• Alyse DiNapoli

Understanding What Works (And Doesn't) with Welfare-to-Work

Updated: Oct 22, 2019

Just like religion and politics are the classic no-go’s at family functions, how to support vulnerable populations also evokes strong emotions, especially in an increasingly polarizing climate. In an era where support for welfare funding gets you labelled a socialist-or advocating for private sector services means you’re greedy-the reality is that most of us genuinely want everyone to experience economic freedom and have the ability to independently provide for their families. So, when it comes to all of the different social insurance programs, how do we know what works and what does not? As you may imagine, the answer is pretty complicated.

While there is certainly no magic formula, there is still a general consensus over which federal programs are pivotal in boosting earnings for families at risk of poverty. According to Jeff Clemens, Associate Professor of Economics at the University of California-San Diego, one of the programs that many public finance economists support is the federal Earned Income Tax Credit (EITC). Enacted in 1975, it subsidizes low-income families by offering a tax credit as a percentage of their earnings. As income increases, the credit starts to flatten out and then decrease- or “phase-out”. The idea is that recipients are not unmotivated to take a better job or additional work that may wipe out their other benefits. In addition to the EITC, Medicaid has proven to be a critical social welfare program with profound effects.

“The bodies of research highlighting the benefits of both Medicaid and the EITC are unusually large and consistent in their tendency to emphasize the favorable effects of these programs. The EITC and Medicaid are of particular note because they are large in scope,” Clemens mentioned in an e-mail.

Perhaps inspired by the work incentives provided in the EITC, the Clinton administration’s welfare reform legislation expanded the tax credit eligibility and also replaced what was previously Aid to Families with Dependent Children (AFDC) with Temporary Assistance for Needy Families (TANF). Make no mistake-there are a handful of other federal programs that we consider “social welfare” (like food stamps, disability insurance, unemployment), but TANF is what people are often referring to when they say that someone is on welfare. It provides states with federal funds to implement their own programs and while they have a lot of discretion in how to design them, it also ensures that their recipients only receive benefits for a fixed amount of time, a notable change from the AFDC. Thus, the term “welfare-to-work” became more commonplace. Under current federal regulation, states can provide benefits to families for up to 5 years, but exemptions can be made for child-only beneficiaries and up to 20% of states’ caseloads due to hardship. Although variations of “welfare-to-work” programs had already been in place in certain municipalities prior to 1996, they began to increase dramatically once the bill was signed into law.

Localities around the country have struggled to understand how to structure their programs. Do strict work mandates help or hurt recipients? Should they require classes, job training or both? A study conducted by the Department of Health & Human Services found that programs which focus on getting people into jobs as quickly as possible-rather than enrolling only in job training or supplemental education courses- was not only was best for government budgets, but participants earned more on average over the 5-year period. They also were employed a high number of quarters than the other groups.

As for work mandates, according to another study entitled “Do Mandates Matter?”, the answer was actually yes. The study noted that welfare use among recipients was mostly influenced by the strength of the work mandate and the ease in which one could get a job.

But while implementing a strict consequence for noncompliance is relatively straightforward, making it easy to secure jobs is much more complicated. A strong local labor market certainly helps, but there are other factors at play as well. Chrysalis, a Los-Angeles based nonprofit that helps people prepare for gainful employment, employs clientele that face barriers other than just a lack of work experience.

“65% of our clients have had some involvement in the criminal justice system, and the most common challenge our clients face is getting a job with a background,” according to Molly Moen, Vice President of Development and Communications at Chrysalis.

These inevitable burdens are what make job training and investment so imperative, as Chrysalis requires case managers who steer prospective employees through all of the hoops they may need to jump through.

“If we had the power to remove barriers, I would ensure that there were more employers who believed in fair chance hiring,” she says.

Despite the challenges, the organization still takes impact measures seriously. In fact, it was part of a 2015 study demonstrating the effectiveness of transitional jobs. After 1 year of clients working at a social enterprise, the study found that government support decreased by 47%, housing stability increased by 253% and monthly income from work increased by 91%.

