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WelfareReform(Chapter17) 1996PresidentClintonsignedPRWORA(PersonalResponsibilityandWorkOpportunityReconciliation Act)intolaw newwelfareprogramisnowknowasTANF(TemporaryAssistanceforNeedyFamilies) #1)cashwelfarewaschangedfromanentitlement,forwhichthefederalgovernmentpaidatleasthalfof astatesbenefitscosts,toablockgrant,wherethefederalgovernmentsimplysenteachstateacheck forafixedamounttofinancewelfareprograms #2)5yearlifetimetimelimitonbenefits(onlyusewelfarefor5yearscumulativelyoverlifetime) #3)2yearcontinuoususetimelimit(onlyusewelfarefor2yearsconsecutivelyandthenmustworkfor benefitsworkrequirement) statescanchooseshorterdeadlines(morethan12statesrequiresomeimmediateworkactivity) thedefinitionofworkissomewhatflexible,asupto30%ofrecipientscancounteducationorjobskills trainingaswork #4)statesgivenfreedomtoexpandearningsdisregardprograms(earndollar,benefitsreducedbutnot byfulldollar) #5)statespermittedtoexempt20%oftheirrecipientsfrom5yearlifetimelimitforhardshipreasons WorkRequirementBudgetConstraint supposeafter2yearsonwelfare,singlemothermustworkatleast30hoursaweektoreceivebenefits

Workrequirementwillinducesometoworkwhileonwelfare supposeafter2yearsonwelfare,singlemothermustworkatleast30hoursaweektoreceivebenefits

Workrequirementwillnotinduceallwhowereonwelfaretowork(thosewithsteepindifference
curves)

supposeafter2yearsonwelfare,singlemothermustworkatleast30hoursaweektoreceivebenefits

EarningsDisregardProgram allowswelfarerecipientstoretainsomeoftheirearningswhileonwelfare benefitreductionrate(brr)percentagebywhichfirstdollarinwelfarebenefitsisreducedwhenfirst dollarisearned (Ifthebrr=25%andasinglemotherearns$1,herwelfarebenefitswillfallby$0.25.) benefitreductionrate=implicittaxrate Example SupposeYN=$20,brr=25%,andw=$10.Maryisasinglemotheronwelfarewhoisnotworking. Whatistheimplicittaxrateshefacesifsheworksforonehour?

EarningsDisregardProgramBudgetConstraint supposeYN=$20,brr=25%,andw=$10 earn$10,benefitsreducedby(.25$10)=$2.50 newbenefits=$20$2.50=$17.50 newincome=earnings+benefits newincome=$10+$17.50=$27.50

Earningsdisregardprogramwillinducesometoworkwhileonwelfare

Earningsdisregardprogramwillnotinducesometoworkwhileonwelfare
(thosewithsteepindifferencecurves)

Earningsdisregardprograminitiallyworkingandnotonwelfare SupposethatinitiallyElainehasearnedincomeof$Xanddoesnotreceivewelfareundertheoldwelfare system.Now,supposethatthegovernmentimplementsanearningsdisregardprograminwhichan individualwhohasearnedincomeof$Xqualifiesforwelfarebenefits. Whathappenstothenetwage(wn)Elainefacesaftertheearningsdisregardprogramisimplemented? Supposew=$1,tax=0%,andbrr=25%. earn beforeEDprogram (notonwelfare) afterEDprogram (qualifyforwelfare) wn nowfaceanimplicittaxratethatwedidnotfacepreviously EDbudgetconstraintisflatter(smallerslopemeansfacelowernetwage) althoughwn,thereisanY thegovernmentgivesusmoneythatwedidntreceivepreviously(didntreceiveanywelfarebenefits before)wearemadeinfactricher wemovetoamoreoutwardbudgetconstraint welfarebenefit keep?

Compareimplementingearningsdisregardprogramwithsimpledecreaseinwage

Tradeoffsofearningsdisregardprogram willinducesomesinglemotherswhoareinitiallynotworkingtowork willgivesinglemotherswhowereworkingpreviously(notonwelfare)andwhobecomeeligiblefor benefitsaftertheimplementationofanEDprogramanunambiguousincentivetoworkless(buttheywill attainhigherutility)

BreakevenIncome incomethatseparatesthosewhoreceivebenefitsfromthosewhodont

breakevenincome=

(expressbrrasaproportion)

Example SupposeYN=$350andbrr=0.25.Whatisthebreakevenincome? breakevenincome= whenearn$1400benefitsreducedby$14000.25=$350 $350$350=$0(nolongerreceivebenefits)

Effectsofloweringthebenefitreductionrate(moregenerousearningsdisregardprogram) #1)initiallynotworking,brrislowered

#2)initiallyworkingwhileonwelfare,brrislowered

#3)initiallyworking(notonwelfare),nowqualifyforbenefitsafterbrrislowered

Effectsof1996WelfareReform Positiveeffectsofwelfarereform dramaticdeclineinwelfarecaseloads(morethan50%nationally)aboutonethirdofthedeclinecanbe attributedtoreform riseinsinglemotherlaborsupplypartlyduetoreform singlemothersasagrouphavenotseenadropintheirconsumptionorincomeasaresultofreform (increaseinlaborsupplyrisingearningsfullyoffsetfallingwelfarebenefits) nonoticeableeffectofreformonfertilityrates Fromtheevidencethusfarontheeffectsofwelfarereform,the1996reformshavemuchtorecommend them.Thesereforms,andstatereformsthatprecededthem,appeartohaveloweredwelfarerollswithout loweringtheincomesofsinglemothersintheUnitedStates.Gruber Concernsaboutwelfarereform whileincomesdidnotfallonaverage,theydidfallforsomewomen(wemightcareverymuchaboutthis group) incomesdidnotfallonaverage,buttheydidnotrisemuch,andleisureclearlydecreased(soinastandard utilitymaximizingframework,thesesinglemothersareworseoff) thewelfaresystemhasnotrespondedwelltothesteeprecessionofthelate2000s(enormousgrowth offoodstampprogram,butwelfarerollsdidnotincreasebymuch) longruneffectsofreformonchildreninwelfareeligiblefamilies?(notseemuchchangeinincome,but arenowincreasinglycaredforbyothersratherthantheirownmother) DeParleinterview WhyhastherebeenagreaterincreaseinthefoodstampsprogramthanTANFsincetheonsetofthe recession?

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WhatprogramshavestatesbeenusingtheirfederalblockgrantmoneyunderTANFtofundbesidescash welfare?

Inwhatsensehaswelfarereformbeenworkingandnotworking?