Welfare Reform: The case of lone parents Lessons from the U.S. Experience Gary Burtless Washington, DC USA 5 April 2 The U.S. situation Welfare reform in the US is aimed mainly at lone-parent families Never-married mothers are most important family type among poor families with children US relies more than most OECD countries on self-help and families own earnings to remove non-disabled parents & their children from poverty Transfers are too small to remove indigent parents from poverty Social assistance reform has increased reliance on selfhelp, but provided working families with additional earned income supplementation
The U.S. situation Self-help, even with earnings supplements is not enough U.S. child poverty rate remains high by OECD standards Reform Has Affected Employment: Job-holding rates among indigent lone parents rose dramatically after reform But poverty in lone-parent families -- although declining -- remains very high U.S. child poverty is high U.S.A. 22 U.K. Italy 19 Canada Australia 15 15 Germany 11 France 7 Sweden 3 5 15 25 Percent of children who are poor * Poverty threshold: 5% of country s median income. Source: Smeeding, Rainwater and Burtless (2)
Total and Child Poverty Rates in France, Australia, the U.K., and the U.S.A. (Mid 199s) Percent of 25 population with income below 5% of national median income 15 Total Children under age 18.1 14.2 15. 13.2 17.8 22.3 5 7.4 6.7 France (1994) Australia (1994) U.K. (1995) U.S.A. (1997) Source: Smeeding, Rainwater, and Burtless (2). Reasons for high child poverty Family composition Many US children are members of loneparent families Such families have few adult hours to divide between earning wages and child care Many lone parents have few skills & thus earn low wages Labor market Big wage disparities in job market Many young and single parents earn wages at bottom of scale Those wages are too low to support a family above poverty line
Share of all children in lone-parent families (199s) Sweden 21 UK USA 17 Australia 14 Canada 12 Germany France 8 Italy 3 5 15 25 Source: UNICEF (June ). Poverty is higher among lone-parent families in all industrial countries % of children who are poor 6 5 Lone parent Other family types 51 52 55 4 46 3 36 26 22 13 16 9 6 6 7 2 Sweden Italy France Australia UK Germany Canada USA Source: UNICEF ().
The most dependent U.S. children are in loneparent families with never-married parents Marital Status of Parents of AFDC (cash public assistance) Children, 1996* Widowed parent (2%) Married, living together (13%) Divorced or separated parent (25%) Never-married parent (6%) * Percent of all children receiving AFDC who live with parent. Source: Committee on Ways and Means, Green Book. Percent of U.S. children in lone-parent families has grown Percent of all children 9 8 7 6 88% Living Arrangements of U.S. Children, 196- Live with mother only Live with two parents Other Father only 5 196 1964 1968 1972 1976 198 1984 1988 1992 1996 69% Source: U.S. Census Bureau.
Poverty is more common when American parents are young * Official U.S. poverty rate. 6 Poverty Rate of Families with Children by Type of Family and Age of Family Head, Percent of families 5 4 3 16 54 7 38 27 5 4 6 18-24 25-34 35-44 45-54 All ages Age of family head 33 Married couple Single mother Source: U.S. Census Bureau. Lone parents have additional problems... They tend to have below-average education Qualify for few jobs Typically earn low hourly wages Intermittent unemployment Never-married mothers are also young Have few social supports Have accumulated little work experience Even when they find unskilled jobs, they are at bottom of wage ladder
Education and poverty Percent poor * Official U.S. poverty rate. 45 4 35 3 25 15 Poverty Rates Among U.S. Women, by Age and Educational Attainment, 5 39 27 18 Dropout High school Some college College Educational attainment 9 6 4 Ages 25-34 Ages 35-54 3 13 All 8 Source: U.S. Census Bureau. One advantage of lone parents in U.S.: High employment rates Among working-age adults, the employment rate is almost the highest in the OECD It is percentage points higher than lowemployment-rate countries in Europe BUT the employment rate of 25-54 year-olds Americans is not exceptional And many lone parents are younger than 25 years old & find it hard to work steadily
Percent of population 9 8 7 6 5 4 3 Employment-to-Population Ratio in France, Australia, and U.S.A., by Age Group () 23 6 6 Source: OECD Labour Force Statistics. 78 77 81 34 France Australia U.S.A. 47 15-24 25-54 55-64 Age group 58 6 Rate of Non-employment among Working-Age Families with Children, 1996 5 58 Percent of families 4 3 34 34 6 6 France Australia United States Single adults with children France Australia United States Two adults with children Source: OECD Social Indicators (1), p. 43.
