The Welfare Reforms of the 1990s and the Stratification of the Material Well-Being Among Low-Income Households with Children

Background and purpose: The welfare reforms of the 1990s made cash assistance more restrictive while increasing the returns of low-wage work through expansions of the Earned Income Tax Credit and other work supports. Following these changes, employment among single mothers in particular grew at an unprecedented rate, leveling off but remaining elevated in the 2000s. Among low-income families, though, wages and job quality remain low and poverty rates high, even among those who work (Loprest, 2001; Wu, Cancian, Meyer, 2008).

There is some evidence that the welfare reforms of the 1990s may have led to increased stratification of material well-being among low-income households with children, with deeply poor households doing worse and near poor households doing better. Ben-Shalom, Moffitt and Scholz (forthcoming) analyze data from the Survey of Income and Program Participation (SIPP) for the years 1984 and 2004, monetizing the value of all major means-tested and social insurance transfer programs. They report a sizeable decline in public transfers to deeply poor families (below 50% poverty), but increases in public transfers to poor families with higher incomes, post reform.

Scholars have increasingly analyzed measures of material hardship to assess the well-being of low-income families (USDHHS, 2004). To our knowledge, the current study is the first to use nationally representative survey data to compare the material hardship of deeply poor households with children to other low-income households with children, before and after the 1990s reforms. As a result of decreased public assistance among the deeply poor but increased public assistance among other poor groups, we hypothesize that the 1990s welfare reforms led to increased material hardship among the deeply poor, but reduced material hardship among other low-income groups.

Methods: We use the SIPP to examine three household material hardship measures that were collected in the years 1992, 1995, 1998, 2003 and 2005. We stratify our sample, differentiating between the 1) deeply poor (<50% poverty); 2) other poor households (50-99% poverty), and 3) the near poor (100-150% poverty). We report bivariate trends over the study period, as well as presenting multivariate difference-in-differences results that estimate the divergence in material hardship between these sub-groups.

Results: We find suggestive evidence that material hardship—in the form of difficulty meeting essential household expenses, and falling behind on utilities costs—has increased among the deeply poor but has remained roughly the same for the middle group (50-99% poverty), and decreased among the near poor. Multivariate difference-in-differences estimates further suggest increased stratification in the material well-being of the deeply poor versus near poor.

Conclusions and Implications: Our findings suggest that the population of low-income households with children is not a homogenous group and certain sub-groups have been differentially affected by the welfare reforms of the 1990s. In particular, the deeply poor have been left behind by welfare reforms of the 1990s, as they face substantial obstacles to economic success. In contrast, the conditions faced by the near poor may have been improved by the welfare reforms of the 1990s.