Welfare Reform in the United States: A Descriptive Policy Analysis
Department of Economics Research Memorandum 2009.03
36 Pages Posted: 18 Feb 2010
Date Written: 2009
Poverty alleviation is an important objective of European countries and of the United States. If these ‘rich’ states offer elaborate systems of income maintenance, why is there still a considerable amount of poverty? And why are anti-poverty outcomes so different in the United States compared to European countries?
This paper completes a trilogy of cross-country research papers on anti-poverty policy. Two former papers analyzed the effects of social transfers on both poverty levels and poverty alleviation through tax and social transfer systems. These papers marked the United States as an outlier: high poverty rates, low public social spending but high private social expenditures, a rather strong belief that people are poor because of laziness or lack of will, and remarkable differences across the Federal States caused by state discretion. Therefore, this paper analyzes U.S. welfare in more detail; we focus on part of the major welfare reform in 1996.
The 1996 welfare reform emphasizes an American preference for work. Indeed, the welfare reform increased work, although the earnings of most individuals who left welfare were still below the poverty line, even many years after their exit. A drawback of this work-first approach is the termination of cash assistance after 5 years, especially for vulnerable groups with low skills. Recent economic recession can cause severe troubles; one could - for example – argue that recipients who reach time limits without meeting work requirements should be offered a chance to work in community service jobs in return for cash assistance. We found huge variation of welfare eligibility rights across states, depending on ability to pay and preferences to meet a certain level of social standard and other (social) objectives such as child care, work support and employment programs.
Keywords: welfare reform, poverty
JEL Classification: H53, H55, I32
Suggested Citation: Suggested Citation