Welfare reform -- what really works

THE SWEEPING welfare reforms of the 1990s had two faces. Unfortunately, only one of them is on display during this week’s celebrations of the 10th anniversary of these reforms.

As policymakers and pundits praise the reforms’ successes, they are focusing on one simple idea: work requirements -- the mandate that welfare recipients go to work or lose benefits. They’re crediting it alone with successfully reforming the system.

But giving all the credit where at most only half is due misunderstands a decade of change and imparts the wrong lessons about what to do next. Regrettably, Congress and the Bush administration recently have done just that by making work requirements more stringent and rigid while changing little else.

The celebratory mood centers on three facts: welfare caseloads have plummeted, employment among single mothers has increased sharply and poverty rates are down modestly. Seeing success in these results, many conclude that we need more of a good thing.

Critics emphasize other issues: the working poor who still struggle, those who need more help to find jobs and the growing number who are falling through the cracks into deep poverty. These are valid concerns, but even the successes deserve a second look.

The banner of “welfare reform” flies over two basic policy techniques. One uses a stick to make it harder to live without a job -- that’s what work requirements do. The other uses a carrot to make having a job more attractive -- “making work pay.”

This work-support aspect of reform includes allowing workers to continue to get some welfare benefits even after they’ve gotten a job, pouring billions into child-care subsidies for working parents and massively expanding the earned income tax credit, which offers federal cash to supplement the earnings of the working poor.

These two techniques have different effects. Work requirements and related “get tough” policies have clearly driven many people away from welfare. In one study, Yale economists Hanming Fang and Michael Keane estimated that work requirements caused more than half of the welfare caseload decline. The tax credit played a substantial but smaller role.

But there can be a big difference between decreases in welfare use and increases in, for instance, single mothers’ employment. Economists’ analyses repeatedly have found that the expanded tax credit, not welfare work requirements, made the larger contribution to employment growth. That’s because not everyone who left welfare got jobs and because many single mothers who got jobs hadn’t been on welfare.

Finally, getting a job doesn’t always increase disposable income. It can reduce other benefits and increase expenses for transportation and child care. The evaluation firm MDRC found that programs emphasizing work requirements decreased welfare use and increased employment but that the lost benefits roughly canceled out the increased wages. Those who left welfare because of work requirements -- as opposed to the far larger group who would have left for jobs anyway -- were no better off. In contrast, the work-support carrot also increased employment, but incomes went up too. That’s because these programs let people combine employment with government support instead of trading one off against the other.

Putting the pieces together, work requirements appear responsible for the worst parts of welfare reform: shredding the safety net for the most vulnerable and leaving them to sink or, at best, tread water in the low-wage labor market. That may be a victory for those who worship at the altar of “personal responsibility.” But for the working parents who find it a little easier to make ends meet, the credit goes to work supports.

The hints of genius in welfare reform have been policies that let people hold a job and still get the government help they need. Today, too few are hearing that lesson, let alone heeding it.