The Impact of Welfare Reform

The unusual changes in poverty during 2001 can be traced back to the mid-1990s. In the early 1990s, states began to experiment with welfare reform. In 1996, Congress enacted national welfare reform, replacing the traditional Aid to Families with Dependent Children (AFDC) program with a new program called Temporary Assistance to Needy Families (TANF). Welfare reform, for the first time, required many welfare recipients either to obtain jobs or to prepare for work.

After welfare reform, child poverty began to drop at an unprecedented rate precisely among those groups most tightly linked to the welfare system: children in single-mother families, black children, and Hispanic children.[4] Between 1995 (the last year before enactment of national reform) and 2001, poverty in each of these three groups dropped by at least 11 percentage points.[5] For example, Hispanic child poverty fell by nearly one-third, from 40.0 percent in 1995 to 28 percent in 2001.

By contrast, poverty among groups unaffected by welfare reform declined only slightly. For example, poverty among the elderly dropped from 10.5 percent in 1995 to 10.1 percent in 2001. Poverty among non-elderly adults fell from 11.4 percent in 1995 to 10.1 percent in 2001.

Historically, non-Hispanic white children are far less likely to receive welfare than are Hispanic or black children. Consequently, these children were less affected by welfare reform. After reform, child poverty declined twice as rapidly among blacks and Hispanics as it did among non-Hispanic whites.

This pattern continued into the current recession. Groups less affected by welfare reform experienced increases in poverty, but among the groups most directly affected by reform, normal recession patterns were disrupted and poverty either remained constant or fell.

Welfare Reform and Black Child Poverty

The decline in poverty since welfare reform has been particularly dramatic among black children. As Chart 1 shows, for a quarter-century prior to welfare reform, there was little change in black child poverty. Black child poverty was actually higher in 1995 (41.5 percent) than in 1971 (40.4 percent).

With the enactment of welfare reform in 1996, black child poverty plummeted at an unprecedented rate, falling by more than a quarter to 30.2 percent in 2001. Over a six-year period after welfare reform, 1.2 million black children were lifted out of poverty. In 2001, despite the recession, the poverty rate for black children was at the lowest point in national history.

Poverty Among Children of
Single Mothers

Since the enactment of welfare reform, the drop in child poverty among children in single-mother families has been equally dramatic. For a quarter-century before welfare reform, there was little net decline in poverty in this group. Poverty was only slightly lower in 1995 (50.3 percent) than it had been in 1971 (53.1 percent). After the enactment of welfare reform, the poverty rate for children of single mothers fell at a dramatic rate, from 50.3 percent in 1995 to 39.3 percent in 2001. In 2001, despite the recession, the poverty rate for children in single-mother families was at the lowest point in U.S. history.

How Welfare Reform Reduced Child Poverty

The 1996 welfare reform dramatically changed the traditional welfare system. The reform required, for the first time, that welfare recipients take a job or prepare for work. As a result, the caseload in the Temporary Assistance to Needy Families program dropped by 50 percent. As welfare caseloads fell, employment of disadvantaged single mothers increased by 50 percent to 100 percent. As the employment of single mothers increased, the poverty rate in this group fell at an unprecedented rate.

Welfare reform has also kept poverty from rising in a recession. In prior recessions, single mothers have tended to leave the labor force and enroll in Aid to Families with Dependent Children. Families on welfare will, in nearly all cases, be poor. Thus, as AFDC caseloads rose, child poverty automatically increased as well.

Welfare reform created pressure for single mothers to remain in the labor force and not to enter the welfare rolls. Consequently, the increase in welfare caseloads during the current recession has been quite modest. The fact that few single mothers have left the labor force and enrolled in welfare is a significant factor in preventing the rise of child poverty during the current recession.

Welfare reform's emphasis on personal responsibility also affected family patterns. Prior to welfare reform, the out-of-wedlock birth rate increased at an alarming pace. In the mid-1960s, 7 percent of all American children were born outside marriage; by the mid-1990s, the number had risen to 32 percent. With the enactment of welfare reform, the growth of non-marital childbearing came to a near standstill. The percentage of black children living in married two-parent families also increased for the first time in a half-century. This increase in black married couples has contributed to the decline of black child poverty.

