Douglas J. Besharov, May 27, 1999

Chairman Johnson and Members of the Subcommittee on Human Resources:

Thank you for inviting me to testify about the impact of the 1996 welfare reform law and associated policy changes. My name is Douglas Besharov. I am a resident scholar at the American Enterprise Institute for Public Policy Research, where I conduct research on children and families. I am also a professor at the University of Maryland School of Public Affairs, where I teach courses on family policy, welfare reform, and evaluation.

Welfare reform in 1996--embodied in the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) and the Temporary Assistance for Needy Families (TANF) block grant--resulted in massive changes in the operations of state and local welfare agencies. Many have gone from being check-writing offices to being engines of employment and personal and family responsibility. Contemporaneously, welfare caseloads declined sharply. (This was actually the first serious caseload decline in at least 30 years.) Although the strong economy helped, experts are unanimous that "welfare reform" is a major explanation for this unprecedented decline--now reaching 44 percent since March 1994. (Chart 1.)

Even many of the harshest critics of the welfare reform law have been impressed with what has been accomplished. Besides lower caseloads, there has been an explosion of work among never-married mothers with children--the women most likely to become long-term welfare dependents. Since 1993, their employment rate has risen from 44 percent to 61.5 percent.

I recount some of these developments below. But my real focus is on the concerns of those who say that this decline in welfare and increase in work has been accompanied by increased levels of material hardship on what once would have been welfare families. Any such increase in material hardship should be of concern to us all. If we found increased hardship, we would have to make the difficult ethical determination about whether the hardship was justified by all the good that has also been accomplished by the welfare reform law. However, and this is the key point in my testimony, with the measures available, there is no evidence of significant increases in material hardship.

Why Caseloads Are Falling

As I mentioned, welfare rolls are down an amazing 44 percent since their historic high in March 1994. That's about 2.2 million fewer families (or about 6.7 million fewer parents and children) on welfare. At least fifteen states have seen declines of over 50 percent. Fewer families are going on welfare, and more are leaving.

Unfortunately, political credit claiming and ideological preconceptions, assisted by limited data, have obscured what is really going on. There is nothing new in that, of course. But without a true understanding of what is driving down welfare rolls, we cannot judge whether the decline is a good thing, nor capitalize on its lessons.

A strong economy is the obvious first explanation, and the one most attractive to those who think that welfare dependency is largely a reaction to a lack of opportunity. Between January 1994 and September 1998, for example, the unemployment rate fell a remarkable 30 percent, from 6.7 percent to 4.6 percent. In that period, 7.5 million more people entered the labor force. Even more striking: Never-married mothers, the group most prone to long-term welfare dependency, are 40 percent more likely to be working since 1993 (from 44 percent to 61.5 percent).

But we have had strong economies before, without such sharp declines in welfare. In fact, most studies suggest that the good economy accounts for no more than about 20 percent of the total decline. What else is going on?

The end of the welfare entitlement, or, as Candidate Bill Clinton used to say, the "end of welfare as we know it," seems to be the best explanation. Across the nation, the culture of welfare offices has changed--from places where mothers sign up for benefits to places where they are helped, cajoled, and, yes, pressured to get a job or rely on others for support.

Many welfare offices are now "job centers," where workers help applicants and recipients find employment. Depending on the office, they teach how to write resumes and handle job interviews; provide access to word processors, fax machines, telephones and even clothes; offer career counseling and financial planning services; and refer them to specific employers with job openings. In a survey of former welfare recipients in Texas who left the rolls in December, 1996, over 60 percent said the welfare agency "gave me the kind of help I needed."

Some of this is boosterism, plain and simple, with workers giving young mothers the moral support they so often need. As one worker said, "Some of these women never thought that they could get a job. We give them the confidence to try."

Also helping are the recent massive increases in federal aid to low- earning parents, to "make work pay." Since 1993, a conservative estimate is that total aid to the working poor increased by about $30 billion, almost doubling. For example, between 1993 and 1997, the Earned Income Tax Credit's cash subsidy to single mothers with two children working full-time at the minimum wage more than doubled, rising from $1,511 to $3,656. Often of even more importance to mothers with young children, most welfare agencies can now offer child care to any applicant or recipient who gets a job.