Chrysalis is also a subgrantee of the Social Innovation Fund created by REDF, which is the San Francisco-based venture philanthropy that developed the Social Return on Investment (SROI) methodology back in 1996. The framework gave nonprofits and philanthropic ventures a starting point on how to gauge their impact. Since then, there have been several iterations of the model, and in 2008, a Bill & Melinda Gates Foundation-sponsored report evaluated the different cost-benefit analyses that have since become more commonplace in private sector philanthropy.

But holding similar public agencies accountable to performance measures isn’t always easy nor prioritized. Much of the burden falls on localities to develop welfare-to-work programs that are innovative and effective (which many have done), but understanding ROI on a state or national scale is difficult, largely because it is almost impossible to agree on how to accurately measure it. There are some metrics, such as a Work Participation Rate, that states must report to the federal government to secure adequate funding for certain programs, but they don’t necessarily document long-term progress.

The Government Performance & Results Act (GPRA) that went into effect in 1993-updated again in 2010- requires all federal agencies to set performance-based goals and report their findings each year. The Department of Health and Human Services FY 2019 Report (released in April 2018) lists one of their goals as encouraging “...self-sufficiency and personal responsibility, and eliminate barriers to economic opportunity”. One of the metrics used to gauge the goals’ progress is the percentage of adult TANF recipients and former recipients who become newly employed. The target goal for years 2012-2015 was between 30.6% and 32.5%. Unfortunately, while the goal exceeded the target in 2013, the goals were not met in 2012 nor in 2014, and we are still waiting on data to know whether or not goals were met from 2015 onward. In addition, starting in 2016, the target goal is now adjusted to be only 0.1% higher than the previous years’ result.

Although every positive outcome cannot always be measured nor monetized, ensuring that both public and private agencies adhere to some credible performance measures still requires more work. In addition, our own localities tend to have more agency over how tax dollars are spent when it comes to social services. You may be for or against increased government spending, but improving our social service sectors will require more collective effort than staring at the minus signs in our paychecks.

Sources (in order of appearance)

Tax Policy Center’s Briefing Book: Key Elements of the US Tax System. “What is the Earned Income Tax Credit?”

Clemens, Jeff. Associate Professor of Economics, University of California-San Diego.

“The Earned Income Tax Credit (EITC): An Economic Analysis”. Congressional Research Service. Margot L. Crandall-Hollick, Joseph S. Hughes. August 13, 2018.

“BRIA 14 3 Welfare to Work: The States Take Charge”. Constitutional Rights Foundation.

“Policy Basics: An Introduction to TANF”. Center on Budget & Policy Priorities. Updated August 15, 2018.

“Welfare to Work Program Benefits & Costs: A Synthesis of Research”. MDRC. Greenberg, David; Deitch, Victoria; Hamilton, Gayle. February 2009.

“National Evaluation of Welfare-to-Work Strategies How Effective Are Different Welfare-to-Work Approaches? Five-Year Adult and Child Impacts for Eleven Programs”. U.S. Department of Health and Human Services-Administration for Children and Families, Office of the Assistant Secretary for Planning and Evaluation and U.S. Department of Education-Office of the Deputy Secretary, Planning and Evaluation Service, Office of Vocational and Adult Education. December 2001.

“Do Mandates Matter? The Effects of a Mandate to Enter a Welfare-to-Work Program”. MDRC. Tansey, Jean Knab; Bos, Johannes M.; Friedlander, Daniel; Weissman, Joanna W. December 2000.

Investing in the Disadvantaged: Assessing the Benefits & Costs of Social Policies. Weimer, David L. Weimer; Vining, Aidan R. 2009, Georgetown University Press.

Moen, Molly. Vice President of Development & Communications, Chrysalis.

"Economic self-sufficiency and life stability one year after starting a social enterprise job”. Mathematica Policy Research. Rotz, Dana Nan; Rotz, Maxwell; Dunn, Adam. January 13, 2015.

"Measuring and/or Estimating Social Value Creation: Insights Into Eight Integrated Cost Approaches”. Melinda T. Tuan (prepared for Bill & Melinda Gates Foundation). December 15, 2008.

“Work Participation Rate: Temporary Assistance for Needy Families”. CLASP. Updated January 2018.

“FY 2019 Annual Performance Plan and Report- Goal 3 Objective 1”. Released April 2018.

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