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The Shocking Success of Welfare Reform

by Steven Hayward
Thursday, January 1, 1998

Near the end of Losing Ground, his seminal 1984 book on poverty and welfare policy, Charles Murray lamented that "the political system’s tolerance for [welfare] reform is extremely limited. . . . The number of ‘politically feasible’ changes that would make much difference is approximately zero."

What a difference a decade makes.

Nationwide the number of welfare cases has fallen by more than a quarter since the peak of March 1994, and over the last 18 months the fall in the caseload has accelerated to about 1 percent per month as more state welfare-reform plans take hold. It is important to keep in mind that welfare rolls swelled rapidly during the early 1990s, so many states are just now returning to the level before the caseload surged. But reductions in the early reform states such as Wisconsin, where the caseload has fallen by 55 percent since 1993, show that even further progress is possible. (See Robert Rector, "Wisconsin’s Welfare Miracle," Policy Review, March–April 1997.)

Over the past 18 months, several other states with large caseloads have begun to emerge as welfare-reform success stories, including Tennessee, Georgia, and Florida (see table). The magnitude and speed of the caseload reduction in these leading states has exceeded the expectations of even the most optimistic reformers.

Some skeptics suggest that the booming U.S. economy and low unemployment are responsible for the shrinking welfare caseload, but they forget that the economic boom of the 1980s barely dented the welfare rolls. Clearly something else is going on.

The Sine Qua Non

These impressive results are being achieved for one big reason and a lot of small ones. The big reason is that the presumption of welfare as an entitlement, with the implicit (and often explicit) disdain for the work ethic, has been reversed. Moreover, welfare reform is revitalizing faith-based and other private voluntary organizations whose role in fighting poverty had been eclipsed by the expansion of the welfare entitlement system in the 1960s.

The small reasons are the various individual features of the state reform plans themselves. Above all, the most successful state reform programs have two features in common: a serious commitment to immediate work or real job training, and a person in charge of the program with a serious commitment to transforming welfare. This leadership from the top has been crucial to every successful effort.

Wisconsin’s team effort began with Governor Tommy Thompson; other key members of this effort include Jason Turner and Jean Rogers (the former and current administrators of Wisconsin’s program, respectively). In Mississippi, it was Larry Temple, the director of the Human Services Department (now head of the welfare program in Texas); in Oregon, Adult and Family Services Director Sandra Hoback (with strong private sector help from the American Institute for Full Employment, based in Klamath Falls, Oregon); in Tennessee, it was Leonard Bradley, the policy adviser to Governor Don Sundquist who helped design Tennessee’s program, and Linda Rudolph, the commissioner of the Department of Human Services, which implemented the plan. And there are hundreds more unsung individuals at lower levels of the system who will emerge as heroes of welfare reform in the fullness of time.

The general political climate in the 1990s of "ending welfare as we know it" has prompted many able-bodied recipients to get off welfare rolls and onto payrolls since before welfare reform passed Congress last year. That may explain why some studies appear to find little overall statistical correlation between caseload reductions and particular features of state reform plans. Many states have probably reaped an easy windfall from the early reform efforts of trailblazers such as Wisconsin.

The changing nomenclature of the social-service industry reflects the emphasis on work and personal responsibility that has been central to the welfare-reform debate. Many states have emulated Wisconsin’s program title ("Wisconsin Works," or W-2) to emphasize "work," "employment," or sometimes "empowerment" in the titles of their new welfare programs. California’s is called  "CalWORKS" for "California Work Opportunity and Responsibility to Kids"; Oregon’s is called "Jobs Plus." Other states emphasize the primacy of family in their policies, such as Tennessee’s "Families First" program.

The job titles of welfare caseworkers are also changing. A welfare recipient is now likely to meet with an "employment counselor," a "work assessment specialist," or a "job placement officer." This plus a new emphasis on performance measures based on private-sector management is transforming the general culture of social services. "I’ve been with the Department of Human Services 29 years," one Tennessee caseworker recently told the Memphis Commercial Appeal, "and this is the biggest change I’ve ever seen." Dean Curtis, the president of Curtis & Associates, a welfare-to-work placement firm, says, "In our book, message and culture are 80 percent of the issue."

Many of these changes may be superficial, and the social-service culture that sees welfare recipients as victim–clients has deep roots. Connecticut governor John Rowland remarked recently that "the hardest part for us is not the welfare recipients themselves, it’s been the welfare workers . . . the small sector of people who just want to continue to give out checks and keep people dependent. They’re still there, deep in the bowels of the bureaucracy."

