This was the current assessment of federal welfare reform rendered by Rebecca Blank in a talk delivered to IPR students and faculty February 22. Blank, currently serving on the Council of Economic Advisers, was among those skeptical of the Personal Responsibility and Work Opportunity Reconciliation Act passed by Congress in 1996 that abolished AFDC and established TANF block grants for states.
Like many others, Blank has been surprised by the "amazing economy" the United States continues to enjoy. "This is the best economic environment we could possibly have had in which to implement this welfare reform bill," she said. She cited the 4.3% unemployment rate‹at its low-est level since 1967‹and low inflation, averaging 2.2% in 1997 and dropping even lower in 1998. Another encouraging sign is that wages for low-skilled workers, which fell steadily from the late 1970s through the mid-1990s, have turned up sharply in the past two to three years. Young black men's wages rose 7% in real terms in 1998 alone.
State Innovation. States have been surprisingly speedy and innovative in the welfare-to-work programs they have designed, Blank said. And because of the strong economy, they have been able to focus on implementation and management issues rather than economic concerns. This is not just true of reform leaders like New York and Wisconsin, but of states like Arizona and Tennessee as well, she said.
"States are awash in TANF money." The decline in caseloads by over 4-million since 1994‹the largest drop in history‹has produced a windfall for states, who have much more welfare money than they know what to do with, Blank pointed out. Part of the reason is that states are getting block grants predicated on their funding levels of the mid-1990s, when caseloads were considerably higher.
Only about a fifth of the drop in caseloads can be explained by the economy, however. Blank also credited shifts in states' sanctioning policies and case management, behavioral changes among eligible populations who are no longer seeking welfare, the Earned Income Tax Credit (EITC), and a rise in the minimum wage.
"The EITC is the largest income support program for low-income families that the country operates these days," Blank said. (Unlike traditional welfare, it is only available to workers.) She pointed out that for a single mother with one child, the maximum subsidy has gone up by 87% in the last ten years; with two children, the rise is a whopping 210%. "This has had an enormous effect in terms of making work pay, and accounts for huge increases in labor market participation," she said.
These results have produced an abundance of unanswered questions that Blank urged researchers to study:
What will happen to today's new workers over time, or when the next economic downturn comes? Blank thinks the slowdown in the world economy has been very good for the U.S. economy: it has kept inflation low, cooled down an economy that was beginning to overheat, provided a reason for the Fed to ease up on interest rates, and almost surely extended the expansion. There is no question that a downtown would start turning around some of these numbers, she said.
If so, how can we guard against the worse cases of another recession? Blanks thinks attention should be paid to reforming the unemployment insurance system so more of the ex-AFDC participants who get jobs and then lose them have some sort of short-term support.
What is happening to wages at the bottom of the labor market? Are recent increases a sign that wage inequality is lessening, or is this purely a cyclical phenomenon? If the latter, these trends could be reversed.
How will the changes in rules affect welfare recipients? Are the shifts in behavior permanent? What is causing them, and what would cause them to turn around? What will be the effects of time limits and sanctions?
How do you help fathers? "This is a hot topic right now," said Blank, who suggests that one route may be through new forms of rehabilitation in prison.
"We need to do a lot more state-specific work than we did in the past," she advised. "Researchers must find ways to effectively describe these state programs quantitatively to measure relative success."