Does it pay to move from welfare to work?

Abstract

The 1996 Personal Responsibility and Work Opportunity Reconciliation Act requires welfare recipients to look for work and has made it more difficult for nonworking recipients to remain on the welfare rolls. In addition, the economic boom of the 1990s and changes in federal and state policies have raised the net income gain associated with moving from welfare to work. This paper analyzes data from a panel survey of single mothers, all of whom received welfare in February 1997. In 1999, those who left welfare and were working had a higher household income and lower poverty rate, experienced a similar level of material hardship, engaged in fewer activities to make ends meet, and had lower expectations of experiencing hardship in the near future than did nonworking welfare recipients. Estimations of fixed‐effect regressions of income that control for both observable and unobservable time‐invariant characteristics show that monthly net income increases by $2.63 for every additional hour of work effort. About 60 percent of the observed monthly income difference between wage‐reliant and welfare‐reliant mothers can be attributed to differences in their work effort. Thus, after welfare reform, it does pay to move from welfare to work. © 2002 by the Association for Public Policy Analysis and Management.