Opposition to Welfare Reform

The current good economic news about child poverty clashes strongly with the dire predictions made by opponents of welfare reform. When welfare reform was enacted in 1996, opponents predicted it would lead to dramatic increases in child poverty even in good economic times. The Children's Defense Fund claimed that welfare reform would cast millions of children into poverty and hunger. The Urban Institute predicted that the welfare law would cause the incomes of one out of 10 American families to fall and throw 1.1 million children into poverty.

Obviously, these predictions were inaccurate. The exact opposite occurred. In 1995, prior to reform, 14.7 million children lived in poverty; by 2001, the number of poor children had fallen to 11.7 million. Thus, in 2001, there were nearly 3 million fewer children in poverty than there had been before the reform. Similarly, the child poverty rate fell from a pre-reform level of 20.8 percent in 1995 to 16.3 percent in 2001.

Confronted with the obvious fact of rapidly declining child poverty in the late 1990s, opponents of welfare reform adopted a fallback position. They argued that reform had undermined the economic safety net. While reform might work well in good economic times, the weakened safety net would make the poor far more vulnerable to economic downturns. When a recession hit, children would be thrown into poverty in unusually large numbers.

Again, the exact opposite has occurred. Far from rising at above average rates, child poverty, for the first time, has remained flat during the recession.

Deep Child Poverty

Concern has been raised by some organizations concerning the so-called severity of child poverty.[6] One measure of this concept is the percentage of children living in deep poverty, defined as children who live in families with annual incomes less than half the official poverty thresholds.

In 2001, 5.1 million children, or 7.1 percent of all children, lived in deep poverty. In contrast to child poverty in general, deep child poverty does appear to have increased slightly during 2001. However, the rate of deep child poverty in 2001 was lower than in 1995 prior to the enactment of reform, when the rate was 8.5 percent. There were some 800,000 fewer children living in deep poverty in 2001 than in 1995. The present deep child poverty rate is also lower than the rate at the beginning of the last recession in 1990, when the rate was 8.8 percent.

Nonetheless, it is true that deep child poverty has declined less rapidly in the six years since welfare reform than has child poverty in single-mother families, or black and Hispanic child poverty, or child poverty in general. Welfare reform has clearly had less impact on this group than among the poor in general. Relatively few parents in these families are employed. The deep poverty group might best be viewed as the population that welfare reform has not yet reached.

The Continuing Recession

The recession that began in April 2001 has not ended. Unemployment increased in 2002. This means that when the poverty figures for 2002 are released, they may show that child poverty has risen.

Nonetheless, the poverty figures for 2001 strongly suggest that if child poverty does rise in 2002, the increase is likely to be modest. If the 2001 census figures are indicative of the rest of the current recession, they imply that any overall increase in child poverty is likely to be far lower than in previous economic downturns.

Conclusion

The record of welfare reform is striking. For a quarter-century prior to welfare reform, black child poverty and poverty among single mothers remained virtually frozen. After reform, poverty among both groups dropped rapidly, reaching the lowest levels in U.S. history. In all recessions since the beginning of the War on Poverty in the mid-1960s, child poverty has increased sharply; but in the recession of 2001, child poverty did not rise at all.

The track record of the past six years indicates that welfare reform should be strengthened and expanded. Regrettably, however, the numerous groups that adamantly opposed reform in 1996 have remained entrenched in their opposition. Despite occasional lip service to the contrary, these groups seek a de facto repeal of the current reform and enjoy strong support for their aims among liberals in the House and Senate.[7]

The evidence demonstrates that, with welfare reform, our nation has found for the first time a successful policy that can lead to substantial long-term reductions in child poverty. Current efforts to undermine reform, if enacted, will have serious negative effects on the future well-being of low-income Americans.

--Robert E. Rector is a Senior Research Fellow at The Heritage Foundation.