Welfare to work which policies work and why

In particular, the reforms targeted principal carer parents, people with disabilities, mature age job seekers and the very long-term unemployed.

The results of the Welfare to Work reforms have been mixed. While there is evidence that the changes resulted in people from some of the above groups leaving income support for employment mostly parents , for members of the other groups the results were minimal. Indeed, in some instances, the reforms may have merely encouraged a shift into Disability Support Pension DSP , the only remaining non-activity tested payment.

In a bid to address these problems, and to increase workforce participation more generally, the Labor Government introduced further changes. These included, among other things: reconfiguring employment services to better cater to the needs of disadvantaged job seekers; increasing the Child Care Rebate; introducing paid parental leave; increasing from the age at which people can access the Age Pension; and, tightening access to the DSP.

Many of these measures have only recently been implemented and their success or otherwise has yet to be determined. Generally speaking, Australia is doing relatively well in terms of working age employment participation.

That said, there is room for further reform to improve the participation of sole parents and those with more moderate levels of disability. Incremental reform of income support over the last 30 years has been aimed at creating a more active system that supports self provision. The chart below points to the successes and failures of those efforts: the phasing out of a plethora of payments for groups with limited workforce attachment to restrict income support to those who study, care for others, have disabilities or are searching for work; the shifting of groups no longer catered for to the remaining passive disability payments; and, the limited impact to date of repeated efforts to move people with disability and sole parents to independence through employment.

This mixed picture points to the failure of some reforms, the incremental nature of others and the need for further reform to complete the transition towards a fully active income support system. While the working age participation rate is expected to rise from Age-related pension expenditures are expected to increase as a share of GDP in the years to — Hence, if overall working age participation is to be increased, reforms in areas that would help to increase the participation of people with disabilities and carers may be required.

Doing away with any design features that create incentives for disadvantaged people to seek to qualify for DSP on account of its non-activity tested status is one such reform. Another is the provision of sufficient support and services to ensure that people with disabilities and carers are able to function in the workplace. Employment rates over the period to ranged from 48 percent to 65 percent, varying by the state of the economy and the area of the country. These rates are similar to the rates following reform.

This is surprising because many more women have left the welfare rolls in this era of reform than in any prior period, and many of those who left recently are more disadvantaged than women who left the rolls in prior periods. The fact that employment rates of leavers have not been lower than those experienced by past leavers further supports the strong effect of welfare reform. In addition, random assignment evaluations of pre reform programs which had time limits and work requirements and were reasonably close in character to the post programs put in place by the states also show positive effects on employment and earnings.

The employment and earnings gains in these demonstration programs are the average gains for both women who have left welfare as well as women who stayed on the rolls, and they therefore represent a more comprehensive measure than studies of leavers alone.

Two of the most important reforms in the legislation were the imposition of federal time limits on the length of welfare receipt, and the use of more stringent sanctions for not complying with work requirements and other rules. A natural question is how women who hit a time limit or were sanctioned have fared relative to women who left welfare voluntarily or because of different inducements. Time limits have had relatively little effect so far because most states have retained the five-year federal maximum and, as a result large numbers of recipients did not begin to hit time limits until the late fall of Some states do have shorter time limits than five years, but they have exempted large numbers of families from those limits and have granted large numbers of extensions.

These exemptions and extensions have typically been granted to the most disadvantaged families, so that it is primarily those with significant employment and earnings while on TANF who hit the time limit in these few states.

As a consequence, in the one or two states where significant numbers of families have left welfare because they hit a time limit, post-welfare employment rates of those leavers are quite high e. But in other states where fewer families have hit the limit, employment rates of time-limited leavers are no different than those of other leavers. More is known about sanctions because they have been in force for most of the time since and in some cases even before then.

Many more women have been sanctioned than have been hit by time limits. The studies of women who have left welfare because of sanctions show that such women are less likely to have jobs than other welfare leavers.

This appears to be because sanctioned welfare recipients tend to be less educated, have lower job skills, and are in poorer health than other welfare recipients. Unfortunately, these findings suggest that sanctioning may often occur among women who are the most disadvantaged and have the greatest number of difficulties with work.

Despite the high employment levels of women who have left welfare, their incomes increase only modestly after leaving the rolls. About half experience an increase in income immediately after leaving, with the other half experiencing a decline.

After a year or two off the rolls, earnings gains slightly exceed the losses in TANF benefits. When EITC income is added in, the gains are slightly higher. However, the major change in income after leaving welfare comes from increased income from other family members very little from boyfriends and other unrelated persons, however. Such income is a larger component of total household income than either the earnings of the leaver herself or TANF and food stamp income.

As a result of additional income from this source, total household income grows by about 20 percent after two years off the rolls. Income from other household members is thus a key ingredient to sustaining the incomes of women leaving welfare.