Three-Pronged Attack

States are attempting three strategies to overcome bureaucratic inertia: re-education, incentives, and contracting out. Wisconsin again led the way, employing all three strategies. First, Wisconsin changed the job descriptions of social-service caseworkers. Caseworkers there are now called "financial and employment planners," and their primary job description is to help people find alternatives to welfare. Second, Wisconsin established pay-for-performance incentives: Budgets for local social-service offices are tied to reducing caseloads. And third, Wisconsin has contracted with private for-profit and non-profit companies, including Goodwill Industries, to operate several of the state’s W-2 agencies.

This pattern is being repeated in many other states. Tennessee requires each welfare applicant to sign a "Personal Responsibility Plan." El Paso County, Colorado, renamed its welfare office the "Family Independence Center," and moved into the same building that houses Goodwill Industries. Like Tennessee, Colorado requires all applicants to complete an "Individual Responsibility Contract." Denver has sent caseworkers out for as much as three weeks’ retraining. "Some [caseworkers] have welcomed it," one official said, "because they have always wanted to be social workers rather than eligibility counselors." Colorado’s caseload has declined by nearly 20 percent over the past 18 months, more than half coming in just the last six months.

Perhaps the most dramatic means of attacking the old social-service culture can be found in Pensacola, Florida, where a citizen board has been set up to review applications for exemption from the work requirement. The citizen board, one observer noted, "is even tougher than those mean Republicans in Washington. They just don’t take any excuses." Other Florida counties, including Dade, the most populous in the state, have contracted out their welfare services. (Dade has hired Lockheed.) Florida’s caseload has fallen by 25 percent over the past 18 months.

Too Early for Rejoicing

Yet in the long run, merely changing the surface of the social-service culture will not be enough to keep shrinking the welfare rolls. Intensive, tough-minded policy is required. The contrast between Washington and Oregon reveals the impact of an intensive welfare-reform effort.

With similar demographics and booming economies, these Northwest states have starkly different records of reform. Oregon, an early starter in welfare reform, has reduced its caseload by 35 percent over the past 18 months, and by 46 percent since 1993, placing it in the top 10 states for caseload reduction. Washington’s caseload has declined only 9 percent since 1993, and most of that—8 percent—occurred in the past 18 months as welfare reform became a national theme. Washington ranks in the bottom 10 in caseload reduction, below the District of Columbia.

The most palpable difference between Oregon and Washington is the former’s more serious commitment to immediate work and a shorter time limit for cutting off recipients who haven’t found work. Oregon has succeeded, according to Sandra Hoback, the director of Adult and Family Services in Oregon, "in changing the culture of local social-service offices."

The Lessons So Far

Like Oregon, the states that have achieved the largest caseload reductions have several features in common:

Require jobs immediately. Most states are attempting to steer welfare applicants (and current recipients) immediately into jobs instead of onto the welfare rolls—a tactic known as "diversion." The best states have a conscious strategy of requiring real jobs immediately, not lightweight "training programs," counseling, or workshops. Eleven states assign work right away, including Wisconsin, California, Florida, Michigan, Oklahoma, Oregon, Tennessee, and Texas. But sanctions for recipients who refuse or shirk work often vary from county to county, and several states (especially California) are lenient with exemptions and impose only small reductions in welfare benefits for recipients who ignore work requirements.

Tennessee’s Families First requires either a job or a full 40 hours of job training a week. (When the program started, 5,800 recipients dropped off the roles immediately.) As a last resort, community-service jobs—genuine workfare—are being required in Wisconsin and a few other states.

Again, there is a wide variety of policies for those who fail to find private-sector jobs, along with allowances or "earned-income disregard," which in plain English means that recipients are allowed to keep some of their welfare benefits while they work. (The jury is still out on "income disregard" allowances and similar incentives. In the past, these supplements have been used merely to encourage recipients to find jobs. One recent study suggests that wage supplements may help recipients make the transition from welfare when they are actually required to find work.)

Mississippi followed Wisconsin’s lead in requiring that welfare recipients find work immediately to continue to receive benefits. Similar to Wisconsin’s experience, one-third never came back to the welfare office. Mississippi also followed Oregon in providing wage subsidies for employers to hire and train welfare recipients. Oregon and Mississippi emphasize job retention. Mississippi pays the wage subsidy to employers only after a welfare recipient has been on the job for six months. (Recipients also get to keep their benefits for the first six months of employment.) Mississippi’s caseload has fallen by 26 percent over the past 18 months, despite its high unemployment rate.

