Welfare Reform and its Effect on the Dynamics of Welfare Receipt, Employment, and Earnings


Welfare reform efforts at the state and national level dramatically transformed the United States cash assistance program. The past system of indefinite cash payments for qualified applicants was replaced by a new system with time limits on aid, work or work-related requirements, and penalties for recipients who fail to meet the newly established requirements. Prior to federal reform, a number of states independently enacted a series of welfare reform measures designed to decrease dependence on cash assistance and increase employment among recipients. These initial reforms culminated in the Personal Responsibility and Work Opportunity Reconciliation Act (PROWRA). This federal legislation, passed in 1996, changed the official name of welfare from Aid to Families with Dependent Children (AFDC) to Temporary Assistance for Needy Families (TANF) and incorporated a majority of the substantive changes enacted in many states. In addition to the PROWRA legislation, Congress also passed an expansion of the federal Earned Income Tax Credit in 1993, further increasing the importance of the labor market for low-income employees.

It is commonly known that reforms successfully decreased the total welfare caseload, a major goal of the legislation. It was previously not clear, however, what effect this caseload reduction had on welfare recipients. By analyzing the welfare system in Missouri, this paper presents evidence regarding how successfully these changes have improved the well being of current and former welfare recipients. The authors’ findings demonstrate that welfare reform has successfully decreased caseloads without adversely affecting welfare recipients. Welfare reform met its goals of increased employment among current and former recipients. Furthermore, despite low job skills, welfare reform did not force recipients into lower paying jobs with fewer benefits. In fact, the requirement of welfare reform that current recipients participate in programs such as job-training and continuing education have led to increased average earnings among welfare leavers. In total, exiters after welfare reform appear somewhat better off financially than those prior to welfare reform. They earn higher wages and are much less likely to return to welfare.