Does it pay to move from welfare to work?

Abstract

The 1996 Personal Responsibility and Work Opportunity Reconciliation Act requires welfare recipients to lookfor 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 gainassociated with moving from welfare to work. This paper analyzes data from a panel survey of single mothers, allof whom received welfare in February 1997. In 1999, those who left welfare and were working had a higherhousehold income and lower poverty rate, experienced a similar level of material hardship, engaged in feweractivities to make ends meet, and had lower expectations of experiencing hardship in the near future than didnonworking welfare recipients. Estimations of fixed-effect regressions of income that control for bothobservable 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 incomedifference between wage-reliant and welfare-reliant mothers can be attributed to differences intheir work effort. Thus, after welfare reform, it does pay to move from welfare to work. © 2002 by theAssociation for Public Policy Analysis and Management.