO results are strongest for long-term recipients, with an estimated statistically significant increase in recipient combined income of $80—$100 a month (depending on whether measures are pre- or post-tax, including the EITC) and a reduction in the poverty rate of 7—8 percentage points. However, there is no gain in family income for the recipient group measured at the 36-month follow-up survey, a result that may be due to differential reporting bias between the treatment and control groups.68 Smaller effects were found for the income gains and poverty rate reductions in the MFIP applicant group, with the exception of family income at the 36-month follow-up where the impact was larger (i.e., a positive impact compared with the negative impact estimate for recipients). To the extent that MFIP-IO generated income gains, they were the result of higher welfare and (cashed-out) food stamp payments generated by the financial work incentives: MFIP-IO raised welfare and food stamp payments for both applicants and recipients by about the same dollar amount ($91—$97 per month, as shown in Table 8.2). There were no significant impacts on earnings for either MFIP-IO recipients or applicants (Table 5.1). Consequently, the earnings share measure declined, indicating a lower level of self-sufficiency as a result of MFIP-IO, an effect that was largest and significant for the MFIP-IO applicants (Table 8.2).
8.2.2. Programs That Focus on Financial Work Incentives Tied to Hours of Work
The two programs that evaluate financial work incentives tied to hours of work, with follow-up periods that range from 18 months to three years, both show positive and significant income impacts and corresponding significant negative poverty impacts. (See Panel B of Table 8.2.) In the case of New Hope, the effects are evident only for families not employed full-time at randomization. In the case of the Canadian SSP evaluations, the program with the most generous financial work incentives to reward full-time work, longer-term recipients (evaluated in two provinces), and new applicants (evaluated in one province) show large percentage gains in recipient combined income or family income–from 11 to 19 percent–for up to 36 months post-randomization.69 The SSP Plus results fall in between the results for the main SSP. The poverty rate, when reported, also falls by a substantial magnitude, between 9 and 12 percentage points.
New Hope and SSP, by operating outside the traditional U.S. and Canadian welfare systems, were designed to replace welfare payments with an earnings supplement. Both programs show significant decreases in welfare payments and increases in the earnings supplement. Food stamp payments, relevant only for New Hope, showed a significant decrease for families employed full time at random assignment, while the reverse is true for those not employed full time. Recall that the earnings impact for New Hope participants employed full time at random assignment were insignificant and negative. By year two, the positive impact on the earnings supplement just exceeded the negative impact on AFDC payments. These effects for earnings and welfare/earnings supplement combined to produce a negative impact overall on recipient combined income for this group. In contrast, those in New Hope not employed full-time at random assignment experienced significant positive earnings gains, and the average size of the earnings supplement more than offset the impact on AFDC benefits. Food stamp benefit payments also increased by the second year of follow-up. Consequently, this group experienced large and significant income gains overall for both years one and two. Finally, SSP produced increases in both cash transfer income (earnings supplements net of lost income assistance payments) and earnings. This combination of impacts on the sources of income produced the large increase in recipient combined income and family income.
8.2.3. Programs That Focus on Mandatory Work-Related Activities
All the programs that focus on mandatory work-related activities report measures of income and poverty at the end of two years, for both administrative and survey data in all but one case, where only administrative data is available (results summarized in Panel C of Table 8.1). Measures of combined recipient income based on administrative data show a significant negative impact for three of the NEWWS programs, ranging from —$25 to —$52 per month. The other evaluations all show smaller insignificant impacts, either negative (three NEWWS programs) or positive (five NEWWS programs, L.A. Jobs-First GAIN, and IMPACT). With the exception of Riverside LFA, the survey-based measures of recipient combined income (in some cases, accounting for the EITC, payroll taxes, and child care expenses) for the last month of the follow-up period all have the same sign as the measures based on administrative data and are similar in magnitude. The only statistically significant survey-based impact estimate is for L.A. Jobs-First GAIN, a 9 percent increase in income.
