An empirical investigation of interstate AFDC benefit competition

Claims that states which offer generous welfare benefits attract the poor and that some states pay low benefits intending to drive the poor away are neither uncommon nor entirely unfounded. This paper employs a two player (state) generalized game to model states' choice of a benefit level in the Aid to Families with Dependent Children (AFDC) program. Migration by the poor in response to interstate differentials in earnings and welfare opportunities, and the subsequent changes in AFDC caseloads, drive this game. Estimation of the model (using 1979 data) suggests that states within approximately 750 miles of each other do engage in a benefit-setting game. The rival's initial number of poor and preference for non-AFDC consumption appear to be the more influential rival characteristics. These findings, while derived from a different methodological approach, are consistent with previous studies which indicate that welfare recipients tend to move toward higher benefit states. Such migration may impede the efficient spatial allocation of labor. The results also indicate that states will tend to offer lower benefits given recipient migration than would be the case otherwise. State jurisdiction over benefits consequently leads to underprovision of AFDC. Federalization of the AFDC program would improve efficiency in terms of the spatial allocation of labor and the provision of AFDC.     

Interstate Competition and Welfare Policy

In 1996, the federal government terminated the Aid to Familieswith Dependent Children (AFDC) program and replaced it withthe Temporary Assistance for Needy Families program (TANF).Many powers once held by the federal government are now beingused by state governments. Will welfare assistance be redesignedand expanded or will states "race to the bottom?" This issueis investigated by examining state welfare policy choices duringthe latter years of AFDC(1976–1994). Because each stateunder AFDC had the authority to set the level of its welfareguarantee for families that had no income, it is possible toestimate the effects of interstate competition on AFDC guaranteelevels. By estimating a spatial autocorrelation coefficientwhile controlling for theoretically relevant variables and statefixed effects, this study finds evidence that states are sensitiveto the welfare policies of their competitors.     

Welfare policies and migration of the poor in the United States: An empirical note

This paper has investigated the impact of geographic welfare benefit differentials upon migration in the United States. Unlike other related studies, which typically focus upon black migration (as a surrogate measure of migration of the poor), the present study focuses directly upon migration of the poor per se. A variety of reduced-form estimates are provided. The evidence strongly suggests that the net in-migration of the poor is positively and significantly influenced by higher nominal AFDC levels and by higher real AFDC levels. These findings support the welfare magnet hypothesis, which alleges that relatively high welfare levels act to attract poor migrants. Moreover, given that poor migrants are attracted non only by high nominal welfare levels but also by high real welfare levels, an argument can be made for establishing geographically uniform real welfare benefit levels in the United States. This uniformity presumably should act, over the long run, to eliminate the human resource distortions being caused by the currently prevailing welfare system.The authors are indebted to Michael Greenwood, Dick Muth, Jim Kau and Janet Pack. Naturally, the usual caveat applies.     

Welfare,work experience,and economic self‐sufficiency

The potential of former AFDC recipients to earn a living wage is central to the success of welfare‐to‐work programs. Previous studies have found that welfare recipihyphen;ents see little increase in their wages over time. Low wage growth could arise from either low returns to work experience or low levels of experience. This distinction is important for designing effective welfare policy. In the following paper, we estimate how wages grew with work experience between 1978 and 1992 for a national sample of women from the National Longitudinal Survey of Youth. We compare women who never received welfare with both short‐ and long‐term recipients in order to see to what extent the rates of wage growth with work experience differ. We find that they differ very little. We use numerous specification checks to test the robustness of our results and find consistent evidence that the wages of AFDC recipients grew at a rate similar to those of nonrecipients once work experience is taken into account. © 2001 by the Association for Public Policy Analysis and Management.     

The effect of disabilities on exits from AFDC.

The Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) of 1996 replaces AFDC, the largest means-tested cast assistance program for low-income families, with the Temporary Assistance for Needy Families (TANF) block grant. Unlike AFDC, assistance under TANF is limited to five years in a lifetime, and states are required to move families from the assistance rolls into jobs. But not all adult welfare recipients can easily move to work because either they themselves are disabled or they have a child with disabilities requiring special care. This article examines the extent and impact of disability among families on AFDC to gain insight into the potential impact of changes under TANF. Using data from the 1990 Survey of Income and Program Participation (SIPP), we find that in nearly 30 percent of the families on AFDC either the mother or child has a disability. Furthermore, we find that having a disability significantly lowers the probability that a woman leaves AFDC for work but not for other reasons, such as a change in living arrangements. Finally, we find little evidence that having a child with a disability affects the probability of leaving AFDC for any reason.     

