October 2001

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Measuring Provincial & State Welfare Reductions Post-1996 Reform

by Jason Clemens, Joel Emes, & Chris Schafer

1996, the federal governments of both Canada and the United States began reforming welfare by returning the power for this portfolio to the provincial and state governments. The intervening five years have seen greater experimentation and innovation at the sub-national level than was possible at the national level. It is instructive to evaluate what has and hasn’t worked as each jurisdiction uses its increased flexibility to experiment with welfare reform.

Success at the national level

Both nations have experienced declines in the number of welfare cases, both in absolute terms and as a percentage of the population. As figure 1 shows, the United States has experienced a decline in the number of welfare recipients from a high of 14.2 million in 1994 (5.5 percent of the population) to 5.8 million in June 2000 (2.1 percent of the population). Canada has similarly experienced declines in the number and percentage of welfare recipients. The number of welfare beneficiaries in Canada has declined from a high of 3.1 million in 1994 (an astonishing 10.7 percent of the population) to 2.1 million in 2000 (6.8 percent of the population).

Although the number of welfare beneficiaries in Canada has declined since the peak during the mid-1990s, the number is still above that at the beginning of the decade. There were 155,000 more welfare beneficiaries at the end of the 1990s than there were at the beginning of the decade, and the percentage of Canadians receiving welfare benefits is still above the US’s 5.5 percent peak.

Of equal interest is the differing performance of Canadian provinces and US states in reducing their welfare caseloads over the last 5 years. Much of the performance difference is explainable by the types of reforms implemented, the extent of the reforms, and the commitment to making the reforms work. Table 1 contains 2000 data on the percentage of each jurisdictions’ population receiving welfare as well as the percentage change since 1996 (the year of federal reform). Several jurisdictions, such as Wisconsin, began reforming welfare well before 1996. Table 1, therefore, underestimates the performance of those provinces and states that began their reforms early.

The success of Idaho, Wyoming, Oklahoma, Wisconsin, and Florida is striking. Each of these states has reduced the percentage of their populations receiving welfare by over 75 percent in just 5 years, and each currently has less than 1 percent of its population table.

Equally as noticeable is the performance gap between the Canadian provinces and US states in reducing their welfare caseloads. The states dominate the top rankings in table 1. Idaho, Wyoming, Oklahoma, and Wisconsin dominate both rankings, placing first through fourth, respectively.

Alberta is the top performing Canadian province, but still ranks a miserable thirty-eighth in terms of the percentage of citizens receiving welfare, and a slightly worse thirty-ninth in the percentage change in the population receiving welfare benefits since 1996. More disturbingly, the remaining 9 provinces occupy 9 of the bottom 10 positions for all jurisdictions in terms of the percentage of the population receiving welfare benefits. The divide between the states and provinces is stark and distressing.

The Canadian provinces also generally fare quite poorly when the percentage reduction in recipients is examined. Again, the nine provinces (excluding Alberta) dominate the bottom of the ranking. What is clear is that the Canadian provinces have generally failed to reduce the percentage of their populations receiving welfare in any way that is comparable with the reductions in the United States.

Dispelling the myths of US welfare reform

Some people, including some welfare advocates, believe that the dramatic differences in the welfare caseload reductions between Canada and the US are due to differences in economic performance. However, the most detailed study to date that assesses the declines in US welfare rolls concludes that economic performance in the US accounts for only between 8 and 10 percent of the declines in welfare caseloads between 1996 and 1998. The study, completed by the president’s Council of Economic Advisors, specifically states that changes in welfare laws produced one-third of the declines between 1996 and 1998. Thus, the argument, "It’s the economy stupid," isn’t supported by up-to-date research.

Another myth about welfare reform is that the people removed from the welfare rolls simply become further impoverished. A series of studies has concluded that most former welfare recipients have either joined the labour force or are taking training and education programs. For instance, a recent study by the Center for Civic Innovation concluded that "the proportion of single mothers who work has increased dramatically since welfare reform, nearly matching the proportion leaving welfare" (O’Neill and Hill, 2001). In fact, the study notes that some of the strongest employment gains have been for groups thought to be the most disadvantaged: young mothers (aged 18 to 29), mothers with children under 7 years old, high school drop outs, and minority women.

