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Proposals to help recipients of welfare benefits become self-sufficient through work-related activities have been the subject of considerable legislative interest in recent years. This paper, prepared by the Congressional Budget Office (CBO) at the request of the Senate Budget Committee, examines work-related programs for recipients of benefits from the Aid to Families with Dependent Children (AFDC) program, reviews the evidence regarding their effectiveness, and considers a range of legislative options. In accordance with CBO's mandate to provide objective and impartial analysis, this paper contains no recommendations.

Ralph E. Smith of CBO's Human Resources and Community Development Division wrote the report, under the direction of Nancy M. Gordon and Martin D. Levine. Janice Peskin of CBO's Budget Analysis Division made major contributions throughout the project. The cooperation of Judith Gueron and the staff of the Manpower Demonstration Research Corporation is especially appreciated. In addition, many people provided valuable comments on earlier drafts, including Gina Adams, Douglas Besharov, Vee Burke, Michael Carozza, Alan Cohen, Robert Greenstein, Leslie Lenkowsky, Maureen McLaughlin, Demetra Smith Nightingale, Kathryn Porter, Steven Sandell, Joel Slackman, and John Weicher. Sherry Snyder edited the manuscript. Norma A. Leake typed the several drafts and prepared the paper for publication.
 

Edward M. Gramlich
Acting Director
April 1987
 
 

SUMMARY

I - INTRODUCTION

• Background
• Goals of Work-Related Programs for Recipients
• Costs of Work-Related Programs

II - CURRENT WORK-RELATED PROGRAMS AND THEIR PREDECESSORS

• General Employment and Training Programs
• Work-Related Programs Specifically for Welfare Recipients

III - ASSESSING WORK-RELATED PROGRAMS

• Evaluation Methods
• Major Studies

IV - EFFECTIVENESS OF WORK-RELATED PROGRAMS

• Principal Findings
• Effects on Incomes
• Effects on Government Budgets
• Effects on Recipients' Contributions to Society
• Effects on Society as a Whole

V - ISSUES AND APPROACHES IN DESIGNING WORK-RELATED PROGRAMS FOR WELFARE RECIPIENTS

• Eligibility Criteria
• Targets for Required Participation
• Performance Standards
• Priorities Among Recipients
• Priorities Among Activities
• Federal Funding

Each month, about 3.7 million families receive benefits through the Aid to Families with Dependent Children (AFDC) program, the major source of government cash assistance to low-income children and their families. Nine out of ten recipient families are headed by women. When the program was created in 1935, one of the purposes of providing assistance to fatherless families was to enable the mothers to devote full time to rearing their children, rather than working outside the home. More recently, however, increasing attention has focused on how to help mothers receiving AFDC become self-sufficient through paid employment.

Work-related programs for AFDC recipients--including job search assistance, training and education, and unpaid work experience (known as workfare)--have been a subject of particular interest in recent years. The sometimes overlapping objectives of such efforts include:

• Raising the living standards of recipients and their families;
  
  
• Reducing welfare costs; and
  
  
• Requiring recipients to contribute to society in whatever ways they can.

Several proposals to promote these goals are being considered by the 100th Congress.
 

CURRENT WORK-RELATED PROGRAMS FOR WELFARE RECIPIENTS

Legislation involving work-related programs for welfare recipients has developed along two tracks. Since the early 1960s, the Congress has enacted a series of employment and training programs for low-income people, many of whom are also beneficiaries of income transfer programs. Participation in these employment and training programs is voluntary. The Job Training Partnership Act of 1982 (JTPA) is the most recent such effort. State and local governments are largely responsible for operating JTPA programs, but are not required to provide any funding of their own.

The other set of programs has been explicitly designed for recipients of income transfer programs. The Work Incentive Program (WIN), enacted as part of the Social Security Amendments of 1967, provides AFDC recipients with activities intended to help them become self-sufficient. Unless exempt, recipients must register for work and training as a condition of eligibility. The most common reason for adults being exempted is that they are caring for dependent children under six years of age. The federal government provides 90 percent of the funds for WIN, and states pay the remaining 10 percent.