Incentives,challenges, and dilemmas of TANF: A case study

This paper compares the incentives inherent in TANF (Temporary Assistance for Needy Families), the U.S. welfare system in place after the 1996 reforms, with those of TANF's predecessor, AFDC (Aid to Families with Dependent Children), using the experience in one state, Wisconsin, as an example. Is the new program successful in avoiding the “poverty trap” of the old welfare system, in which the marginal tax rates imposed on earnings and benefits were so high that they discouraged work effort outside a narrow earnings range? As women receiving assistance begin working more hours and earning more, income‐conditioned benefits (Food Stamps, EITC, Medicaid, and subsidies for child care) are reduced and withdrawn, in effect constituting a “tax” on earnings. Under TANF, there is more support for these families, at least in Wisconsin, and so economic well‐being should be higher for most women with earning in this range than it was under AFDC. But marginal tax rates under TANF remain high, and in some income ranges they are higher than under AFDC. Once in the work force, former TANF recipients have earnings over the long run that expose them to very high marginal tax rates, which decrease the benefits of working harder and make it very difficult to gain full eonomic independence. Evidence from other sources suggest that most low‐skilled women have earnings in the same range and so are likely to face similar reductions in benefits such as child care subsidies or the EITC as their earnings increase, even if they are not receiving welfare‐related benefits. © 2002 by the Association for Public Policy Analysis and Management.     

Does state AFDC generosity affect child SSI participation?

This article examines the extent of interactions or spillovers between the Supplemental Security Income (SSI) and Aid to Families with Dependent Children (AFDC) programs for children. In the early 1990s, the Social Security Administration substantially relaxed child eligibility criteria for SSI benefits. Since the changes, the number of U.S. children receiving cash and medical benefits through SSI tripled to nearly 1 million. The article describes a family's decision to participate in SSI and/or AFDC, and uses state‐level data for three years before, and three years after, the Zebley decision to estimate the effect of state program generosity on child program participation. The expansions in child SSI eligibility increased child SSI participation and contributed to increased total program participation by children in the early 1990s. Child SSI participation increased more in states with lower AFDC payments and higher state SSI supplementation payments. These results suggest that families use SSI and AFDC as substitutes. At least 32 percent of the Zebley increase in SSI is likely attributable to the SSI–AFDC benefit gap for the median AFDC benefit state. © 2000 by the Association for Public Policy and Management.     

Determinants of initial entry onto welfare by young women

Using data from the youngest cohorts of women in the National Longitudinal Survey of Youth, this study constructs Aid to Families with Dependent Children (AFDC) histories starting at age 15. Most young women go on AFDC for the first time between ages 18 and 25 and do so in the first few years after the birth of their first baby. These histories are used to estimate models of the determinants of initial use of AFDC. The models provide mixed evidence that the financial or other incentives of welfare policy affect the likelihood and timing of AFDC use. Benefit levels do not seem to affect participation, but the presence of a program for medically needy families who are not on welfare appears to decrease entrance to welfare for some groups. Parental poverty, family structure, academic achievement, attitudes toward school, and race are significantly related to the likelihood of participating in AFDC, and the rate of entry. © 2000 by the Association for Public Policy Analysis and Management.     

