Economic Development

Beating Poverty With Cash Incentives

A new way to help the poor become self-sufficient raises hackles at both ends of the political spectrum -- and questions about effectiveness.
by | September 1, 2010
 

It gets no respect. The political right describes it as perverse and a potentially debilitating form of social bribery. The left views it as patronizing.

What is the subject of these snap ideological evaluations? Programs that pay the poor modest amounts of cash for socially responsible behavior, such as holding a steady job, getting regular medical checkups or studying hard to improve performance on educational achievement tests. The premise is that the reinforcement of such behavior will help lift a family out of poverty and into self-sufficiency.

Right now, New York City's ambitious new effort -- known formally as Opportunity NYC-Family Rewards -- is offering such cash benefits. Given that the Big Apple is a high-profile city, its program is not only in the eye of this ideological storm, but it also has become the U.S. proving ground for the fundamental question raised by the strategy: Do conditional cash transfer programs -- known in the business as CCTs -- help lift children and families out of poverty, and if so, are the effects long lasting?

New York City is not the first to enter the fray. Mexico launched its ambitious CCT program more than a decade ago. Its program, Oportunidades, pays families -- most of them in rural parts of the country -- modest amounts of money for pursuing healthy and responsible social habits. Put in place in 1997, it's that country's primary anti-poverty program.

In addition, a private nonprofit in Oakland, Calif., has been running a program, known as the Family Independence Initiative, that combines the use of CCTs with peer support networks. (See The Oakland Project.) So far, three other U.S. cities have been intrigued enough with the Oakland approach to pilot similar programs. Also, several U.S. school districts are paying school kids in poverty stricken neighborhoods for everything from reading books to staying in school.

Despite these expansions, the concept is clearly experimental and its consequences are far from understood, especially in developed countries where their track record is short. As Julie Boatright Wilson, who researches children and families issues at Harvard University, sees it, conditional cash transfer programs "are not the cure for all things for everyone." But, she adds, they are worth studying.

And they are being studied. A preliminary report on New York City's program has been issued by the Manpower Demonstration Research Corp. (MDRC), the well respected, anti-poverty think tank. And results of Mexico's CCT have been copiously documented, garnering the program worldwide attention. While the extent of the program's effectiveness in improving some important interim outcomes in Mexico is clear, "the big question," Wilson notes, "is whether the same strategies can be used to motivate folks in developed countries."

Initial Results from New York City’s Program

New York City's inner-city neighborhoods don't have much in common with rural Mexico -- except that there are too many families living in or near poverty, and that poverty is passed down from one generation to the next. In 2007, in an effort to break that cycle, New York City launched Family Rewards.

The program pays a cohort of low-income families in six of the city's highest-poverty communities cash for socially responsible behavior in three areas: education, health and employment. For example, an elementary school student could net $300 for passing an annual math proficiency test. Getting regular preventive dental care could earn a family $100 per year. A parent could make $150 per month for maintaining full-time employment. In all, there are 22 different behaviors for which a family could collect money.

The whole effort -- which includes a control group of comparable families not receiving rewards -- is being tracked by the MDRC. Under the plan, the MDRC has been following a cohort of families for three years, during which those families have been eligible to earn cash benefits. The MDRC now will follow those families for two more years to see if, absent monetary rewards, the families practice better behaviors and see their circumstances improve.

The way the program is crafted, the city's Center for Economic Opportunity oversees Family Rewards, but all the funding comes from private donations. At the same time, Seedco, a New York City-based nonprofit organization, runs program administration, which includes tracking family behaviors and handling cash payments. Seedco is also responsible for working with local neighborhood groups to find appropriate families willing to participate.

Finding families and giving them money to do socially responsible things proved to be the program's first hurdle. The families themselves were uneasy. "There was a fair amount of skepticism at first," says James Riccio, one of the lead Family Rewards researchers at the MDRC. "'What do you mean you'll offer me money to do these things?' That was part of the learning curve early on."

That problem, along with ironing out myriad administrative details, meant that it really took most of 2007 to get the program up and running. That being the case, Riccio considers the March 2010 MDRC report on results to be very preliminary. Nonetheless, the report indicates that there have been promising results in some areas and virtually no impacts in others. In addition, some of the specific rewards have proved to be too complicated to administer and so have been modified mid-program.

