The Flip Side of Welfare Reform

We've gotten people off the rolls. But we aren't paying most of them enough to live on.
by | March 2002

Things were looking up for Cynthia Deem in 1994. A divorced mother of four, she had finally worked her way from waitress to assistant manager at Bennett's Smokehouse, outside Hickory, North Carolina--"a good restaurant," says Deem, "not one of those fast-food places." She was making enough money to support herself and her kids and had a career path in front of her.

Then the bottom dropped out. Deem was in a bad car accident that severely damaged her hip. She underwent extensive physical therapy in an effort to get back to work, but the hip still hurt. "So after two years of torture and pain," says Deem, she gave it up. She returned to her hometown, Wallingford, Kentucky, and moved back in with her grandparents. Unable to find a job, she made what for her had been an unthinkable decision: She turned to the state for assistance. "I was very resistant to the idea at first," she says. "It was not a comfortable choice for me."

In some ways, though, Deem was lucky. At a time when most state governments seemed happy to have clients simply disappear from the rolls, Kentucky was using the newly passed Temporary Assistance to Needy Families, or TANF, as a way to focus on guiding families toward independence rather than merely cutting caseloads. Deem was embraced by the system. She was wrapped in a host of benefits and services, including food stamps, Medicaid, child care and college scholarship money.

Last May, Cynthia Deem graduated from Maysville Community College with an associate degree in business management. At age 38, and living on her own, she has been able to patch a life together, working here and there as a temp, making about $6.50 an hour, continuing to benefit from food stamps, Medicaid coverage and help from a local network of friends.

In the new world of welfare that dawned with passage of the reform law of 1996, Deem is considered a success. She is a study in how individual grit and determination can combine with government help in a way that paves a path toward independence. "The fact is, nobody's going to hand you anything in life," Deem says. "A lot of people need to learn that."

But Deem's tale is also a cautionary one. The money she is making is not an adequate family income. If it weren't for the food stamps and Medicaid, she wouldn't be able to hold things together. Meanwhile, she has exhausted all but one month of her welfare benefits--under the 1996 law, those benefits are capped at five years.

In other words, Deem has joined the ranks of the working poor. It is a large army of people. The average hourly wage of welfare recipients trying to escape from dependence on the dole hovers between $6.50 and $7.00 an hour. Cynthia Deem figures that for her and her children to live decently without public assistance, they would need about $26,000 a year, or about $12.50 an hour, twice what she's been earning in her typical temp job.

Just how much money adds up to a living wage obviously varies from region to region and family to family. But critics of the federal government's official poverty numbers argue that the formal "poverty line" is as much as 50 percent below what would really be required for a family to make it. The liberal-leaning Economic Policy Institute studied families with young children and concluded that one-third of those technically above the poverty level couldn't afford some basics, such as food, housing or health care, "even during a period of national prosperity."

Millions of words have been written over the past five years about falling caseloads and the dignity of work. Scant political attention has been paid to the reality of poverty- and near-poverty wages in what has become an increasingly harsh economic climate.

But it is a reality that is starting to get some attention. With many TANF recipients bumping up against time limits, and with congressional reauthorization of the entire welfare law looming in October, the states themselves are facing a harsh reality. Federal money for long- term recipients is running out at a time when Congress will likely try to scale back TANF grants because of large caseload reductions. And so states face the prospect of diminished federal aid just as they are stepping in as the general-assistance provider of last resort for a potentially huge cadre of cases. Those individuals who haven't successfully made the transition from welfare to some kind of work risk becoming wards of the state, and the state alone.

Given this situation, quite a few state and local governments are reevaluating what "success" under welfare reform actually means. "When people talk about caseload reduction, that's only half the equation," says Jennifer Noyes, who spent several years administering Wisconsin's welfare-to-work effort, and who is now a policy analyst with the Hudson Institute. The other half, says Noyes, involves the question of what becomes of those who leave TANF--are they able to find jobs paying enough so that they can actually become independent?

The Economic Policy Institute and other liberal advocacy groups have long argued that the federal minimum of $5.15 an hour is ridiculously low. Some states have adopted their own minimum wage standards above the federal rate. Alaska has set its wage at the federal level plus 50 cents. California's minimum wage is $6.75. Connecticut's jumped from $6.40 to $6.70 on January 1.