Transitions from AFDC to SSI before welfare reform

The Supplemental Security Income (SSI) and Aid to Families with Dependent Children (AFDC) programs serve populations with similar characteristics. SSI serves adults and children with disabilities who are in low-income families, and AFDC serves low-income families with children. Because of that overlap, policy changes in one program can affect the other. In 1996, Congress enacted the Personal Responsibility and Work Opportunity Reconciliation Act, which transformed AFDC into the Temporary Assistance for Needy Families (TANF) program. Many people have expected that implementing that welfare reform legislation would eventually increase SSI participation, for two reasons. First, TANF includes new work requirements and time limits that induce more AFDC/TANF recipients with disabilities to obtain SSI benefits. Second, the change in the funding mechanism--from open-ended funding on a matching basis for AFDC to cash assistance block grants for TANF--gives states a stronger incentive to shift welfare recipients to SSI. This article examines the interaction between the SSI and AFDC programs in the prereform period (1990 to 1996) and discusses the potential implications of welfare reform on that interaction. Using matched data from the Survey of Income and Program Participation and Social Security Administration (SSA) records, our analysis focuses on how the interaction of those programs affects young women (aged 18 to 40) and children (aged 0 to 17). We find a very strong link between AFDC and SSI for young women and children. Significant portions of young female and child SSI beneficiaries in the 1990-1993 period were in AFDC families or had received AFDC in the past. In addition, a substantial share of young women and children who received AFDC during that period eventually entered SSI. Because the SSI program is now serving a much larger population of families with young women and children than in the past, SSA might need to develop policies to better serve that group. The findings also suggest that the prereform period is a poor baseline against which to measure the impact of TANF, primarily because of the instability in programs and policies.     

Impacts of Intergovernmental Financial Incentives on State Welfare Policymaking and Interstate Equity

Welfare policy in the United States is strongly influenced byintergovernmental factors. This analysis traces the effectsof federal financial incentives on state welfare policy decisionsacross programs and examines how changes in federal incentivesaffect state policy choices over time. The data indicate thathigher levels of federal participation are associated with substantialreductions in variance of welfare grants among the states andwith higher levels of interstate equity. These findings implythat significant shifts in welfare outputs would result froma devolution of responsibility for welfare to the states.     

Immigration and the Evolving American Welfare State: Examining Policies in the U.S. States

The inclusion of racial/ethnic minorities is often considered an important factor leading to a relatively limited American welfare system. However, given the federal nature of welfare eligibility rules and the states' role in determining benefit levels, few studies explicitly link questions of inclusion and benefit levels when explaining the evolution of American welfare policy. This study examines the relationship between inclusion and benefit levels by analyzing state policies related to the welfare reforms of 1996 which allowed states to decide if recent immigrants would be included in welfare benefits, and subsequently the extent to which this decision affected overall benefit levels offered by states under TANF. The results suggest that states' decisions regarding inclusion subsequently affect benefit levels, with the direction of these relationships most closely reflecting the erosion model's prediction of broader eligibility associated with lower benefit levels.     

Making Something Out of Nothing: Welfare Reform and a New Race to the Bottom

The 1996 welfare-reform law has been characterized as a significantact of devolution. For some, this devolution will free statesto become "laboratories of democracy" that develop better welfarepolicies; for others, it will provoke a debilitating "race tothe bottom" where states will reduce benefits out of fear ofbecoming "welfare magnets" that attract recipients from otherstates. This article suggests that neither "laboratories ofdemocracy" nor "race to the bottom" does justice to the complexitiesof the 1996 reforms. In the case of the former, new federalmandates limit state action and states face informal pressuresto "keep up" with one another in developing new restrictionsso that they can avoid becoming "welfare magnets." In the caseof the latter, we find limited empirical support for the existenceof welfare migration that is supposed to be provoking a "raceto the bottom." We find that there is limited welfare migrationbecause the real value of welfare benefits to recipients doesnot vary nearly as much as common portrayals suggest. Giventhese realities, welfare reform may produce a procedural raceto the bottom that turns the myth of migration into a self-fulfillingprophesy.     

Local labor markets and local area effects on welfare duration

The Survey of Income and Program Participation (SIPP) has become an important tool for studying how long people stay on welfare programs because it has monthly data on a variety of welfare programs. This article presents estimates of duration models for unmarried women with children who are on the Aid to Families with Dependent Children program (AFDC) using the 1984 and 1985 panels of SIPP. A weakness in previous welfare duration studies is that they do not include local labor market conditions or other local area effects; this omission may bias the estimated effects of policy variables (such as benefit levels) and labor market variables. This article incorporates relevant local area information from the City County Data Book and links this to SIPP welfare recipients based on county of residence. I find that local variables such as unemployment rates or per capita sales affect welfare exit rates, especially for blacks. Living in an urban area lengthens welfare spells for both whites and blacks.     