Welfare reform in the US: innovation and experimentation

What is the secret to the success of US welfare reform? It lies in intelligent public policy, which, fortunately for Canada, is replicable in this country. A recent Fraser Institute study, Surveying US and Canadian Welfare Reform (available at http://www.fraserinstitute.ca/publications/critical_issues/2001/welfare) assesses the performance of the various Canadian provinces and US states in reforming welfare. The following is an overview from the study of the types of reforms successfully implemented in the US.

The types of reform that the various states have implemented cover three broad areas: 1) internal government reform, 2) privatization, and 3) use of faith-based organizations (FBOs).

Internal government reforms

These reforms focus on the nature and provision of welfare and related services. The most successful US states have implemented three types of internal reforms: ending the entitlement status of welfare, diversion, and immediate work requirements coupled with sanctions for non-compliance.

Ending entitlement

Wisconsin was the first state to impose time limits on the receipt of welfare benefits—namely, 24 months. Other states, including Wyoming and Idaho, also limited welfare eligibility. By introducing time limits, these states effectively ended people’s right to welfare benefits and, by doing so, changed the tone of welfare provision in their states.

Diversion

Diversion programs, most notably in Wisconsin and Florida, attempt to prevent individuals and families from joining the welfare rolls by exploring alternative assistance options, such as support from relatives, charitable organizations, and lump-sum emergency payments to potential welfare recipients in lieu of future benefits.

Work requirements and non-compliance sanctions

One of the more fundamental US reforms was a requirement for immediate work combined with strong sanctions for failure to participate. Wisconsin, again a national leader on this issue, requires recipients to work in exchange for benefits within 30 days, except in unusual circumstances.

Privatization

Privatization reforms include contracting out to both for-profit and non-profit organizations a number of the administrative and delivery functions of welfare programs. For instance, Wisconsin contracts with for-profit companies to complete eligibility screening, manage cases, and deliver welfare benefits and related services. The privatization efforts in Wisconsin have yielded increased efficiency and quality in the delivery of services with savings over two years of $10.25 million.

Perhaps one of the most innovative experiments with privatization was undertaken by New York City, which has entered into a contract with America Works, a for-profit company, to place long-term unemployed New York City welfare recipients in jobs. The goal of America Works is to help hard-to-employ individuals make the transition out of welfare dependency and into stable employment.

America Works receives no payment until the participant is placed in a job. At this point, it receives an initial pay-ment of 18 percent of the total value of the $5,490 received for a fully-assisted recipient. It receives a further 70 percent if the employer hires the recipient as a permanent employee after the four-month trial period, and receives the remaining 12 percent if the individual remains employed for the next three months. If the participant drops out at any point during the seven-month duration of the program, America Works refunds to the state the intermediate payment.

In 1998, 88 percent of those placed by America Works in the previous three years were still off the welfare rolls. Another study concluded that America Works is able to train workers for about $5,500 per recipient, substantially less than the estimated $24,000 price tag for a comparable program run by New York City.

Faith-based organizations

Texas’ Pathfinders Program, introduced by then-Governor Bush, was modeled on the Mississippi program. Pathfinders brings together a diverse group of com-munity volunteers, including business people, civic activists, and religious ministers, to “adopt” welfare families. Like the Mississippi program, the num-ber and make-up of services provided to the families varies depending on the needs of the specific family. Services such as child care, housing assistance, on-the-job training, counselling, trans-portation, and life-skills training, as well as constant encouragement, are pro-vided by the Pathfinder teams. In June of 1999, Pathfinders reported that 75.7 percent of the families involved in the program were off welfare assistance, and 54.4 percent were gainfully employed.

Other states including Michigan, Ohio, California, and Maryland have also con-tracted with faith-based organizations and other non-profit agencies to deliver specific services.