With a few exceptions, most of the poverty impacts are insignificant and small in magnitude.70 They are almost all negative, including the three significant impacts, suggesting these programs are somewhat more effective at raising incomes near the poverty threshold than at the bottom of the income scale. At the same time, several of the NEWWS programs resulted in a slight increase in the fraction with incomes below 50 percent of the poverty line as of the two-year follow-up, suggesting that those near the bottom of the income scale may be worse off (Freedman et al., 2000a).
Newly available data for the 11 NEWWS programs provides information on combined income (income from earnings, welfare, and food stamps plus the EITC, less payroll taxes based on administrative data) five years after the program began. The impact estimates are plotted in Figure 8.2 for follow-up years one to five. By year five, there is only one significant income impact in any of the sites (a negative impact in Riverside HCD; data are not available for Oklahoma). The year five impact estimates are almost equally divided between negative impacts, impacts close to zero, and positive impacts.
[D] |
Based on Figure 8.2, there is no clear pattern in NEWWS site impacts associated with the program orientation or service delivery approach. Portland’s employment-focused, mixed—first activity model has the largest five-year income and two-year poverty impacts, but it excluded some recipients with substantial barriers to work. Thus, it is not clear if similar impacts would be found for a more disadvantaged population. The pattern over time for the various NEWWS programs is also not consistent, although the majority of the sites exhibit a fade-out effect over time. For example, Portland has increasing positive impacts in years two and three followed by the largest positive impact of all the sites in year 4 (just over $600 in annual combined income; p < 0.10). But the impact shrinks in year five. At the other extreme, Riverside HCD has negative and significant impacts exceeding $400 in all five years, although the year five impact is somewhat less negative than in year four. Some of the fade-out may be due to the control-group crossover that took place in years four and five, but this crossover did not apply to the Portland or Riverside sites and was probably not a significant factor in the other sites either (Hamilton et al., 2001).
Whether measured at the two-year or five-year follow-up, the modest, if any, income and poverty effects are consistent with the combination of the positive earnings gains produced by these programs (Table 5.1 and Figure 5.2) and high benefit reduction rates under the old AFDC rules that led to a significant reduction in welfare payments as earnings rose (Panel C of Table 8.2). Likewise, food stamp payment declines were also almost always significant. Since income, by and large, did not change, but the composition shifted from welfare benefits to earnings, it is not surprising that the majority of the programs also raised self-sufficiency as measured by the earnings share, available only as of the two-year follow-up (Table 8.2). Even so, the average share of income from earnings for treatment group members never exceeds 50 percent.
8.2.4. Programs That Focus on Financial Work Incentives and Mandatory Work-Related Activities
Four programs combine financial work incentives and work requirements with results for income and poverty rates for follow-up periods that range from two to four years. (See Panel D of Table 8.1.) With the exception of WRP, the combined programs produce statistically significant income gains and, when measured, poverty reductions for at least part of the population served over both short and longer horizons. Recipients benefit more than applicants in the MFIP and TSMF studies, while the reverse is true for Iowa’s FIP. The significant impact for FIP recipients as of the fourth quarter fades by the eighth quarter, from $33 per month (significant) to $12 per month (insignificant).71 In the case of MFIP, a more comprehensive survey-based measure of family income shows a negative impact for recipients, compared with the sizeable gain in combined income measured with administrative data, and a somewhat larger, but insignificant, impact for applicants. As discussed above, the difference in estimated impacts for recipients using administrative data compared with survey data is likely a result of differential reporting biases for treatment versus control group members (Miller et al., 2000). The MFIP impacts based on administrative data are similar in magnitude and are not statistically different from those for MFIP-IO.
The changes in income sources that produce the overall income impacts differ to some extent across these programs. In WRP, which had among the least generous financial work incentives, there were significant declines in welfare payments, and food stamp payments showed no change (Panel D of Table 8.2). The significant earnings increase essentially offset the transfer payment decline, leading to a significant increase in the share of income from earnings, but no change in income. TSMF and FIP also lowered welfare and food stamp payments, but somewhat larger earnings increases resulted in modest income gains overall. (The impact on the earnings share was not measured for these two programs.) In contrast, MFIP raised earnings but also increased combined welfare and food stamp payments, so that the gains in combined income were even larger than programs that decreased welfare income. Consequently, there is no change in MFIP in self-sufficiency as measured by the earnings share.