Impose "family caps." Twenty-one states impose family caps (that is, no increase in benefits for additional children), including Florida, Georgia, Mississippi, Tennessee, South Carolina, Virginia, and Wisconsin.

Shorten time limits. Twenty states have adopted time limits shorter than the five-year limit set in the federal welfare law, including Connecticut, Texas, Florida, Georgia, Indiana, Louisiana, Tennessee, and Virginia.

It is necessary to dig below the aggregate state figures to appreciate fully what is taking place. In a few instances, the results are staggering. Wyoming has reduced its two-parent caseload to zero. Tennessee has reduced its two-parent caseload by 77 percent. More than a third of Wisconsin counties have reduced their total caseload by more than 80 percent. And recently the Washington Post reported on Ottawa County, Michigan, where every able-bodied welfare recipient is working—the first county in America to achieve this goal.

Private-Sector Efforts

The Ottawa County story reveals two important factors that cannot be observed in a matrix of policy features. First, Ottawa County owes much of its success to the active involvement of churches, community groups, and neighbors. County caseworkers have paired welfare recipients with "mentors" from local churches; often several church members will become involved with each recipient. Churches have organized volunteers to provide child care and carpools for welfare recipients with new jobs. Churches have also raised money for a revolving loan fund to help welfare recipients purchase cars and other household goods.

For faith-based and other voluntary organizations, welfare reform is proving to be an invigorating opportunity. In some counties in Colorado, for example, the leading civic organization in welfare-reform efforts is the Chamber of Commerce. In other instances, new nonprofit organizations are being founded to help make welfare reform work. In Tennessee, the Institute for Responsible Fatherhood and Family Revitalization is working intensively with welfare fathers.

The second important change in Michigan’s Ottawa County is the enhanced role of the county’s 13 caseworkers. The caseworkers toil harder today than under the old system of handing out benefit checks. They are now required to visit families in their homes, helping to solve practical problems such as how to get to work. Caseworkers have also been able to devote more time to the tough, remaining cases. Last September, caseworkers held a special meeting with the last five families without jobs; all were working at new jobs within a week.

The Ottawa County experience suggests that as we change the work ethic among welfare recipients, we might also change the casework ethic within the social-service bureaucracy. Welfare caseworkers in many offices have long complained about being overworked. Because each caseworker may have hundreds of cases, many are literally too busy to answer the phone, let alone give careful attention to individuals. As more recipients move into the work force, caseworkers should be able to dedicate more time and attention to the tougher cases. Caseworkers in many areas are still overwhelmed, but the trend is encouraging.

Moreover, welfare reform has been a boon to many states’ budgets. Because the size of the federal block grant for welfare is based on caseload levels from a few years ago, those states with the biggest caseload reduction now enjoy additional funds to bolster their programs in various ways. Tennessee, for example, has actually increased welfare spending by 22 percent since 1994. Some states are putting the money into child care and transportation programs to ease welfare recipients’ transition from welfare to work. Most such efforts are done through private contracting. The additional flexibility and funding that welfare reform brings will be crucial in dealing with the extremely tough cases that will remain: people lacking job skills or hobbled by addictions who will require intensive efforts to get off the welfare rolls. In other words, we may be transforming the welfare system into a program that actually serves the needs of the welfare population. This flexibility and additional funding has led a few thoughtful liberals, such as Mickey Kaus, to speculate that the success of welfare reform might re-legitimize liberal social policy initiatives.

Equally important as what has happened is what has not happened. The "race to the bottom" predicted by welfare reform’s critics has not materialized. Nor has there been a massive increase in the number of homeless or destitute families, as was predicted, most notably, by the Urban Institute. It is to be expected that Senator Ted Kennedy would call welfare reform "legislative child abuse," but even the usually sensible Senator Daniel Patrick Moynihan said that welfare reform would result in "scenes of social trauma such as we have not seen since the cholera epidemics." Editorial opinion among the media was not far behind. (The New York Times called it "atrocious.")