Conclusion

Canadian provincial welfare rates remain stubbornly high because the needed fundamental reforms have not yet taken place. Canadians should take a serious look at the examples set by successful US states that have found ways to fundamentally reform welfare so that services are improved, workable solutions are implemented, and scarce gov-ernment resources saved. The welfare reforms described briefly in this article and more expansively in the recent study Surveying US and Canadian Wel-fare Reform have been highly successful on numerous fronts. The United States appears to be successfully transforming its welfare system into a work-focused and temporary assistance program. Since 1994, the American welfare case-load has declined over 50 percent, more people are working, child poverty is decreasing, and the number of out-of-wedlock births has stabilized. Canadian provinces must follow suit. They can begin by asking fundamental questions about their welfare programs, and continue the process by implementing real changes to them.

References

Cost-Shared Programs Division, Human Resources Investment Branch, Human Resources Development Canada (2000). Social Security Statistics Canada and Provinces 1972-73 to 1996-97. Digital document: www.hrdc-drhc.gc.ca/stratpol/socpol/statistics/72-73/tabfig/tab361e.html(July 2000).

Council of Economic Advisors (1998). Good News for Low Income Families: Expansions in the Earned Income Tax Credit and the Minimum Wage. Washington, DC: Coun-cil of Economic Advisors.

Danziger, S., et al. (1999). W-2: Converting to Wisconsin Works: Where Did Families Go when AFDC Ended in Milwaukee? Indianapolis, IN: Hudson Institute and Mathematica Policy Research.

Dodenhoff, David (1998). Privatizing Welfare in Wisconsin: Ending Administrative Entitlements—W-2s Untold Story. Thiensville, WI: Wisconsin Policy Research Institute, Inc.

Harding, Lesley (May 1998). Case Studies: America Works, USA. Digital document: www.sustainability.org.uk/info/casestudies/america.htm (June 2000).

Isaacs, Julia B., and Matthew R Lyon (2000). A Cross-State Examination of Families Leaving Welfare: Findings from the ASPE-Funded Leavers Studies. U.S. Department of Health and Human Services, Division of Data and Technical Analysis, Office of the Assistant Secretary for Planning and Evaluation.

Loprest, Pamela (1999). Families Who Left Welfare: Who Are They and How Are They Doing? Washington, DC: The Urban Institute.

O’Neill, J.E., and M.A. Hill (2001). Gaining Ground? Measuring the Impact of Welfare Reform on Welfare and Work. Center for Civic Innovation. Civic Report No. 17. New York: Manhattan Institute. Available on the Internet at www.manhattan-institute.org.

Oliphant, Lisa E. (2000). Four Years of Welfare Reform: A Progress Report. Policy Analysis no. 378. Washington, DC: The Cato Institute.

Rector, Robert (1997). Wisconsin’s Welfare Miracle. Digital document: www.policyreview.com/mar97/rector.html (July 2000).

Rector, Robert and S. Youssef (1999). The Determinants of Welfare Caseload Decline. Washington, DC: The Heritage Foundation.

Schafer, Chris, Joel Emes, and Jason Clem-ens (2001). Surveying US and Canadian Welfare Reform. Critical Issues Bulletin. Vancouver, BC: The Fraser Institute.

United States General Accounting Office (1998). Welfare Reform: Early Fiscal Effects of the TANF Block Grant. Washington, DC: United States General Accounting Office.

United States General Accounting Office (1999). Welfare Reform: Information on Former Recipients’ Status. Washington, DC: United States General Accounting Office.

United States General Accounting Office (2000). Welfare Reform: State Sanction Policies and Number of Families Affected. Washington, DC: United States General Accounting Office.

Jason Clemens (jasonc@fraserinstitute.ca) is the Director of Fiscal Studies at The Fraser Institute.

Joel Emes (joele@fraserinstitute.ca) is Senior Research Economist at The Fraser Institute.   Chris Schafer was an intern in 2000 and 2001 in the Fiscal Studies department at The Fraser Institute.

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