8.2.5. Programs That Focus on TANF-Like Bundles of Reforms
As shown in Panel F of Table 8.1, four of the six programs that include TANF-like bundles of reforms–EMPOWER, IMPACT, VIP/VIEW, and ABC–find no significant impacts on income or poverty (which is only measured in one study), with follow-up periods that range from 12 to 30 months. Of these four programs, IMPACT had the largest positive (and significant) impact on earnings, but it also resulted in a significant reduction in welfare and food stamp payments (Panel F of Table 8.2). It also resulted in increased self-sufficiency as measured by the earnings share. As noted in Table 3.5 (see notes b, c, and f), a sizeable fraction of the control group in three of these four studies believed that the time limits applied to them, which may bias the estimated program impacts toward zero.
FTP and Jobs First–programs for which the time-limit feature was better understood– demonstrate positive income results earlier in the follow-up period that tend to disappear as time limits are reached. For FTP, the positive and significant impact on recipient combined income peaks in year three–the year recipients first begin to reach the time limit. It becomes insignificant but still positive in year four, as more recipients reach the time limit, and turns negative and insignificant in the first part of year five. Jobs First showed an even larger positive income impact for recipient combined income as late as year two, but this positive impact dissipated by year three, and turned negative by year four.72 More comprehensive measures of income based on administrative or survey data show the same pattern for both programs. The pre— and post—time limit impacts for FTP and Jobs First suggest that reaching the time limit is associated with an income decline, as welfare benefits are exhausted and recipients must rely more on their own earnings.
Both programs had a significant positive impact on earnings (Table 5.1) and a significant reduction in welfare payments, at least by the final follow-up period, three to five years past randomization (Table 8.2). FTP also measured a significant increase in child support payments (not shown). Only FTP analyzed the earnings share, and the results show a significant increase in self-sufficiency as measured by recipient earnings as a fraction of recipient combined income (earnings, welfare, and food stamps) and as a fraction of household income by year four. This impact is no longer significant, however, by the second quarter of year five. The structure of the benefit levels and income disregards in the Connecticut program made it more generous than FTP in Florida, which helps explain the larger initial increase in income and welfare and food stamp use in Jobs First (as of the two-year follow-up).
8.2.6. Subgroup Differences
As summarized in Appendix A, the experimental studies demonstrate both similarities and differences in the impacts of reform policies on income and income sources between subgroups, defined by various measures of disadvantage. Because the studies often analyze different subgroups, it is difficult to draw broad inferences of the impacts of individual reform policies or welfare reform more generally for subgroups with specific characteristics.
Only one of the evaluations that focus exclusively on financial work incentives considers any subgroups, and it is hard to generalize from the specific patterns from that study. The two programs that focus on financial work incentives tied to hours of work are not consistent, with some impacts larger for the more disadvantaged while the reverse is true for other impacts. A larger number of subgroup analyses for programs that focus on mandatory work requirements, including the pooled analysis of the NEWWS programs (combined with nine others), suggests that these programs can have differential impacts on subgroups. The pooled NEWWS analyses indicate that income gains are largest and that welfare payment declines are smallest for the least disadvantaged. The L.A. Jobs-First GAIN results differ from this pooled finding in that the program impacts did not vary by subgroups. The subgroup patterns for programs that combine financial work incentives and work requirements or that focus on TANF-like bundles of reform are mixed, with examples of larger impacts for both the least and the most disadvantaged.
8.3. ECONOMETRIC STUDIES OF THE EFFECTS OF WELFARE REFORM ON INCOME AND POVERTY
Compared with the large number of econometric studies that have examined welfare caseloads (reviewed in Chapter 4), only a handful of econometric studies have examined family income, and even fewer have examined poverty. (See Table 8.3.) All the studies in this literature rely on the CPS, the primary nationally representative data source with information on annual individual and family income. The Annual Demographic Supplement to the March CPS is the source used by the Census Bureau to calculate poverty rates on an annual basis; hence, these studies can implement a measure of income (annual family pretax cash income) and poverty that follows the concepts employed by the Census Bureau in its calculations.
