As NRO readers know, this week marks the tenth anniversary of the passage of welfare reform, which remains one of the best public-policy success stories of the past decade. However, the drumbeat of revisionist history has begun.
Many critics of welfare reform, including columnist Clarence Page, are giving the economy credit for the impressive welfare caseload declines. However, their reasoning is faulty. History indicates the strength of the economy has only a limited effect on welfare caseloads. More importantly, recent data clearly indicate that state policies, made possible due to welfare reform, are largely responsible for the substantial reduction in the welfare rolls.
When the Personal Responsibility and Work Opportunity Reconciliation Act (PROWRA) was signed in 1996, it ended the entitlement status of Aid to Families with Dependant Children (AFDC) and converted federal welfare funding into a block grant. The federal law also required states to reduce their caseloads and imposed work standards on state governments, insisting that they require a certain portion of their welfare caseloads to work or prepare for work. However, states were given considerable latitude on how to implement these standards.
It should come as no surprise that some states have enjoyed more success than others in moving people from welfare to work. Between August 1996 and August 2002, welfare caseloads declined by about 54 percent nationally. However, Wyoming was able to reduce its welfare caseloads by over 90 percent while Indiana actually saw its caseload levels increase by 1 percent over the same time-span.
Now, it is true the economy has performed well since the mid 1990s and many have argued that the economic boom is responsible for the welfare caseload declines. However, a recent study by the Heritage Foundation refutes that notion. The study examines the magnitude of welfare caseload declines in all 50 states between 1996 and 2002. It finds that the strength of the economy has had only a marginal impact on the number of individuals receiving welfare. In fact, the regression model predicts that the decline in welfare caseloads would only be 1 percentage point greater in a state with above-average economic growth than in a state with a below-average growth.
Additionally, historical evidence shows that the economy has had only a limited impact on the number of people receiving welfare. For instance, between 1983 and 1989 the economy grew at a brisk rate. However, the number of AFDC recipients actually increased during that time. Likewise, the economy boomed during the 1960s, but welfare caseloads soared largely because benefits became more generous.
If the strong economy isn’t responsible for the decline in welfare caseloads during the past ten years, what is? The Heritage study provides some insights. The strength of state-sanctioning policies, for example, substantially affects the size of state-caseload declines. PRWORA gave states the flexibility to sanction welfare recipients who didn’t comply with mandatory work activities. Some states proceeded to adopt tough sanctions that made welfare recipients ineligible for benefits at the first instance of noncompliance. Conversely, other states imposed weak sanctions that allowed welfare recipients to keep a substantial portion of their welfare benefits regardless of their conduct.
The results of the Heritage study indicate that these sanctioning policies played a major role in explaining state caseload declines. Holding other factors constant, a state that adopted a strict sanctioning policy for six years would experience a welfare caseload decline more than 18 percentage points greater than a state that implemented a weak sanction for six years.
Overall, evidence from both before and after 1996 proves the critics of welfare reform wrong. The strength of the economy has only a limited impact on the number of people receiving welfare. Indeed, the success of welfare reform is neatly demonstrated by the experiences of the different states. Many states used their newfound freedom to implement innovative reforms to move people away from welfare and toward self sufficiency. As such, while future debates in Congress over the reauthorization of welfare reform will merit close scrutiny, upcoming debates in state legislatures may carry even greater importance.
– Michael J. New is a visiting fellow at the Heritage Foundation and an assistant professor at the University of Alabama.