Unintended Consequences? Welfare Reform and the Working Poor

We have used a unique longitudinal database that incorporates information from diverse administrative and research sources to examine the impact of the early stages of welfare reform on poor working families who do not receive cash assistance. Our data are for 2791 working poor families from March 1996 through February 1997. Using a number of different estimation techniques, we find that the impact of the simultaneous October 1996 implementation of welfare reform and a federal minimum wage increase was to lower the earnings of the working poor families in our sample by approximately 6%. We find that increases in funding for Child Care Subsidies associated with welfare reform led to a significant increase in earnings. On net, the increase in Child Care Subsidies and the decrease in earnings because of the October 1996 changes approximately cancel out, with the representative family in our sample experiencing an estimated monthly earnings change of between -$18 and $68, with an earnings gain of $25 being most likely.