Like the caseload studies that rely on survey data, these analyses use aggregated microdata or individual-level microdata to model the level or log of income and the poverty rate as a function of the existence (approval or implementation) of a waiver or TANF as a bundle. In one case, the effect of a specific TANF policy–time limits–is also considered. The welfare policy variables generally follow the "modified dummy variable" approach used in the caseload literature. The study population either includes all women or female-headed families in a given age range (typically 16—54). In one case, the sample is children under 16. The models typically include controls for the business cycle (e.g., current and lagged unemployment rate), demographic characteristics of the recipient (e.g., age, education, and race/ethnicity), other policy variables (e.g., maximum welfare benefit level, minimum wage, and EITC), and state and year fixed effects. Some models also include state-specific time trends.
In the remainder of this subsection, we first discuss the findings from these studies for a specific welfare policy, time limits; we then discuss the findings for waivers or TANF as a bundle. Results for income and poverty rates are discussed in turn.
8.3.1. Effects of Specific Reforms: Time Limits
Grogger’s (forthcoming) study is the only econometric analysis of income to consider the effect of a specific TANF reform, in this case, time limits. In addition to estimating the impact of reform as a bundle (discussed below), Grogger’s model of income is estimated with a dummy for the implementation of a time limit and an age interaction.73 The point estimates suggest that time limits lower incomes by 3—6 percent (linear and log model, respectively) when the age of the youngest child is 13 or above (Panel A of Table 8.3). For each year below age 13, time limits further reduce income or leave it unchanged. However, none of these estimates is statistically significant. Given that Grogger finds significant negative effects of time limits on welfare use and only modest positive effects on earnings, family income might be expected to decline in states with time limits in effect. The insignificant effects may mean that other sources of income increase enough to offset the welfare declines. The estimated impact is also limited to the period before most recipients began reaching the time limit. Thus, the impact may change as more recipients exhaust their benefits.
| Other controls | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Study | Data | Sample population | Begin | End | Outcome | Dep. var. | Policy var. | Coeff. (s.e.) | % effect | Economy | Demogr. and Geogr. | Fixed Effects | Policy |
| A. Income | |||||||||||||
| Moffitt (1999) | CPS aggregated | women 16-54 | 77 | 95 | Annual pre-tax family cash income | Level | Any waiver | 393 (474) | 1.3 | U, U-1 | S, Y, State time trends | B | |
| CPS aggregated | women 16-54, educ<12 | 77 | 95 | Annual pre-tax family cash income | Level | Any waiver | -240 (909) | -0.8 (a) | U, U-1 | A, E | S, Y, State time trends | B | |
| women 16-54, educ=12 | Any waiver | 569 (909) | 1.9 (a) | ||||||||||
| women 16-54, educ=13-15 | Any waiver | 870 (909) | 2.9 (a) | ||||||||||
| women 16-54, educ>16 | Any waiver | -898 (909) | -3.0 (a) | ||||||||||
| Schoeni and Blank (2000) | CPS aggregated | women 16-54, educ<12 | 76 | 98 | Annual pre-tax family cash income | Log | Any waiver | 0.061 (0.013) | 6.1 | U, U-1, EG, each *E |
A, E, A*E, R |
S, Y, state time trends, Y*E |
B, B*E |
| women 16-54, educ=12 | Any waiver | -0.006 (0.011) | -0.6 | ||||||||||
| women 16-54, educ>12 | Any waiver | -0.011 (0.009) | -1.1 | ||||||||||
| women 16-54, educ<12 | TANF | 0.031 (0.031) | 3.1 | ||||||||||
| women 16-54, educ=12 | TANF | 0.022 (0.027) | 2.2 | ||||||||||
| women 16-54, educ>12 | TANF | -0.011 (0.021) | -1.1 | ||||||||||
| Bitler, Gelbach and Hoynes (2001) | CPS micro data | women 16-54 | 84 | 98 | Annual pre-tax family cash income, | Level | Any waiver | -78 (480) | -0.2 | U, U-1, EG |
R, MSA, CC | S, Y | B |