An increasing number of local governments have taken up "living wage" laws mandating a higher level of pay for any employer doing business with the city. Nationally, there are about 60 living wage ordinances, ranging from Milwaukee's $6.25 an hour to $12 an hour in Santa Cruz, California. Still, business opposition to this concept remains fierce, and when these proposals are voted on, more of them fail than succeed. A bill introduced in Congress two years ago, to require federal contractors to pay employees at least $8.20 an hour, has dropped off the radar screen.

The debate that surrounded enactment of the 1996 law involved a clash of two basic welfare-to-work ideologies. On one side were those who believed work experience--any kind of work experience--was the key to moving people off welfare, and that the primary job of the social service agency is to push clients into a job right away. On the other side were those who believed that education and training were critical to self-sufficiency, and that clients should be accorded ample opportunity to build skills and advance their education before being nudged into the workforce.

The work-first faction based its arguments on such experiments as the much-heralded GAIN program in Riverside County, California, which had recorded outstanding results by speeding welfare recipients into entry-level work and avoiding extended training courses. And this is the strategy that prevailed. The welfare reform law included strict work mandates and prodded state and local agencies to require work as a precondition of receiving aid. The law required states to place 25 percent of their TANF caseloads in work or work-equivalent activities for at least 20 hours a week by 1997; 50 percent had to be working at least 30 hours a week by 2002.

The approach seemed to pay off, as states went on a work-first frenzy. Banners and signs began showing up in welfare offices almost overnight: "You Have a Choice--Choose a Job--Work First," or "Time Is Running Out/Welcome Job Seekers, Your Independence Is Our Success."

Welfare cases evaporated overnight with the new requirements: Some states saw caseload reductions as high as 50 percent in just a couple of years. Governors across the country crowed about their success. But the reality is more complicated. The newly hired workers have graduated from "welfare as we know it," to use Bill Clinton's phrase. But like Cynthia Deem, they remain heavily reliant on other forms of public and private assistance.

In particular, they are yoked to the Earned Income Tax Credit. In a recent Brookings Institution book, "The New World of Welfare," Rebecca M. Blank and Lucie Schmidt describe the massive expansion of the EITC from "a relatively small program into a $30 billion program in 2000, larger than TANF, food stamps, or Supplemental Security Income." Any worker who makes less than $9,720 a year can add 40 percent to her income through EITC, often boosting herself above the official U.S. poverty line.

It is arguable that the evolution from the old welfare system to the more complex current world of benefits is a success story in itself. It has begun to break the cycle of long-term poverty and joblessness that plagued inner-city neighborhoods all over the country. And certainly TANF-inspired individual victories abound. But TANF has not put an end to dependence on federal aid. That remains as crucial to former recipients' lives as it ever was.

To those who criticized welfare reform when it first became law, stories like that of Cynthia Deem are prima facie evidence that the law itself was inadequate--that to break free of government subsidies and assistance, people ultimately need more than just a job, they need a career path and requisite education and training.

This is a tempting conclusion to reach. It's a truism that people with advanced training and degrees make more money than those without them. But the training-and-education argument may be obscuring a deeper and more troublesome reality: Even during the economically robust late 1990s, the U.S. economy simply was not generating enough high-wage jobs to allow anything like genuine independence for hundreds of thousands of welfare recipients, past and present, even if they could be motivated to pursue advanced training and education. Now, in the midst of a recession that has caused states and localities to lay off welfare caseworkers in large numbers, the chances of obtaining living-wage work for huge cohorts of welfare leavers seem still more tenuous. That is especially true because the job losses have hit hard in the service and retail sectors that were employing many TANF recipients.

It remains to be proved, in other words, that the nation can educate and train its way out of the welfare problem, even under the most favorable conditions. In the six years since TANF became law, a number of states have opted to make education and training a staple of their welfare-to-work programs. Washington State, for example, has emphasized the role of education since TANF's inception, with social service agencies and community colleges working in close alliance to prepare clients for life after welfare. Washington has worked hard not only to impart skills and knowledge but to link its training to the kinds of jobs available at a given time in the local and regional economy.

"We created a whole new series of short-term job training programs built in conjunction with local employers," says Ken Miller, Governor Gary Locke's adviser on welfare reform. "For example, instead of one- year vocational programs, we've created training as short term as six weeks or as long as nine months--very targeted to the needs of local employers so that people coming off welfare will have the skills that businesses actually need."

The result is that former welfare recipients in Washington do make more than the national average, but not by much. For the majority of them, $8.50 an hour is the best they can realistically aspire to.