This genuine help to mothers--and it permeates the implementation of welfare reform in most states--unquestionably assists many to leave welfare for work. But this isn't the whole story: Only about half the mothers who leave welfare seem to have jobs, often very low-paying jobs. The other half are just leaving--perhaps to work eventually, but more immediately they are moving in with family, friends, or boyfriends, or being supported by them. Some are simply getting by with less income. (So far, there is little evidence of more marriage, even though that has traditionally been a major reason for leaving welfare.) Why are they leaving without having jobs?

The other palpable aspect of welfare reform has been the reintroduction of a long-gone aspect of being on welfare: hassle. In most places, a new element, "diversion," has been added to the application process. Diversion is encapsulated in two simple questions now asked of welfare applicants: Have you looked for a job? Can someone else support you? Many welfare agencies maintain a bank of phones that applicants must use to call 5, 10, or even 20 potential employers before they can receive benefits. When told of these requirements, many applicants simply turn around and walk out.

New York City's "Job Centers," for example, exemplify this interplay between new welfare's help and hassle. All applicants are encouraged to look for work (and offered immediate cash support for child care) or support from relatives or other sources.

For those who still decide to apply for welfare, the new rules require that they go through a 30-day assessment period during which they complete the application process and go through a rigorous job- readiness and job-search regimen involving many sessions at the Job Center and other offices. At the end of this period, eligible able- bodied adults who choose to receive assistance are required to participate in the city's workfare program. As a result, the percentage of mothers who walk in the door who are eventually enrolled has fallen by about 40 percent, from about around 50 percent to around 30 percent.

Being on welfare has also changed with the imposition of various mandatory activities. In almost all states, recipients are required to sign "self-sufficiency agreements" describing their plan for becoming self-sufficient within a specified time frame. Iowa, for example, requires able-bodied recipients without infant children to develop and sign a Family Investment Agreement, which describes the person's plan for becoming self-sufficient within a specified time frame. Failure to sign or comply with this agreement can result in an initial reduction in benefits, followed soon thereafter by complete termination of cash assistance. About 10 percent of those who begin this process have their benefits terminated for a six-month period for failure to sign or comply with the agreement.

Although these new requirements are intended to help recipients find and keep jobs, they undeniably raise what economists would call the "cost" of being on welfare. By a rough calculation that assumes recipients value their time at the minimum wage, this kind of hassle can reduce the advantage of being on welfare versus working to zero in very low-benefit states and, nationally, can reduce the advantage by about 50 percent.

How much of a factor is this hassle? When these new requirements are explained to applicants and recipients, they often say things like: "I guess I might as well get a real job" or "I might as well move back home." In the survey of Texas recipients leaving welfare, about a quarter said that important factors were either "unfriendly caseworkers" or "new program requirements." And in a survey of those who left welfare in South Carolina between January and March 1997, 60 percent said they felt "hassled," and 13 percent said that's why they left. About a third said that the state's welfare program "wants to get rid of people, not help them." So far, at least, this combination of helping and hassling mothers off welfare--and discouraging them from signing up in the first place-- does not seem to have caused undue hardship. Surveys of those who have left welfare indicate that, although some are worse off, most families are doing as well or better after having left. Perhaps more tellingly, despite intensive efforts, journalists have found few horror stories with which to document the harmful effects of welfare reform. And in the same South Carolina survey where 60 percent of those who left welfare complained about being hassled, 80 percent said that the caseworkers treated them "with perfect fairness." Only a quarter reported that "life was better" when they were receiving welfare.

Indeed, an analysis by Richard Bavier of the Office of Management and Budget suggests that the decline in welfare benefits caused by families leaving welfare was offset by two- or three-fold gains in income due to work. According to Bavier, from 1993 to 1997, female family heads with children experienced reductions of $6.7 billion in cash welfare and $2.1 billion in food stamps. However, their earnings increased by $26.9 billion and their EITC benefits by $5.1 billion. After including taxes and other noncash benefits in the calculation, he finds that "income for this family type increased $19.6 billion in 1997 dollars."(1) Although household surveys have problems of underreporting or misreporting income, the magnitude of this income gain suggests that it is both real and substantial.

