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Perhaps the single biggest success of welfarereform has been the significant reduction in case-loads. Since passage of the Personal Responsibilityand Work Opportunity Act of 1996, the numberof people receiving federal cash welfare paymentshas dropped by roughly 58 percent. Moreover,that reduction in caseload has been accomplishedwithout causing undue hardship for former wel-fare recipients. Indeed, poverty rates, including thechildhood poverty rate, have declined along withwelfare caseloads.However, the reason for the caseload decline con-tinues to be the subject of heated debate. Someobservers suggest that the success in moving individ-uals off welfare has little to do with welfare reformitself but results from the economic boom of the late1990s. Others suggest that state experimentationand policies, including sanctions and benefit levels,are the primary reason for declining rolls.Different states have pursued different poli-cies and achieved different degrees of success inreducing welfare rolls. Previous academic studieshave suggested that the variation in policies hasa significant impact on the level of reduction inwelfare receipt. This study builds on that previ-ous work by conducting a regression analysis of caseload reduction between 1996 and 2000 on astate-by-state basis. The study looks at a numberof factors, including economic growth, sanc-tions, and benefit levels, and concludes that eco-nomic growth had little impact on reducing wel-fare rolls. Instead, states with the strongest sanc-tions and lowest benefit levels had the most suc-cess in reducing their caseloads.
Welfare Reform That Works
 Explaining the Welfare Caseload Decline,1996–2000
by Michael J. New
_____________________________________________________________________________________________________
 Michael J. New, a Ph.D. candidate at Stanford University, was a data analyst and research assistant at the Cato Institute in 2001.
Executive Summary
No. 435May 7, 2002
 
Introduction
Five and a half years ago President Clintonsigned landmark welfare reform legislationinto law. While previous attempts at reformresulted in only cosmetic changes, the PersonalResponsibility and Work Opportunity Recon-ciliation Act of 1996 has had a meaningful andlasting impact on the federal welfare regime.PRWORA ended the entitlement status of Aidto Families with Dependent Children andreplaced it with a time-limited assistance andwork requirement program called TemporaryAssistance to Needy Families. Most important,however, PROWRA gave states more leeway tostructure their welfare administrations.Under PROWRA, states receive federalblock grant allocations totaling $16.5 billiona year until September 30, 2002. That alloca-tion allows states to use TANF funding inany manner reasonably calculated to accom-plish the purposes of TANF so long as thestates maintain historical levels of spendingagreed to in “maintenance of effort” plans.To continue receiving their full federal TANFallocations, states must also conform to spe-cific requirements regarding current recipi-ents’ work participation rates and length of time on the rolls.
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Although PROWRA passed by wide mar-gins in the House and Senate in 1996, it wasstill politically controversial. Then–senateminority leader Tom Daschle (D-S.D.)opposed the bill, calling the work require-ments “extremist.” Likewise, House MinorityLeader Richard Gephardt (D-Mo.) votedagainst the bill, citing an Urban Institutestudy that predicted that welfare reformwould force more than 1 million childreninto poverty. Sen. Daniel Patrick Moynihan(D-N.Y.) was even more strident. He pro-claimed that the new law “was the most bru-tal act of social policy since reconstruction.”He predicted: “Those involved will take thisdisgrace to their graves.”
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Contrary to those alarming predictions,welfare reform went more smoothly thancritics expected. A great deal of evidence hasdemonstrated that welfare reform has beeneffective at reducing dependence on welfare,reducing poverty, and lowering the rate of out-of-wedlock births:
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By 1999 overall poverty and childpoverty had substantially declined.Some 4.2 million fewer people, includ-ing 2.3 million children, live in povertytoday than did in 1996.
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Hunger among children has beenreduced by almost 50 percent since thepassage of welfare reform.
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By 2001 welfare caseloads had beenreduced by 58 percent since welfarereform was enacted.
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During the past six years, there hasbeen a reduction in the rate of increasein out-of-wedlock childbearing.
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Even some opponents of PROWRA haveacknowledged the success of welfare reform.Wendell Primus, a deputy assistant secretaryin the Department of Health and HumanServices, who resigned in protest afterPresident Clinton signed the reform bill,remarked last year, “In many ways welfarereform is working better than I thought itwould.” He added, “The sky is not falling any-more. Whatever we have been doing duringthe past five years we ought to keep doing.”