Legislation enacted in 1981 and 1982 authorized states to establish alternatives to WIN and to require, at each state's option, that certain registrants participate in job search assistance, workfare, or other activities. As with other AFDC administrative costs, the federal government reimburses states for half of the costs of these activities. In response to this legislation, many states have experimented with new ways of providing work-related activities to AFDC recipients. Half of the states reorganized their WIN programs, and many established new programs to provide job search assistance, training, and work experience, partly funded by federal AFDC matching grants.
 

EVIDENCE REGARDING THE EFFECTIVENESS OF WORK-RELATED PROGRAMS

Much is being learned from the recent state initiatives that could be useful in formulating future federal policy on work and welfare. Evaluations by the Manpower Demonstration Research Corporation (MDRC) of experiments in Arkansas, California, Maryland, Virginia, and West Virginia, together with studies of earlier programs, indicate that carefully designed work-related programs for AFDC recipients can be moderately successful in achieving many of the goals sought by their proponents. Desired outcomes are not always realized, however, and the best available information is not always good enough to predict the circumstances under which they will occur.

Effects on Participants' Incomes

Work-related programs, such as job search assistance and training, usually increase the average earnings of economically disadvantaged female participants. Gains in earnings are typically larger for participants who have no recent work experience than for those who do. Most evaluations of previous training programs, WIN, and the recent demonstration projects reached these conclusions. For example, a program in San Diego, California, involving job search assistance and short-term workfare, was estimated to increase participants' average quarterly earnings by about $140 during the period for which data were available; among those who had not worked during the year before entering the program, the average quarterly gain was $210, compared with $70 for participants who had worked during that year.

A participant whose earnings increase does not necessarily attain a higher standard of living, at least in the short run, because transfer payments and other benefits such as Medicaid could fall and child care costs and other work-related expenses could rise. For example, the average gain in earnings of the participants in the San Diego demonstration cited above was more than double the average reduction in AFDC benefits; in a demonstration in Arkansas, however, the estimated gains in earnings were similar to the reduction in participants' AFDC receipts. Many of the individuals who stopped receiving AFDC benefits would probably also lose their eligibility for Medicaid some months later.

Effects on Government Costs

The costs to governments of operating work-related programs for welfare recipients are offset to some extent by savings generated from reduced outlays for AFDC, Medicaid, and other transfer programs for the participants. The federal government receives the majority of the savings, because it finances the majority of the benefits. Whether the net result is to save taxpayers money in the long run is uncertain. The answer depends, in part, on the effects of the work-related programs beyond the short post-participation period for which data are generally available, and on the extent to which the jobs obtained by program participants would have been held by other individuals who then become eligible for AFDC or other benefits.

Effects on Recipients' Contributions to Society

Recent experience in several locations suggests that it is feasible to engage a larger share of AFDC recipients in work-related activities. Most states, however, have not given this goal a high priority. Participation in job search assistance programs usually is the most that has been required. Requiring greater participation in work-related programs could help assure that recipients contribute to society. It might also discourage individuals from becoming dependent on public assistance, although whether it does so is not known.

Workfare programs appear to have been carried out in ways that are generally considered equitable by participants and productive by their employers. Surveys of workfare participants suggest that the majority of them accepted participation in the program as a reasonable requirement in return for their benefits. In West Virginia, program planners promoted workfare partly as a way of providing worthwhile public services that the state government could not otherwise afford. Surveys of worksite supervisors there and elsewhere indicate that the workfare participants were, on average, about as productive as regular employees.
 

ISSUES AND APPROACHES

If the Congress decided to change the current work-related programs for AFDC recipients or to develop new ones, several issues would need to be resolved, including whom to serve, what activities to provide, and how to pay for them. The Congress would also need to determine how prescriptive the federal government should be in designing the programs, and how much flexibility should be given to states.

Whatever specific choices might be made, an important lesson from studies of earlier efforts is the need to be moderate in one's expectations about what the programs are likely to accomplish. For example, the estimated gains in earnings of the participants in several of the recent demonstrations were significant, but generally did not bring their earnings up to very high levels.

