OREGON STATE UNIVERSITY

New study: welfare caseload drop due to economy, not reform

11/19/1997

CORVALLIS - A new study by four Oregon economists has found that the dramatic drop in the number of welfare cases - both in the state and nationally - is more a function of the booming economy than of local or federal welfare reform.

On a national level, the economists say, nearly 80 percent of the reduction in welfare cases can be attributed to the growing economy. Six percent of the reductions were caused by welfare reform and the remaining 14 percent from other causes.

The economists - two from Oregon State University and two from the University of Oregon - used statistical analysis to isolate the cause of the drop in welfare cases. While their study focuses on the impact of economic growth and welfare reform, it directly controls for other factors affecting welfare statistics, such as demographics, states' minimum wage levels and other local and federal aid programs.

Oregon's welfare reform efforts appear to be among the most successful in reducing the number of cases, according to Laura S. Connolly, an assistant professor in the Department of Economics at OSU and one of the authors of the study. Connolly said 55 percent of the welfare caseload reduction in the state is a function of the economy; 33 percent, a result of welfare reform.

"Our overwhelming conclusion is that the economy should get a lion's share of the credit for helping to reduce the number of families receiving welfare in the country," Connolly said. "Welfare reform on a national level just hasn't had time to kick in yet and show much of an impact. On a state-by-state basis, reform can play a role, but it varies greatly.

"Oregon may have benefitted because it implemented its reforms earlier than most other states," she added, "and used reforms that seem more effective."

Other researchers participating in the study were Elizabeth E. Davis, of OSU's Department of Agricultural and Resource Economics; and James P. Ziliak and David N. Figlio, both of the Department of Economics at the University of Oregon.

A booming economy affects welfare in a number of ways, the economists point out. First, of course, it creates more jobs - which can have a direct impact on the number of welfare recipients. There also is an indirect effect, Connolly said. Fewer people exhaust their unemployment benefits, which have a time limit, and turn as a last resort to welfare.

The economists say the downside to their conclusion is that the trend toward fewer welfare cases may be reversed if the economy goes into a tailspin. "When the economy turns around - and some day, it will - we're likely to see an increase in caseloads again," Connolly said.

If that happens, she said, the states that have done the best job in implementing welfare reforms might be hurt less.

In their study, the economists found that programs requiring people to work are the most effective in reducing the caseload. The problem, however, is that no one is quite sure what becomes of former welfare cases who no longer collect benefits. "Many, no doubt, are working," Connolly said. "It also is possible that they have turned down jobs, for whatever reason, and no longer qualify for benefits. Or they may be getting some other form of aid besides welfare."

Those who work may not make enough to completely get off welfare, the economists say, but Oregon may have an edge because of its high minimum wage, which may be enough to push borderline cases off welfare. Connolly, who specializes in the economics of poverty, has conducted studies which show that raising the minimum wage boosts the income of people who are poor despite working, though it can eliminate jobs.

The economists also found that state which limit the number of months that families can collect benefits, including Oregon, have had somewhat larger decreases in the number of families on welfare. In most states, these limits haven't been in place long enough for families to be dropped from welfare rolls, Connolly said, but the threat of losing benefits may have prompted some people to get off welfare early.

Some states, including Oregon, have tried "work-pay" reform that allows welfare recipients to maintain benefits such as child care and medical insurance as they return to work. The idea is to increase incentives for people to seek employment. The end result, however, is that it actually leads to an increase in the number of people on welfare, Connolly said, though the amount they receive may be less.

Top ten states in welfare caseload reduction, 1993-96

State (percent change in caseload, 1993-96; percent explained by welfare reform; percent explained by the economy)

Wisconsin (-48; 11; 53)
Oregon (-43; 33; 55)
Wyoming (-43; 0; 55)
Indiana (-36; 1; 71)
Oklahoma (-36; 12; 61)
North Dakota (-35; 4; 77)
Utah (-35; -3; 70)
Louisiana (-33; 2; 67)
Michigan (-32; -1; 72)
Massachusetts (-32; -1; 72)