As I note below, some argue that these overall gains mask losses in income among the poorest female-headed families. For example, Wendell Primus of the Center on Budget and Policy Priorities has written: "Between 1993 and 1995, the earnings and incomes of the poorest fifth of single mother families increased despite a modest decline in income from welfare programs. Between 1995 and 1997, however, the very poorest single mother families faced a significant decline in their incomes after including all government taxes and transfers largely due to sizeable declines in their welfare assistance."(2) For the reasons I describe below, I think that the available data does not support this conclusion.

Assessing Welfare Reform

Others today, I am sure, will discuss these developments in greater detail. Let me focus on the concerns that have been raised by various advocacy groups.

1. Insufficient child care? During the debate leading up to the passage of TANF, the provision of adequate child care was a major bone of contention. As a result, the Congress sharply increased funding. Was it enough? Testifying before this committee on March 16 of this year, Helen Blank of the Children's Defense Fund said: "enormous gaps still remain in our efforts to help low-income parents work and take care of their children. Much more needs to be done to ensure that families on welfare have the child care assistance they need to get and keep jobs, without sacrificing low-income families who are struggling to keep their jobs and stay off welfare."(3) I have tried to calculate child care needs under welfare reform compared to this increased funding. Between 1994 and 1998, state and federal child care spending increased by at least $3.1 billion. If the President's FY 2000 proposals are approved, they will add another $3.053 billion. Furthermore, if states use their unexpended TANF funds for child care, that could add another $4.302 billion by the year 2000. (Chart 2.)

As my third chart illustrates, states have enough money to cover the child care needs generated by welfare reform--so long as they are not forced to monetize and formalize child care. (Chart 3.) That is, so long as we do not discourage family members from caring for children without charging the government and so long as we do not drive low- cost providers out of business with onerous (and, in the end, sterile) regulations.

2. Declines in Food Stamp receipt? The critics of welfare reform often compare changes in program caseloads to changes in poverty to make claims about the effects of public policy. Consider a recent statement released by the Center on Budget and Policy Priorities:

During the two-year period from 1995 to 1997, the decline in the number of people receiving food stamps--4.4 million--was five times greater than the decline in the number of people living in poverty.

The food stamp figures are especially noteworthy because the income limit for food stamps is slightly above the poverty line; as a result, families moving from public assistance to low-wage work that leaves them in poverty do not lose eligibility for food stamps. These data indicate that the reductions in the number of households receiving food stamps have exceeded reductions in need and that the proportion of poor people receiving basic food assistance to help them secure an adequate diet has declined.(4)

This analysis is very misleading. It is very sensitive to the time period chosen. The 1995-1997 period chosen by the Center just happens to be the one that shows the greatest difference in the decline between the number of poor and the number receiving food stamps. Had the Center used 1993 as the starting point of its comparison, a very different picture would have emerged. (Chart 4.)

Between 1993 and 1995, for example, the figures were reversed. The decline in poverty was 3.3 times greater that the decline in food stamps. Thus, if the Center had viewed the period 1993-1997, the declines would have been more comparable: 5.2 million fewer food stamp recipients compared to 3.7 million fewer people living in poverty. That would be a decline in food stamp receipt 40 percent greater than the drop in the number of poor, not five times greater. (Chart 5.)

Furthermore, part of the decline in the food stamp rolls can be attributed directly to policy decisions contained in the 1996 welfare reform law to remove from the Food Stamp program certain immigrants and unemployed childless adults (ABAWDs). According to the U.S. Department of Agriculture, the 1996 welfare reform law made about 1.3 million food stamp recipients, primarily immigrants and unemployed childless adults, ineligible for benefits.(5) Indeed, from July 1996 (the month before the landmark welfare reform legislation passed) to September 1997, the number of permanent resident aliens and ABAWDs declined by 953,000 and 477,000, respectively, for a total decline of 1.43 million.(6)

Taking this longer view and accounting for the deliberate removal of certain groups from the Food Stamp program almost erases the difference in declines between poverty and food stamp recipiency.