WORKFARE IN THE 1980s: SUCCESSES AND LIMITS

Between 1981 and 1987 twenty-eight states experimented with workfare programs. By requiring mandatory community service from welfare recipients, the states hoped to reduce welfare caseloads as well as increase community service. Based in part on those program experiences, Congress included the first national workfare requirement in the 1988 welfare reform package (the Family Support Act). This study is the first to attempt to evaluate the implementation and impact of workfare on a national basis. A pooled, cross-section, longitudinal model is used to estimate the effect of workfare on AFDC caseloads. Despite the low level of state-level implementation, the evidence suggests that workfare may have contributed to welfare caseload reductions in the 1980s.     

The TANF/SSI connection

Interactions and overlap of social assistance programs across clients interest policymakers because such interactions affect both the clients' well-being and the programs' efficiency. This article investigates the connections between Supplemental Security Income (SSI) and Temporary Assistance for Needy Families (TANF) and TANF's predecessor, the Aid to Families with Dependent Children (AFDC) program. Connections between receipt of TANF and SSI are widely discussed in both disability policy and poverty research literatures because many families receiving TANF report disabilities. For both states and the individuals involved, it is generally financially advantageous for adults and children with disabilities to transfer from TANF to SSI. States gain because the federal government pays for the SSI benefit, and states can then use the TANF savings for other purposes. The families gain because the SSI benefits they acquire are greater than the TANF benefits they lose. The payoff to states from transferring welfare recipients to SSI was substantially increased when Congress replaced AFDC with TANF in 1996. States retained less than half of any savings achieved through such transfers under AFDC, but they retain all of the savings under TANF. Also, the work participation requirements under TANF have obligated states to address the work support needs of adults with disabilities who remain in TANF, and states can avoid these costs if adults have disabilities that satisfy SSI eligibility requirements. The incentive for TANF recipients to apply for SSI has increased over time as inflation has caused real TANF benefits to fall relative to payments received by SSI recipients. Trends in the financial incentives for transfer to SSI have not been studied in detail, and reliable general data on the extent of the interaction between TANF and SSI are scarce. In addition, some estimates of the prevalence of TANF receipt among SSI awardees are flawed because they fail to include adults receiving benefits in TANF-related Separate State Programs (SSPs). SSPs are assistance programs that are administered by TANF agencies but are paid for wholly from state funds. When the programs are conducted in a manner consistent with federal regulations, the money states spend on SSPs counts toward federal maintenance-of-effort (MOE) requirements, under which states must sustain a certain level of contribution to the costs of TANF and approved related activities. SSPs are used for a variety of purposes, including support of families who are in the process of applying for SSI. Until very recently, families receiving cash benefits through SSPs were not subject to TANF's work participation requirements. This article contributes to analysis of the interaction between TANF and SSI by evaluating the financial consequences of TANF-to-SSI transfer and developing new estimates of both the prevalence of receipt of SSI benefits among families receiving cash assistance from TANF and the proportion of new SSI awards that go to adults and children residing in families receiving TANF or TANF-related benefits in SSPs. Using data from the Urban Institute's Welfare Rules Database, we find that by 2003 an SSI award for a child in a three-person family dependent on TANF increased family income by 103.5 percent on average across states; an award to the adult in such a family increased income by 115.4 percent. The gain from both child and adult transfers increased by about 6 percent between 1996 (the eve of the welfare reform that produced TANF) and 2003. Using data from the Department of Health and Human Services' TANF/SSP Recipient Family Characteristics Survey, we estimate that 16 percent of families receiving TANF/SSP support in federal fiscal year 2003 included an adult or child SSI recipient. This proportion has increased slightly since fiscal year 2000. The Social Security Administration's current procedures for tabulating characteristics of new SSI awardees do not recognize SSP receipt as TANF We use differences in reported TANF-to-SSI flows between states with and without Separate State Programs to estimate the understatement of the prevalence of TANF-related SSI awards in states with SSPs. The results indicate that the absolute number of awards to AFDC (and subsequently) TANF/SSP recipients has declined by 42 percent for children and 25 percent for adults since the early 1990s. This result is a product of the decline in welfare caseloads. However, the monthly incidence of such awards has gone up-from less than 1 per 1,000 child recipients in calendar years 1991-1993 to 1.3 per 1,000 in 2001-2003 and, for adult recipients, from 1.6 per 1,000 in 1991-1993 to 4 per 1,000 in 2001-2003. From these results we conclude that a significant proportion of each year's SSI awards to disabled nonelderly people go to TANF/SSP recipients, and many families that receive TANF/SSP support include adults, children, or both who receive SSI. Given the Social Security Administration's efforts to improve eligibility assessment for applicants, to ensure timely access to SSI benefits for those who qualify, and to improve prospects for eventual employment of the disabled, there is definitely a basis for working with TANF authorities both nationally and locally on service coordination and on smoothing the process of SSI eligibility assessment. The Deficit Reduction Act of 2005 reauthorized TANF through fiscal year 2010, but with some rules changes that are important in light of the analysis presented in this article. The new law substantially increases effective federal requirements for work participation by adult TANF recipients and mandates that adults in Separate State Programs be included in participation requirements beginning in fiscal year 2007. Thus SSPs will no longer provide a means for exempting from work requirements families that are in the process of applying for SSI, and the increased emphasis on work participation could result in more SSI applications from adult TANF recipients.     