Random assignment demonstrations measuring the effects of several pre state welfare reform plans provide additional evidence of the impact of welfare reform on income. For states whose plans most resembled those implemented after those with work requirements and time limits , income was essentially unchanged by the reforms three years after they began. However, neither the EITC nor the income of other family members was included in the income calculation, so it is probable that some income gains were in fact attained, possibly in the same 20 percent range found in other studies.

These demonstrations also show that, in the absence of earnings disregards, income is not likely to greatly increase for several reasons. One is that many women work part-time and thus have quite modest earnings, not enough to make up for lost benefits. Another is that many women are sanctioned off the rolls, when they have little or zero earnings, yet they still lose benefits.

A third is that many states reduce TANF benefits dollar-for-dollar when earnings increase at least if women stay on the welfare rolls , thereby canceling out any gain in income that might result from increased work. The EITC has played a significant role in keeping household income from declining as much as it could. However, many women off welfare do not receive the EITC if they have not been able to achieve steady employment.

Others who are working do not have enough earnings to achieve the maximum EITC payment, and others do not apply for it in their tax returns. Thus, the EITC has assisted some families but not all, and families with income declines tend to be those that have benefited from it the least. Studies also show welfare leavers experience declines in their receipt of food stamps and Medicaid. It appears that this decline is not a result of loss of eligibility so much as it is a result of lower participation despite eligibility, possibly because access to offices that determine eligibility is difficult to sustain.

For whatever reason, low rates of food stamp and Medicaid receipt are a significant problem among TANF leavers. Women who have left welfare are not the only single mothers whose income has changed since the reform legislation of Low-income single mothers who choose to stay off welfare to try to make it in the labor market have had increases in income as well.

The flip side of the high employment rates of 60 to 75 percent of women who have left welfare is that 25 to 40 percent of those women are not working.

Indeed, some studies have indicated that as many as 18 percent of leavers in some areas did not work at all for a full year after leaving the rolls. This group is of some concern. Because they have lost their welfare benefits and do not have earnings, they have lower incomes than non-working women who are still on TANF.

A fraction of these non-working leavers have a relative, spouse, or partner who brings some income to the household, and others supplement their income with benefits from other government programs. One of the most common program benefits received by this group are disability benefits from either the Supplemental Security Income program or the Social Security Disability Insurance program for either the mother or her children.

That many families leaving welfare receive disability benefits is a reflection of the high prevalence of health problems and disabilities that hinder work. Nevertheless, even with income from other family members and from government programs, non-working leavers have considerably lower income than they did when they were on welfare.

Consequently, leaving welfare has been particularly disadvantageous for these women and their children. The existence of such a group shows that there is great diversity in the experiences of welfare leavers, for while some have fared reasonably well, others have not. Not surprisingly, employment rates of less educated leavers are considerably below those of more educated leavers, and poverty rates are higher, as are the employment and poverty rates of those leavers who are in relatively poor health.

Random assignment studies of time-limited pre welfare reforms show some evidence that welfare reform results in a larger fraction of families ending up with below average incomes. The presence of a group of women who have left welfare and are not doing well is consistent with broader trend studies indicating that the poorest single mother families have experienced declines in income in the post-reform period.

As noted previously, women who were once welfare recipients and have left welfare are not the only ones affected by welfare reform. Some women have chosen not to apply for welfare subsequent to reform, possibly discouraged by the work requirements and other new mandates that come with being on welfare, and possibly encouraged enough by the good economy to stay off welfare and work.

Other women have applied for welfare but have been rejected. Over twenty states have formal diversion programs, which encourage women through financial inducements and other means to not come onto the welfare rolls.

More than thirty states have either diversion policies or have imposed work requirements that must be fulfilled prior to eligibility for benefits.

The decline in the number of women joining the TANF rolls has been very large in the post-reform era. In some states, the decline in entry onto welfare has been more important quantitatively than the increase in exit rates in accounting for the caseload decline. This finding casts a different light on the caseload decline and demonstrates that there is an important group of women other than leavers whose employment, earnings, and income should be of interest to policymakers.

Unfortunately, no studies have been conducted to date that examine this group, so their employment status and well-being remains unknown. However, the studies which have showed large post-reform increases in employment rates of single mothers as a whole, and which necessarily combine both those who have left welfare and those who have not come onto the rolls, strongly suggest that employment rates of women who choose not to enter the welfare system are high.

The overall picture of employment among single mothers in the wake of welfare reform is a favorable one, indicating widespread work among former welfare recipients and among low-income single mothers as a whole. With this accomplishment a given, reauthorization should focus on policies that address the remaining problems.

There are two major problems that deserve attention. One is the broad issue of how to improve the income gains of women who have left welfare for work.