I want to emphasize that I believe that the intersection of the Food Stamp and welfare programs has received insufficient policy attention. The two programs are in desperate need of coordination, as I wrote in a recent article for Policy & Practice, of the American Public Human Services Association. But that is a very different point.

3. Declines in Medicaid Coverage? A recent report from Families USA asserts that "state administrative systems often continue to treat Medicaid as an extra welfare benefit. This means that when a family is terminated from welfare, its Medicaid case is often closed at the same time. Because the two programs remain connected in the minds of caseworkers and recipients as well as in state computer eligibility systems, the new emphasis on closing welfare cases as quickly as possible is causing many families to be cut off Medicaid, even when they are still eligible."(7) Perhaps, in some places. But that seems to be a substantial exaggeration of state practices.

First, there has be a decline in Medicaid recipiency. Two prime reasons are the strong economy and welfare reform (including the delinking of Medicaid and TANF eligibility). Another reason is that many families that are Medicaid eligible simply forego signing up until a family member gets sick (something that was almost automatic under AFDC). After all, unlike private insurance, there is no pre- existing condition rule for Medicaid.(8)

Second, assertions about declines in Medicaid coverage are often based on analyses of the Census Bureau's Current Population Survey (CPS), the government's primary data source for measuring employment, earnings, poverty, welfare receipt, and a range of other important outcomes. Unfortunately, the survey appears to miss about one-third of AFDC/TANF, food stamp, and Medicaid recipients. Perhaps even more important, this problem has been getting worse in recent years, a deterioration that has important implications for judging the impact of welfare reform. (Chart 6.)

For example, according to the CPS, between 1993 and 1997, the number of children under 15 enrolled in Medicaid declined by 3.2 million. But reliable administrative data from the Health Care Financing Administration show an increase of 400,000.(9) (For the period 1995- 1997, HCFA data also show a decline of 700,000 children, but CPS shows a much larger decline of 1.7 million.) These kinds of discrepancies led the authors of an Urban Institute report to conclude: "until the phenomenon of Medicaid underreporting is better understood, it will be difficult to reach firm conclusions about the changing Medicaid caseloads and their effect on the number of uninsured."(10)

This problem of underreporting of government benefits also undermines estimates of income declines for low-income families. For example, analyses of income trends involving low-income single mothers will understate their incomes because they miss an increasing percentage of welfare income.

4. Declines in income? In recent testimony before the Committee on Government Reform and Oversight, Wendell Primus said, "While some poor single mother families have been able to maintain or raise their income levels because of increased earnings and the expanded EITC, other poor single mother families' incomes have fallen substantially and they are now deeper in poverty than earlier in the decade."(11) As we will see, on the basis of available evidence, one should not conclude that "incomes have fallen substantially" for a large number of families. (emphasis added)

Such estimates are tremendously dependent on the assumptions embedded in the analysis. For example, Dr. Primus's initial estimates did not include a correction for the growing deterioration of the accuracy of the CPS in reporting welfare payments. I understand that he has now made a correction for this problem. His current numbers, which I have not seen, now suggest a small decline in incomes for some groups of low-income mothers. My judgement is that the declines he finds are too small--and too dependent on the assumptions that any analyst would make--to be the basis of policy.

But Dr. Primus's analysis did encourage us to look further at what was happening in the female-headed families with the lowest incomes. His research showed than many of them had zero incomes. That is, they neither had earnings from work, nor income from investments, nor did they receive welfare benefits. But they were also not homeless, nor in shelters. My next chart helps explain what is happening. (Chart 7.)

Based on data from the CPS, as analyzed by Richard Bavier of the Office of Management and Budget, it appears that about 30 percent of the female family heads with children in the bottom fifth of the income distribution (based on post-tax, post-transfer family income) were living with other non-family household members. The average income of these household members was over $20,000, with some much higher.

Adding this "household income" to the families that Dr. Primus said lost income suggests that the households containing these families have at least held their own--and perhaps improved their situation. (Remember, this is only reported income.)

This explains, by the way, why as many as a third to half of the mothers who leave welfare do not report that they are working. TANF has raised the "cost" of being on welfare, as described above, and these women are simply deciding to forego the heightened "hassle" of being on welfare. They can leave welfare because someone else--usually a boyfriend--is supporting them or will support them. This brings me to my final point.

