On the 20^th anniversary of Welfare Reform, it is worthwhile considering the economic conditions facing today’s low-income individuals and families, and the welfare programs they can utilize for assistance. By many accounts, Temporary Assistance for Needy Families (TANF)—the nation’s primary welfare program for the poor resulting from Welfare Reform—was unresponsive during the 2001-2003 recession as well as the Great Recession. For families facing instability in today’s job market, cash welfare could provide an income floor during difficult economic times, but for most it does not. Instead, today’s TANF program funds areas including job search, state refundable tax credits, and even marriage promotion activities. Meanwhile, spending on cash assistance has fallen dramatically since 1996—the beginning of the TANF program. Amid these spending changes, my research suggests that socio-economically disadvantaged families differ from the “typical” American family in that their incomes are, on average, not only lower but highly unstable between weeks, months, and years. This “income volatility” tends to rise during recessions, and is attributed to short-term economic shocks such as job loss as well as permanent structural changes throughout the economy (e.g. the decline of blue-collar manufacturing jobs) and the emergence of part-time and contingent work arrangements.

For such families, there is often no adequate substitute for cash assistance to pay bills—near-cash programs providing important food and housing assistance will not buy a coat, bus fare, or emergency auto repairs. Other programs providing cash are, while effective on some grounds, ill-equipped to serve as an income buffer for America’s poor families. For example, many policymakers agree that the Earned Income Tax Credit (EITC) lowers poverty, providing large cash refunds subsidizing earnings for the working poor during tax season. That said, the EITC is not designed to address the needs of the jobless poor. Collectively, this is less of an indictment of the EITC, food stamps (SNAP), and housing assistance, but instead an acknowledgement that TANF could do more to provide a basic income floor for families in need—families with low and fluctuating income throughout the year.TANF could do more to provide a basic income floor for families with low and fluctuating income.

I close with three points as we consider the 20^th anniversary of Welfare Reform:

1. First, my work confirms that the poorest families generally face the highest income volatility over the past 30 years. While TANF could perform better, the full set of transfer programs aid low-income families by reducing poverty and income volatility. Still, today’s poor families receive far less direct cash assistance than in 1996.
2. Second, many poor families have limited credit market access and savings. In the absence of TANF, many low-wage workers and their families also lack access to savings and face limited access to loanable funds. Such families may be denied loans or credit cards that allow households to absorb a drop in earnings—perhaps the first solution many households pursue when faced with an unanticipated expense or income shortfall. Whether due to displacement from employment altogether or unpredictable hours, credit and loan denials can lead to far costlier alternatives such as payday lenders. Such financial streams provide financial assistance for low-income families facing liquidity constraints, but they do so at interest rates that can exceed 100 percent and cause longer-term damage to borrowers.
3. TANF reform resulted in a weakened cash-based safety net. Low-income workers with children face higher income volatility on average and are less likely to have affordable access to credit markets. These families are underserved by TANF in that they generally receive little if any cash assistance today. The evidence suggests that Welfare Reform and the resulting TANF program likely reduced the effectiveness of the safety net to insure and buffer families from negative economic shocks. The reform occurred amid a strong economic expansion, and today’s program should reflect new realities—namely by providing greater cash benefits and support for those who wish to gain additional skills and training within a riskier labor market.

Resources

Hardy, B. (2016). “Income Instability and the Response of the Safety Net.” Contemporary Economic Policy doi:10.1111/coep.12187.

Hardy, B., and J.P. Ziliak. (2014). “Decomposing Trends in Income Volatility: The ‘Wild Ride’ at the Top and Bottom.” Economic Inquiry 52(1): 459-476.