Eligibility Criteria

One issue in the design of work-related programs is eligibility. Under current law, only about one-third of women receiving AFDC are required to participate in WIN or other work-related activities. Because the most common basis for exempting adult recipients is that they are caring for children under age six, whether to change this rule is an especially important matter.

Requiring recipients with pre-school-age children to work or to participate in programs that would prepare them for paid employment, at least on a part-time basis, might be considered more reasonable today than would have been the case even two decades ago, when staying home with young children was the norm. Moreover, women who begin receiving AFDC when their youngest child is under age six stay on welfare for more years, on average, than do other women. Participating in work-related programs might help them find jobs and lessen their reliance on public assistance sooner. On the other hand, child care costs would probably be higher for this group.

Minimum Participation Rates and Performance Standards

Another important issue is whether the federal government should enact incentives or requirements for states to enroll specific percentages of their nonexempt AFDC recipients in work-related activities or to achieve specific outcomes.

Setting targets for participation rates and specifying performance standards would provide a means of holding states accountable for meeting national objectives. A recent survey of state programs by the General Accounting Office indicates that, under current rules, most states are not opting to engage large percentages of eligible AFDC recipients in activities other than registration and job search assistance. Proponents of giving work-related requirements a higher priority argue that targets for participation rates are needed. Similarly, those who want to emphasize raising recipients' incomes or cutting welfare costs contend that specifying standards, such as minimum employment rates following participation in the program or a certain degree of reduced dependence on AFDC, is a necessary step.

Opponents of minimum participation rates argue that the various goals of work-related programs are, to some extent, in conflict and that targets would deny states the flexibility to give priority to the other objectives. They are also concerned that states might be penalized unfairly because, as indicated by the recent demonstration programs, achieving high rates of participation can be difficult. In West Virginia's workfare program, for example, the average monthly participation rate for eligible mothers was only about 20 percent. Achieving greater participation would require more rigorous enforcement than states have generally chosen to undertake, as well as higher operating costs.

Some people argue that the technical difficulties in specifying performance standards are so serious that such standards could be counterproductive. For example, the findings presented in this report indicate that standards would need to take into account the normal movement of many AFDC recipients off welfare and into jobs even when they do not participate in special programs. Otherwise, specified standards could inadvertently give states an incentive to enroll the recipients who were most likely to find jobs on their own, thus minimizing the actual gains from the program.

Priorities Among Recipients and Activities

Work-related programs could be designed so as to encourage states to serve individuals with specific characteristics or to provide particular types of activities. Which approaches should be taken depends, in part, on the primary objective of work-related programs. If it is to increase participants' earnings, the evidence on effectiveness strongly supports giving priority for job search assistance and training to women with little or no recent work experience, although this approach would exclude some people who would also gain from the program. If the goal is to assure that recipients contribute to society, then workfare--either alone or in combination with other work-related programs--might be used, even if participation did not increase recipients' earnings or reduce welfare costs.

Whether priorities should be specified, in the legislation also depends on the extent to which the federal government should tell states what to do. An advantage of having the federal government specify which groups and which activities should be given priority is that doing so would help to assure that the federal funds would be used to achieve the program's intended goals. A disadvantage is that states might be in a better position to determine what would work best for whom within their own environments.

Funding Arrangements

Another issue is whether to change the share of work-related program costs paid by the federal government. Proponents of increased federal funding for work-related programs point out that, because it pays for a large share of the costs of AFDC and other transfer payments, the federal government receives the majority of the budgetary savings attributed to these programs. They argue that it would be appropriate for the federal government to pay a larger share of the costs as well. Such an arrangement would give states a greater incentive to operate programs, especially relatively intensive ones.

On the other hand, the evaluation studies show that work-related programs achieve other goals as well, including ones for which the federal interest might not be as strong--having workfare participants perform services for state and local governments, for example. Moreover, substantially increasing the rate at which the federal government matches state outlays could increase expenditures by unknown amounts, a particular concern during a period of high federal budgetary deficits.

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