1 Welfare, Employment and Income: Evidence on the Effects of Benefit Reductions from California

In recent years there have been unprecedented changes in welfare. The 1996 Personal Responsibility, Welfare and Opportunity Reconciliation Act (PRWORA) abolished AFDC and created Temporary Assistance for Needy Families (TANF), a set of block grants that gave states nearly complete freedom in designing their welfare programs. Between March 1994 and March 2001, welfare caseloads fell 59 percent, to 2.1 million families from 5.1 million. These changes in welfare caseloads mirror changes in employment rates of single women, which rose to 76.5 percent in 1998-99 from 67.5 percent in 1989-90. After a recession early in the decade, the economy experienced the longest economic expansion in U.S. history beginning in March 1991, with GDP growing for 120 consecutive months. The unemployment rate fell to 4.0 percent in 2000, its lowest level since 1969. With the strong economy, state and federal budgets prospered. The good fiscal climate and the funding and flexibility of TANF allowed many states to expand childcare benefits, health insurance, and transportation services for low-income families and to change welfare rules so that recipients could keep a greater share of earned income than was previously the case. The overwhelming majority of pre-TANF welfare waivers and current state TANF plans employ one or more of the following building blocks: mandatory employment services, earnings supplements, and time limits on welfare receipt. There is a considerable amount of emerging evidence that these changes along with the strong economy and expansion of the earned income tax credit increased employment of low-skilled families. (See, for example, Dan Bloom an