Average Incomes of Very Poor Families Fell
During Early Years of Welfare Reform, Study Finds

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A new study finds the income of some of the nation's poorest children and families declined in recent years despite strong growth in the economy, raising questions about the effects of welfare reform.

The study, conducted by the Center on Budget and Policy Priorities and based on Census data, shows the average earnings and overall incomes of low-income female-headed families with children rose substantially between 1993 and 1995 as the economy expanded. But the average incomes of the poorest 20 percent of female-headed families with children fell from 1995 to 1997 despite continued economic growth, as welfare system changes took effect on a large scale due to state reforms and enactment of the 1996 federal welfare law.

"It is disturbing that substantial numbers of children and families are sinking more deeply into poverty when we have the strongest economy in decades and when substantial amounts of funds provided to states to assist these families are going unused," Wendell Primus, the study's lead author, stated. The study, "The Initial Impacts of Welfare Reform on the Economic Well-Being of Single Mother Families," asks why continued robust economic growth has not improved the conditions of these low-income families.

Income Growth Stopped After 1995

Between 1995 and 1997, the study reports, the income of the poorest 20 percent of female-headed families with children, a group that includes two million families and six million people, fell an average of $580 per family. The study counts food stamps, housing subsidies, the Earned Income Tax Credit and other such benefits as income, a practice most researchers favor. Even when these benefits are included, these families have incomes below three-quarters of the poverty line.

Among the poorest 10 percent of female-headed families with children, income fell an average of $810 between 1995 and 1997, an average loss of one-seventh of these families' incomes. The average income of these extremely poor families slipped from 35 percent of the poverty line in 1995 to 30 percent in 1997, the study said. The income decline these families experienced wiped out all of the income gains they secured between 1993 and 1995 and returned average income for this group to the levels of 1993 when unemployment was high.

The study finds these income declines had a significant effect on children. The number of poor children fell by 2.4 million between 1993 and 1995, but by only 360,000 between 1995 and 1997, or one sixth as much. In addition, those children who remained poor became poorer on average. The study finds the net effect was a lack of any progress in easing the overall severity of child poverty.

Erosion of Safety Net Programs Caused Most of the Income Losses

The study finds these disturbing developments were caused largely by sharp reductions in the government cash and food assistance support these poor families received. More than three-quarters of the income loss among both the poorest tenth and the poorest fifth of female-headed families with children resulted from declines in assistance provided through means-tested programs, primarily cash and food stamp aid. The steep declines in the numbers of children and families these programs aided substantially exceeded what would normally occur as a result of the improving economy, the study said.

• Between 1995 and 1997, the number of people living in poverty fell three percent while the number receiving food stamps dropped 17 percent, five times as much. A similar pattern marked the cash assistance programs for poor families with children.

• In 1995, some 88 percent of poor children received food stamp assistance. In 1998, an estimated 70 percent did. Similarly, the percentage of poor children receiving cash assistance fell from 57 percent in 1995 to about 40 percent in 1998.

Large numbers of working poor families that qualify for food stamps — and also for health insurance through Medicaid — appear not to be receiving these supports, the study said. Had the safety net programs been as effective in removing children from poverty in 1997 as they were in 1995, some 700,000 fewer children would have been poor in 1997, the study concluded.

The study finds that reductions in benefits received from these programs exceeded increases in family earnings, causing very poor female-headed families with children to lose ground. The study also noted that among the next-to-the-poorest 20 percent of female-headed families with children — those with incomes modestly below or just slightly above the poverty line — average earnings increased substantially between 1995 and 1997 but losses of cash, food, and other benefits canceled out all of the earnings gains, leaving the families' incomes just as low as before.

Is Welfare Reform a "Success?"

The report cautioned against "pronouncing welfare reform an unqualified success." It concluded "too much emphasis has been placed on caseload reduction and insufficient attention paid to income and poverty outcomes." In a strong economy with the lowest unemployment rate in decades and the proportion of never-married mothers who are working at an all-time high, the report said, poor single-mother families should not be losing ground or failing to make economic progress.

The report added that the ultimate test of welfare reform should include whether the well-being of poor children and families has improved, not simply how much caseloads fall.

The nation needs to ask a fundamental question, Primus observed. "Why did economic gains among poor female-headed families with children occur between 1993 and 1995 but then cease? Why was the nation not able to achieve employment gains among single-mother families after 1995 without net income losses? Welfare reform should not be pronounced a success until the outcome among these poor families with children is one of consistent income gains rather than of income stagnation or losses."

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The Center on Budget and Policy Priorities is a nonpartisan research organization and policy institute that conducts research and analysis on a range of government policies and programs. It is supported primarily by foundation grants.