In all, 4,800 families and 11,000 children ultimately applied for Family Rewards. Half were chosen to get cash through a random lottery; the other half became the control group. After the first two years (and $14 million in payments, or an average of about $6,000 per family a year), the MDRC found that, on the positive side, the Family Rewards program "reduced current poverty and economic hardship, including reductions in difficulties securing enough food." It also eased some housing and health-care hardships. There was an increase in the likelihood that parents would have bank accounts and that they would boost their savings. The use of alternative banking institutions -- such as check cashers -- was reduced.

On the education front, there were no strong signs of an improvement in school outcomes for elementary or middle school students. However, the report found substantial improvement "in the educational achievement of high school students who were [already] better prepared for high school at the time they entered the program."

As to health behaviors, there was a modest increase in families' maintenance of health insurance coverage. That translated into reduced emergency room visits for routine care and an increase in the medical care families received. There was also a marked increase in the amount of dental care the families received.

In employment, the program seemed to increase the likelihood of full-time employment and average earnings in jobs, but not in jobs that are covered by the unemployment insurance system.

In dissecting the numbers (see the executive summary at http://www.mdrc.org/publications/549/execsum.pdf), it's clear that the program hasn't solved the problems of poverty. But it's also clear that it has hardly been a bust.

How Mexico’s Program Compares

Those looking for more data on the CCTs -- and a longer track record of their use -- can check in with Mexico's Oportunidades. That program has been so thoroughly studied for its power to impact poverty that the executive summary of the most current report on its impact is nearly 200 pages long.

Oportunidades focuses primarily on education and health, although studies of the program look at some economic well-being measures as part of their evaluations. Scores of analyses published internationally have documented the program's success in moving kids up in grade levels and improving nutrition. The latest highlights from the government website show widespread gains in educational mobility and health among participating children and families, along with such economic advances as the credit-worthiness of women (see Impressive Outcomes).

Because Family Rewards was inspired in large part by Oportunidades, some have questioned why Family Rewards hasn't seen the same large percentage gains in key categories of achievement as its Mexican cousin. According to those who've analyzed both programs, there are a few background points that explain some of the difference.

First, when Oportunidades started in 1997, categories of performance, such as school enrollment, were so abysmal in Mexico that there was nowhere to go but straight up -- which is the case every time the program moves into new territory. Moreover, under Family Rewards, city officials made the ambitious decision to measure actual improvements in educational achievement through test scores. Oportunidades simply looks at educational advancement through grades and also dropout rates.

In general, it's difficult to compare results since Family Rewards is only in its third year; Oportunidades is in its 13th. Also, Oportunidades is the primary cash assistance program for Mexico's poor, whereas Family Rewards is just one part of a mosaic of public welfare programs ranging from Medicaid to food stamps that are available to poor children and families in the U.S.

But there's another key consideration. As the MDRC report notes, "the urban poverty of New York City is vastly different from the largely rural poverty of Mexico." While Oportunidades is working its way into urban areas, it is still largely a program aimed at the rural poor.

Even if the interim results from Family Rewards aren't stunning, they are at least intriguing enough that they are garnering interest from other cities. Mayors from Memphis, Tenn., and Savannah and for instance, have expressed keen interest in kicking off similar programs and are actively looking into ways to fund them.

Can Cash Rewards Work in Other Cities?

Given New York City's struggles to get the program up and flying -- not to mention the significant amounts of cash involved to make it worthwhile -- the key question is whether the program can be scaled up in other cities. In Riccio's view, that can't happen unless the federal government decides to partner with cities, but there's a catch-22 involved in that proposition.

Securing federal support will take more than some semi-promising results in one city. It would probably require evidence from outside of New York. That's why Riccio says it's important to "learn from this initial demonstration, refine it, and then test it in other places."

Which is the current plan, says Veronica White, executive director of the NYC Center for Economic Opportunity. With the interest other cities are showing and with some from the U.S. Department of Health and Human Services, "we could," White says, "imagine a next-generation pilot with a combination of federal and private money." But whether or not that second-generation pilot takes off will clearly depend on the next set of MDRC numbers coming out of Family Rewards.

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