Effects of Welfare Time Limits

Time limits account for about 12 percent of the oft-noted, dramatic decline in welfare use and about 7 percent of the rise in employment among single moms since 1993.

One of the most controversial welfare reform measures of the 1990s was the imposition of time limits on cash aid to welfare recipients. It may represent the single greatest break from past policy. The new rule means that families generally can receive federally-funded benefits for no more than 60 months during their lifetime. Indeed, many states have imposed even shorter time limits.

NBER Research Associate Jeffrey Grogger examines the impact of this change in The Effects of Time Limits and Other Policy Changes on Welfare Use, Work, and Income Among Female-Headed Families (NBER Working Paper No. 8153). He finds that time limits account for about 12 percent of the oft-noted, dramatic decline in welfare use and about 7 percent of the rise in employment among single moms since 1993. However, time limits have had no significant effect on the earnings or income of these former-welfare families, Grogger finds.

Other reforms also have had an important impact on the welfare use and employment of female-headed families. The recent boost in the Earned Income Tax Credit (EITC), which provides a wage subsidy to the lowest-income workers, has been particularly important to the recent decrease in welfare use and the recent increase in employment, labor supply, and earnings of welfare mothers. Grogger figures that "the EITC expansions have had substantial effects on almost all dimensions of behavior."

Prior to welfare reform, poor single-parent families with at least one child under age 18 were entitled to receive cash assistance under the Aid to Families with Dependent Children (AFDC) program. With passage by Congress in 1996 of the Personal Responsibility and Work Opportunity Restoration Act, AFDC was replaced by the Temporary Aid to Needy Families (TANF) program with its time limits on aid. The effect of time limits should vary according to the age of the youngest child in the family, because eligibility for aid under TANF, as under AFDC, ends when the youngest child turns 18. Families whose youngest children exceed a threshold age, which is 13 under the federal five-year time limit, are unaffected by the imposition of time limits. Those 13-year-olds or older children will turn 18 before the welfare eligibility of their families runs out.

But for families with younger children, the time limit is relevant. The mothers may want to leave welfare quickly in order to preserve their benefits for the future in case of they get laid off or if for some other reason they find themselves without work and needing income. Grogger's study, using data from the annual Current Population Survey by the Census Bureau, confirms this. He finds that the average family whose youngest child is three reduces its welfare use in response to time limits by 6.6 percent points and increases its employment by 3.4 percentage points. These are sizable effects. The effect on labor supply and earnings are smaller, though; perhaps if time limits hasten the search for a job by the mother, the result may be jobs that are both less long-lasting and less remunerative.

Grogger speculates that since time limits have substantial effects on welfare use but smaller effects on employment, they may be moving families who were previously combining work and welfare off the welfare rolls. The EITC, which curbed welfare use and boosted employment by similar amounts, may be moving non-working families into the work force.

-- David R. Francis