MDRC How-To Guide: Making Work Pay

In the 1990s, welfare reform rose to the top of the policy agenda. The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 created a federal block grant to fund state welfare programs, established stricter work requirements, and placed a 60-month lifetime limit on the use of federal funds for cash benefits to welfare recipients. Although welfare rolls nationwide decreased sharply after 1996, many families who moved from welfare to work left for low wage jobs and remained in poverty. In other words, states succeeded at increasing employment among welfare recipients, but not at reducing their poverty.

The past does not have to be prologue. Financial supports for work can change the equation by literally making work pay. They reinforce the welfare-to-work message while increasing family income, thereby achieving the dual goals described above. Perhaps most importantly, there is recent evidence that financial supports can have a range of positive effects on low-income families and their children. Work supports are not an entirely new approach to policy for low-income families. Food stamps and the Earned Income Tax Credit (EITC) are two important work supports that have been around for several decades, although both are underused. Since the passage of Temporary Aid for Needy Families (TANF), the new time-limited federal welfare program that replaced the open-ended entitlement of Aid to Families with Dependent Children (AFDC), most states have also experimented with work supports, complementing the "sticks" of work requirements and time limits with "carrots" that encourage welfare recipients to get jobs and support them when they do. These supports include both financial payments and non-cash benefits such as child care assistance and health insurance.