But this parade of horrors never materialized; the lack of horror stories has been welfare reform’s "dog that did not bark." Even urban Milwaukee, which has experienced a decline of more than 30 percent in its welfare caseload over the past four years, has seen only a marginal increase in the number of people coming to homeless shelters. Ramon Wagner, the director of Community Advocates, a Milwaukee nonprofit group that works with low-income families, says, "We thought there’d be a more dramatic impact, that if a couple thousand families lost all their incomes, you’d really see the child welfare numbers shoot up. We haven’t seen that." To the contrary, child abuse and child poverty have actually declined. Milwaukee’s Democratic mayor John Norquist told the New York Times, "Most people have underestimated the abilities of welfare recipients to work and care for their families."

Potholes Ahead

There are a number of pitfalls and weaknesses that could still retard welfare reform. California adopted a fairly toothless work requirement that only reduces the cash grant by 25 percent for people who refuse to take jobs or enroll in job training. The federal law allows states to exempt 20 percent of their caseload from work requirements, and many states grant extensions to supposedly difficult cases. Those states with a weak commitment to reform may be tempted use up their exemptions too early on recipients who might otherwise be able to work.

An excellent example of both the promise and peril of welfare reform was on display last November, when Connecticut cut off benefits for 325 welfare recipients who had reached the state’s 21-month time limit. State officials there crowed that 274 of the 325 recipients leaving the welfare rolls have jobs that boost them above the poverty level. Yet 902 welfare recipients had actually reached the 21-month limit on November 1. Connecticut simply granted six-month extensions to 577; thus only slightly more than a third of those whose eligibility had run out were actually removed from the rolls. (Connecticut lags in caseload reduction.)

The biggest exemption category is mothers with very young children. Some states are offering increased child-care assistance and other help, but many will quickly reach their 20 percent limit and will be tempted to relax the time limits, even if it means providing welfare benefits with state funds. The long-term success of welfare reform depends upon reducing this large cohort of recipients, which in turn means reducing illegitimacy.

The federal welfare-reform bill aims at illegitimacy through carrot-and-stick provisions. The sticks include the aforementioned family caps and a general requirement that mothers name the fathers of their children to receive benefits. Enforcement of this provision has not yet started in earnest. States are also supposed to target deadbeat dads through an upgraded computerized system or risk losing federal funds. Several states, including California, have missed the initial deadline for launching their systems, but Congress and HHS seem likely to relent on cutting block-grant amounts. The carrots include bonus funds in the federal block grants to states with the greatest reduction in illegitimacy.

It is too soon to tell whether anti-illegitimacy efforts will work. Most states are targeting teenage pregnancy at the moment. Some local areas are having success with abstinence programs such as Best Friends, and teenage pregnancy rates have shown an encouraging decline in recent months. But teen pregnancy is only a small part of the overall problem; 70 percent of illegitimate births are to mothers 20 or older. While teen pregnancy rates dropped in every state last year, only 12 states cut their overall illegitimacy rate. Says Wisconsin’s Jason Turner, now of the Center for Self-Sufficiency in Milwaukee, "We might not experience a large decline in illegitimacy until we have a sustained national crusade similar to the anti-smoking campaign."

The other joker in the deck is the Clinton administration’s move to impose the conditions of the Fair Labor Standards Act (FLSA) on workfare programs. This greatly complicates state plans that have genuine work-only programs (that is, states that require community service work in exchange for benefits). FLSA requires that workfare jobs pay at least minimum wage (and in most cases even "prevailing wages"), and be subject to many other burdensome aspects of employment law.

There may be a loophole, however, if states design their workfare jobs as "training" programs. Several states (including Delaware, Colorado, Washington, and Missouri, which all have Democratic governors) plan to challenge the FLSA requirements in court, and some legal experts think the states have a good chance of winning.

President Clinton and the Congress would like to take multiple bows for the good news on welfare reform. Though the passage of the welfare-reform bill in August 1996 should not be slighted, it should be remembered that by the time of the bill’s passage, 43 states had received waivers for up to 10 years from the federal government to implement welfare-reform ideas that anticipated the terms of the federal bill, especially time limits and work requirements. (Thirty-one of these states have elected to continue with their waiver programs under the new law.) The welfare-reform bill was a clear case of the federal government following the states’ lead. To be sure, some states, most notably California and New York, which have the largest welfare caseloads, are stumbling out of the starting gate with weak reform plans and lagging results. Even so, welfare reform is shaping up as the most dramatic and revolutionary policy change of the 1990s, and the most extensive experiment in federalism in the 20th century.

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