Cohabitation and marriage penalties

Cohabitation was once unusual and largely limited to low-income and less-educated couples, whereas now it is more mainstream. In the mid 1950s, for example, cohabitors were five times more likely to be high school drop outs than college graduates, but in either case, the proportions were low (5 percent vs. 1 percent). By the mid 1980s, the figures were strikingly higher (45 percent vs. 22 percent), with the difference cut almost in half.(12)

The foregoing statistics are for women who have "ever" cohabited. What about "current" cohabitations? In 1995, about 7 percent of women were currently cohabiting.(13) Larger numbers of mothers on welfare report that they are cohabiting, between 9 and 24 percent,(14) depending on the survey question. According to the Panel Survey of Income Dynamics, for example, 9 percent of welfare mothers were cohabiting in 1987. This included 18 percent of welfare mothers under thirty, with less than a high school education, and with children under age eighteen.(15)

Finally, according to preliminary data from the Fragile Families study of unmarried parents in twenty-two major American cities,(16) as many as half of the children born out of wedlock may have an unwed father living at home.(17) Similarly, Larry Bumpass and Hsien-Hen Lu, of the Center for Demography and Ecology at the University of Wisconsin- Madison, report that according to the National Survey of Family Growth about 41 percent of births to unmarried mothers from 1990 to 1994 were to women who were currently cohabiting.(18)

To some extent, cohabitation--"informal marriage," in the phrase some analysts use--is a reality of the modern world. Increasing numbers of affluent couples around the world are choosing to forego marriage. However, these "unions" tend to be less stable than marriages, and therefore less nurturing for children. I don't know how (or whether) the government should encourage marriage, but I do know that it should not discourage marriage. But that it just what it does with the marriage penalties embedded in the Earned Income Tax Credit (EITC) and our refusal to conform child support laws to the realities of life for low-income families.

I know that many members of congress are concerned about the marriage penalties embedded in our tax laws. As a percentage of household income, those penalties pale when compared to the penalties faced by welfare recipients and the working poor. According to Eugene Steuerle of the Urban Institute, for example, "the marriage penalty faced by a young couple consisting of a man who is working full time at the minimum wage and a mother on welfare with two children. He concluded that, if they marry, the new family's combined earnings plus benefits would be $16,194, or $3,862 (almost 20 percent) less than the couple's premarriage income."(19)

If we do not examinine what is happening in these households, we will miss half of what is happening under welfare reform.

I sincerely recommend that, in addition to worrying about good jobs for former welfare recipients, we also worry about the well-being (and safety) of these informal unions--and do the best we can to strengthen them by removing the obstacles to marriage embedded in our welfare laws.

Thank you.

Notes

1. Richard Bavier, "An early look at the effects of welfare reform," March 20, 1999, p. 7.

2. Wendell Primus, Testimony before the Committee on Government Reform and Oversight, April 22, 1999.

3. Testimony of Helen Blank, Director, Child Care and Development, Children's Defense Fund, before the Ways and Means Committee, March 16, 1999; p. 4.

4. 4Center on Budget and Policy Priorities, "Poverty Rates Fall, but Remain High for a Period With Such Low Unemployment," October 8, 1998.

5. 5Craig Gundersen, Michael LeBlanc, and Betsey Kuhn, "The Changing Food Assistance Landscape: The Food Stamp Program in a Post-Welfare Reform Environment," U.S. Department of Agriculture, Economic Research Institute, Agricultural Economic Report No. 773, March 1999, p. 5.

6. 6Scott Cody and Laura Castner, Characteristics of Food Stamp Households: Fiscal Year 1997 (Alexandria, VA: U.S. Department of Agriculture, Food and Consumer Service, February 1999). The declines using the average monthly caseloads for FY 1996 to FY 1997 are bit smaller: 440,000 and 174,000 for a total of 614,000.

7. Families USA Foundation, Losing Health Insurance: The Unintended Consequences of Welfare Reform, by Rachel Klein (Washington, D.C.: Families USA Foundation, May 1999), p. 7.