The effect of incremental benefit levels on births to AFDC recipients

We examine the relationship between fertility and incremental AFDC benefits using the 1990 Panel of the Survey of Income and Program Participation (SIPP). Estimating a logit equation for the probability of a higher-order birth among a sample of AFDC recipients, we find a positive coefficient (although statistically insignificant) on the incremental AFDC benefit level. However, we find a positive correlation between incremental benefits and fertility for several nonrecipient comparison groups which is larger than the positive correlation for AFDC recipients. This finding suggests that the previously estimated relationship between incremental benefits and fertility among AFDC recipients is largely the result of a spurious correlation. We find similar results among whites, blacks, and never-married women, but less consistent results among Hispanics and divorced or separated women. We infer from these results that family cap policies, which eliminate the incremental benefits entitled to AFDC recipients who have additional children, are not likely to result in a large reduction in the number of out-of-wedlock births to AFDC recipients.     

THE MDRC WORK/WELFARE PROJECT: OBJECTIVES, STATUS, SIGNIFICANCE

In 1981, states, for the first time, were given an option to restructure the AFDC welfare program and require recipients to work in exchange for benefits. States have acted on this opportunity to introduce workfare or work requirements in a climate of polarized discussion and limited information. This paper summarizes the findings available from the pre-1981 demonstrations on the feasibility, impact, and cost-effectiveness of this approach. The authors conclude that these early demonstrations and evaluations provide very limited guidance to program administrators. The paper describes briefly a five-year social experiment currently under way in nine states to address the critical open policy questions through comprehensive process, impact, and benefit-cost studies.     

Welfare reforms,family resources,and child maltreatment

This paper examines the impact of welfare reforms on several measures of child maltreatment. The authors use state‐level data from 1990 to 1998 to examine whether recent welfare reforms have increased or reduced the incidence of reported and substantiated cases of maltreatment, the incidence of specific types of substantiated maltreatment—physical abuse and neglect—and the number of children living in out‐of‐home care. The welfare reforms considered are the imposition of: family caps, lifetime limits, work requirements, sanctions for non‐compliance, and the restriction of welfare benefits to immigrants. How welfare benefit levels and changes in state Earned Income Tax Credit programs affect reports and substantiated cases of maltreatment are also considered. Evidence strongly indicates that reductions in states' welfare benefit levels increase the number of children in out‐of‐home care, and some evidence indicates that strict lifetime welfare limits and tougher sanctions for noncompliance are related to higher levels of substantiated maltreatment. The evidence on family caps is mixed: family caps appear to be associated with fewer instances of substantiated maltreatment, but more children in out‐of‐home care. Because most of the welfare reforms examined have been in effect for only a short time, these results should be considered preliminary. Overall, however, they provide some evidence that the recent welfare reforms in the United States may have increased child maltreatment. © 2003 by the Association for Public Policy and Analysis and Management.     

A lesson from the JOBS program: Reforming welfare must be both dazzling and dull

The Job Opportunities and Basic Skills Training (JOBS) program created by the Family Support Act (FSA) of 1988 made considerable progress in expanding opportunities for welfare recipients to go to school, train for employment, and seek work. Yet federal and state officials sought further welfare reform because they were impatient with a program that was costly and produced little evidence of positive outcomes; they realized that the FSA did not address perverse incentives in the AFDC program; and they saw political gains to be reaped from reform itself. It concludes that successful reform requires leaders who can articulate a vision of welfare that dazzles enough to motivate many layers of actors and who can pay attention to the dull management details of implementing it.