The city of Portland, Oregon, is another whose welfare-to-work program has been cited frequently as one of the more innovative in the nation. Caseworkers don't subscribe to a rigid "any-job-at-all" philosophy when it comes to placing TANF recipients in work. They make an effort to match people upfront with jobs that pay better than the minimum wage. And the program encourages recipients to look to continued training and education as a way to boost skills and job prospects. There, too, however, the result has been that clients who graduated from welfare to work make between $8 and $9 an hour.

That sort of pay is "a long way from self-sufficiency," admits Nan Poppe, who is dean of adult and continuing education at Portland Community College and former head of the regional office that administers TANF for the state in Portland. "So for the last several years, we've been focusing on what happens after someone gets that $8- an-hour job." Poppe continues to believe that the solution is more education and training, but she concedes that for someone who is already working full time and trying to arrange child care and transportation, the value of training may be a moot point: The recipient is likely to be too busy and burdened with responsibilities to benefit from it. Still, she argues, "we're going to have to do that."

However discouraging the news might be, an increasing number of state and local governments are starting to examine the whole question of wages and earning potential after the client leaves the welfare rolls, and testing the proposition that training is the key to better compensation and eventual independence. New York State, with the second-largest population of welfare recipients in the country, is currently spending about $45 million on additional and targeted education and training for TANF recipients both through its community college system and other contract training. To date, the state has enrolled nearly 3,000 people in the program. Of those, 1,900 have completed training and 40 percent are working. A recent sample of 620 clients found that the average hourly wage for program graduates is about $8.70 an hour (working an average of 34 hours a week).

There are other ongoing experiments in boosting the earnings of former welfare recipients. The U.S. Chamber of Commerce, through its Center for Workforce Development, has been joining with local chambers of commerce in Durham, North Carolina; El Paso, Texas; and Holyoke, Massachusetts, to pull together local efforts to move low-wage workers into higher-wage jobs and career tracks. No formal evaluation has been done of the impact of any of the three experiments, but if the experience in Holyoke is typical, the program is an example of good intentions and mixed results, at best.

A once-thriving mill town in the Connecticut River Valley, Holyoke has changed from a white working-class community to one where the population is 40 percent Latino, and the employment is mostly in low- wage service jobs. The goal of the program, says Robin Kline, who heads up workforce development for the Holyoke Chamber of Commerce, "was to see how we could get low-income people to start developing career ladders," particularly in the health care industry and in what is left of the city's manufacturing sector.

One of the most active businesses in the career-ladder program is Loomis Communities, which operates three continuing care and retirement centers, and one low-income assisted living center. Loomis has focused on training for certified nursing assistants. The aim of the program is to boost the skill and pay of CNAs, who get an automatic raise of 30 cents an hour once they've completed their training, and who earn anywhere from $8.25 to $12.25 an hour. At the same time, the company is training supervisors to do a better job of coaching and mentoring CNAs. Recent legislation in Massachusetts provides matching grants for such training in the health care field.

"We haven't totally proved that it improves recruitment and retention," says Jackson. "Certainly it makes employees happier." It's even less clear that the program represents a solution to the wage problem. "Most nursing homes have predominantly Medicaid-funded residents," Jackson says, "and Medicaid doesn't reimburse them enough to pay for the care that we're required to provide. So we're behind the eight ball."

As Congress wrestles with the issue of how to rewrite and adjust the 1996 welfare law, the economics of the wage scale for American workers in general seems far from the center of the debate. Training advocates will push to make the new law more friendly to remedial and continuing education, and will cite wage levels to make their case, but they're unlikely to make much progress, predicts Gary Burtless, a Brookings Institution labor economist.

In 1996, Burtless says, the country made a sweeping political decision--consciously or not--to switch from a system that subsidizes families unconditionally to one that subsidizes them in work. The long-term result, he argues, will be a continuing mix of programs for those who have made it off welfare, but not exactly into self- sufficiency. Much of this assistance will be federal, centering on the Earned Income Tax Credit, but states will need to continue operating a host of assistance programs for those trying to break free of TANF, including health insurance, child care stipends, tax breaks and benefits, and in some cases cash assistance after clients hit the five-year federal limit.

Supporters of the TANF concept will make the important point that at least these recipients will be working and getting benefits, not staying home and getting them. This is one of the crucial changes that the reform was supposed to bring about in the first place. But any cries of "independence for all" under the new law will miss the point. The bottom line on TANF after six years is that it has traded a system that inspired generations of total dependence on government for one that requires partial dependence in the form of permanent, piecemeal assistance to a huge class of working poor.