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However, a number of opponents of welfarereform still stubbornly refuse to acknowledgeits progress, crediting instead the boomingeconomy. Donna Shalala, who as secretary of Health and Human Services urged PresidentClinton to veto the welfare reform bill, said,“What happened on welfare reform was thiscombination of an economic boom and a polit-ical push to get people off the welfare rolls.”
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Others who argue that the economy deservesmost of the credit for the decline in caseloads,including Marian Wright Edelman of theChildren’s Defense Fund, expressed concernabout what would happen during the mostrecent economic slowdown.
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Their arguments in favor of an “econom-ics” explanation of welfare caseload changesdo not hold up to empirical scrutiny. While
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Welfare reformhas been effectiveat reducingdependence onwelfare, reducingpoverty, and low-ering the rate of out-of-wedlock births.
 
the strength of the economy does have aneffect on the number of people receiving wel-fare, other economic expansions did not gen-erate welfare caseload declines of similar mag-nitude. For instance, the economy expandedby 10.63 percent between 1993 and 1996, butthe number of individuals receiving welfaredeclined by only 8.8 percent. Moreover, theeconomic expansion that took place duringthe 1980s failed to reduce the total number of individuals receiving AFDC.
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Finally, welfarecaseloads dramatically increased during theeconomic boom that took place during themid to late 1960s largely because benefitsbecame more generous.
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Existing Research
What, if not the booming economy, isresponsible for the decline in welfare caseloads?A great deal of research has been carried out toanalyze this question. In 1999 the Council of Economic Advisers analyzed the decline in wel-fare caseloads and concluded that the economywas responsible for 10 percent of the decline inregistrants between 1996 and 1998. Theauthors argued that welfare reforms wereresponsible for approximately one-third of thedecline and the remainder was the consequenceof other, unnamed factors.
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In 1999 the Heritage Foundation released amore detailed study on welfare caseloaddeclines. The authors used multivariate regres-sion analysis to analyze the percentage declinein welfare caseloads in each of the 50 states plusthe District of Columbia. They found that therewere substantial differences among the states intheir policies toward welfare recipients whowere not performing mandated work activities.In some states, recipients would lose their entireTANF check at the first instance of nonperfor-mance. In other states, however, recipientscould be assured of keeping almost their entirebenefit check regardless of their conduct.
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The Heritage analysts found that thestrength of state sanctioning policies had amajor impact on the magnitude of state wel-fare caseload declines. In general, the largercaseload reductions occurred in states withmore stringent sanctions, and more modestdeclines took place in states with weaker sanc-tioning policies. The Heritage study alsofound that immediate work requirements alsoled to declines in the number of individualsreceiving welfare. Interestingly, however, theauthors found that the strength of the econo-my, as measured by each state’s average unem-ployment rate, did not have a statistically sig-nificant impact on caseload declines.
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In the summer of 2001 the ManhattanInstitute released a study by June O’Neill andM. Anne Hill titled “Gaining Ground?Measuring the Impact on Welfare and Work.”That study differed from many of the othersbecause the authors attempted to explain wel-fare caseload declines using survey data ratherthan whole-population data. O’Neill and Hillfound that the implementation of the TANFprogram had a negative and statistically signifi-cant effect on the probability that a singlewoman would receive welfare benefits. Theyalso found that the state waivers that precededTANF had negative effects on welfare participa-tion as well. The authors concluded that welfarereform is responsible for more than half of thedecline in the welfare population since 1996.
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However, O’Neill and Hill neglected to con-sider other factors that likely played a role inthe caseload declines. For instance, they didnot consider the effect of the relative strengthof state sanctions on the number of welfarerecipients. In addition, while the authors heldbenefit levels constant in their regressionanalysis, they did not elaborate on their find-ings. They also did not state whether they con-sidered only benefits available through TANFor included benefits available to welfare recip-ients from other programs including theWomen, Infants, and Children program, foodstamps, and Medicare.A final study that provides useful insightsabout welfare caseloads is William A.Niskanen’s 1996
Cato Journal
article “Welfareand the Culture of Poverty.” Niskanen used1992 data to examine the specific impact of wel-fare benefits on a variety of social pathologies.Holding a variety of demographic, cultural, and
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What, if not thebooming econo-my, is responsiblefor the decline inwelfare caseloads?
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