The passage of the 1996 Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), which we label welfare reform, decisively “ended welfare as we knew it” by eliminating the federal entitlement to cash assistance that Aid to Families with Dependent Children (AFDC) had provided for 60 years. The new cash assistance program, Temporary Assistance for Needy Families (TANF), is a fixed federal block grant that allows states to spend federal and state funds flexibly on cash assistance or a range of other services provided to needy families with children. PRWORA requires only that states enforce participation in work or work-related activities and impose time limits on the receipt of cash assistance from federal funds.
Because it is not an entitlement program, TANF does not require states to provide benefits to all eligible families, nor does it require them to assume responsibility for guaranteeing unemployed recipients who reach their time limit a job if they cannot find one. As a result, the transition to the new “work-based safety net” remains incomplete: neither the federal government nor the states replaced the entitlement to cash assistance with an entitlement to participate in work or work-related activities.
TANF includes incentives that encourage states to minimize their cash assistance caseloads, even when recessions increase the number of eligible families. First, the amount of block grant funds has not changed since the program was enacted. A state's allocation is not responsive to population growth or increased economic hardship. Second, funds not used for cash assistance can be reallocated to other related purposes. Third, states can satisfy the work participation benchmarks either by getting more recipients into work-related activities or jobs (which can be expensive) or simply by keeping caseloads small.
In contrast to this reduction in public responsibility, TANF requires more responsibility from recipients. Indeed, it achieved its goal of eliminating long-term dependence on cash assistance. A recipient can no longer reject a job offer and continue to receive cash assistance. If she does not cooperate with the welfare agency, she can be sanctioned and her family can be removed from the welfare rolls. She can also be removed when she reaches her time limit, even if she is actively seeking work and willing to work for her cash assistance.
TANF's time limits and work requirements did contribute to the post-welfare reform increase in the labor supply of single mothers during the low unemployment years of the late 1990s, even though labor demand issues were not addressed. David Ellwood, whose Poor Support (1988) first set out the case for time limits on cash assistance, did address both labor supply and labor demand. Under his plan, cash assistance would end when recipients reached the time limit. However, if they were unable to find work, the welfare agency would not simply close the case as TANF requires, but would offer an opportunity to work in a public or subsidized job.
Because labor demand was so strong in the late 1990s, many analysts and politicians concluded that TANF's labor supply incentives on their own were sufficient to make welfare reform and the transition to a work-based safety net successful. In 2015, however, with two decades of TANF experience, and with the unemployment rate for high school graduates having peaked at 11 percent and remained above 7 percent from November 2008 through December 2013, it is clear that the neglect of the demand side of the labor market calls into question the initial optimistic evaluations of the 1996 reform.