8. See Expanding Health Insurance Coverage for Children Under Title XXI of the Social Security Act (February 1998: Congressional Budget Office, Washington, D.C.); p. 12, stating that, most likely, "many children . . . are joining the ranks of those with contingent coverage: as families sever their ties to the welfare system, they have less opportunity to enroll their children in Medicaid--if, indeed, they are even aware that their children may still be eligible for the program. Although such children are not currently enrolled, they are still likely to use the program if they become sick."

9. The Census Bureau cautions that "In the Current Population Survey (CPS), Medicare and Medicaid coverage estimates are underreported, compared with enrollment and participation data from the Health Care Financing Administration (HCFA). A major reason for the lower CPS estimates is the fact that CPS is not designed to specifically collect health insurance data. Instead, it is largely a labor force survey, with minimum interviewer training on health insurance concepts. Data from HCFA represent the actual number of people who were enrolled or participated in these programs and is therefore a more accurate source of data on levels of coverage." See Robert L. Bennefield, Health Insurance Coverage: 1997 (Washington, D.C.: U.S. Department of Commerce, Bureau of the Census, September 1, 1998), pp. 6-7.

10. 10Kimball Lewis, Marilyn Ellwood, and John L. Czajka, "Counting the Uninsured: A Review of the Literature," The Urban Institute, June 1998.

11. Wendell Primus, Testimony before the Committee on Government Reform and Oversight, April 22, 1999. Dr. Primus also asserted that, "Between 1995 and 1997, the economic status of persons in the bottom decile declined. The average incomes of families in the poorest decile fell by almost $1,000, a statistically significant decline of 16.3 percent."

12. Data from the National Survey of Families and Households shows that about 5 percent of people with less than a high school education, and who were born between 1928 and 1932 lived in a cohabiting relationship prior to age twenty-five (somewhere between 1953 and 1957). The corresponding figure for persons with a college education born during the same time frame was less than 1 percent. Among the cohort born between 1958 and 1962 (who hit age twenty-five between 1983 and 1987) the chances of cohabiting before age twenty-five increased dramatically. A little over 45 percent of people with less than a high school education born between these years cohabited before age twenty-five, compared to 35 percent of those with some college education and about 22 percent of those with a college degree. Thus, over the thirty year period the differences in cohabitation rates between the least and most educated were reduced from 80 percent to about 50 percent. (Andrew J. Cherlin, Marriage, Divorce, Remarriage revised and enlarged edition (Cambridge, Mass.: Harvard University Press, 1992), p. 12.)

13. National Center for Health Statistics, Fertility, Family Planning, and Women's Health: New Data From the 1995 National Survey of Family Growth, by Joyce C. Abma, Anjani Chandra, William D. Mosher, Linda S. Peterson, and Linda J. Piccinino (Hyatsville, MD: U.S. Department of Health and Human Services, 1997), Table 33.

14. Robert A. Moffitt, Robert Reville, and Anne E. Winkler, "Beyond Single Mothers: Cohabitation, Marriage, and the U.S. Welfare System." (Discussion paper #1068-95, Madison, Wisc., University of Wisconsin- Madison, Institute for Research on Poverty, July 1995), pp. 5-6.

15. Ibid. These figures may be as much as one-third higher, however, if they are calculated as the proportion of unmarried women who receive welfare as opposed to the proportion of all women who receive welfare. 16. Julien Teitler, "Father Involvement, Child Health, and Maternal Health Behavior." (Paper prepared for the Urban Seminar on Children's Health and Safety, Cambridge, Mass., April 23-24, 1999), Table 1.

17. Julien Teitler, "Father Involvement, Child Health, and Maternal Health Behavior." (Paper prepared for the Urban Seminar on Child's Health and Safety, Cambridge, Mass., April 23-24. 1999), p. 5.

18. Larry Bumpass and Hsien-Hen Lu, "Trends in Cohabitation and Implications for Children's Family Contexts in the U.S." (CDE Working Paper No. 98-15, Madison, Wisc., University of Wisconsin-Madison, Center for Demography and Ecology, March 1999), p. 13.

19. Douglas Besharov and Timothy Sullivan, "Welfare Reform and Marriage," The Public Interest, No. 125 (Fall 1996), p. 88.