Child-bearing among US women under 25 is common... Age-Specific Fertility Rates in France, Australia, and the United States, 1997-14 Live births per 1, women 1 8 6 4 France Australia United States 15-19 -24 25-29 3-34 35-39 4-44 Age group Source: U.S. Census Bureau, International Data Base. Transfers do little to remove US children from poverty Compared with other rich countries, the U.S. spends little on transfer programs aimed at the working-age population Only about one-half of poor children live in families that receive public assistance payments The maximum monthly benefit is well below the U.S. poverty threshold It is far below 5% of national median income (the usual international standard for poverty)
Table 6. Poverty Rates and Public Redistribution in Fifteen Industrialized Countries (199s) Percent Percent of GDP spent on: Poverty rate (% of population) Total Non-aged Country Year All persons Children Transfers /a/ Transfers /a/ Sweden 1995 6.5 2.6 22. 13.8 Norway 1995 6.9 3.9 15.9.1 Finland 1995 5. 4.1 23.3 15.3 Belgium 1992 5.5 4.4 19.3 12.1 Denmark 1992 7.1 4.8 18.9 12.4 Austria 1992 6.7 5.9 18.6 8.9 France 1994 7.4 6.7 21..7 Netherlands 1994 7.9 7.9 21. 14.1 Germany 1994 7.5.6 18.4 8.4 Spain 199.4 12.8 14.1 6.8 Australia 1994 6.7 15. 9.3 6.2 Canada 1994 11.4 15.3 12.5 8. Italy 1995 13.9 18.9 18. 7. U.K. 1995 13.2.1 16. 9.4 U.S.A. 1997 17.8 22.3 9.2 3.7 Relation Between Child Poverty Rate and Public Spending on Transfers to the Non-aged Population (199s) Percent of children who are poor 3 25 15 5 USA Australia Germany Poverty rate = 25.9-1.59 x Spending R-Squared =.62 UK Canada France Sweden 5 15 Spending on non-aged transfers as % of GDP
Child poverty rates before and after transfers in four countries (mid-199s) Percentage of children under age 18 in poverty 4 35 Before transfers After transfers 36 3 25 27 28 29 22 15 13 5 8 U.S.A. Australia France U.K. Source: UNICEF (June ), p. 15. Reform in the U.S. Lower cash assistance for lone-parents who do not work AFDC program eliminated TANF program established Cash aid can be limited to 5 years (or less at state option) Cash aid recipients must work or participate in work-preparation activities (job search, training) More generous benefits for single & married parents who do work, but earn low wages Earned income supplements through tax system (EITC) Eligibility for free public health insurance for lowincome children More generous child care subsidies
EITC -- Earnings supplements for low-wage parents Earned Income Credit Schedule in (Schedule for family containing at least two children) $5, Maximum credit = $3,888 Earned Income Credit $4, $3, $2, $1, Credit rate = 4% Phase-out rate = 21% $ $ $, $, $3, $4, Annual earnings amount EITC improvements have offset drop in value of U.S. minimum wage Real minimum wage in $ $8. $7. $6. $5. $4. Purchasing Power of U.S. Minimum Wage, Including Payroll Tax Withholdings and EITC 195-1 Mininum wage net of payroll taxes and EIC Minimum wage in constant $ $3. 197 1975 198 1985 199 1995 Note: Wage earner is assumed to have two child dependents. Source: Author's calculations.
Big increase in work incentives for lone parents Much tighter restrictions on cash aid for parents who do not work Supplements equal to 25% - 4% of wages for minimum-wage workers with child dependents Easier access to health insurance & subsidized child care for youngsters Declining minimum wage -- fell one-quarter in purchasing power, 1979-1 Cheaper for employers to hire a minimum-wage worker The net wage received by minimum wage worker is unchanged Cash social assistance payments have dropped 45% since 1994 ; EITC payments have jumped by a factor of four since 199 3 AFDC/TANF Benefit Payments and Refunded Portion of Earned Income Credit, 197-1999 3 25 25 Billions of 1999 $ 15 15 5 5 197 1972 1974 1976 1978 198 1982 1984 1986 1988 199 1992 1994 AFDC/TANF benefits 1996 1998 Refunded EIC Source: U.S. DHHS and Committee on Ways and Means, Green Book.
New incentives produced jump in single mothers employment rate, 1995-1 8 75 7 Employment / population ratio (%) Married, Spouse present 65 6 55 5 Divorced, Separated, and Never Married 45 4 1978 198 1982 1984 1986 1988 199 1992 1994 1996 1998 and an even more dramatic rise in nevermarried moms participation rate, 1995-1 8 75 Labor force participation rate (%) 7 65 Married, Spouse present 6 55 5 Never Married 45 4 1978 198 1982 1984 1986 1988 199 1992 1994 1996 1998
US child poverty rate has fallen but remains high. In lone-parent families, poverty rate dropped percentage points, 1995- % of children in poverty (official U.S. definition) 7 6 5 4 3 In lone-parent families All related children 196 197 198 199 Welfare reform (1996) Tough reforms coincided with strong job market U.S. unemployment rate (January) Percent of labor force 8 6 4 2 197 198 199 Welfare reform (1996) Unemployment rate fell to 3-year low in -1 Real wages for unskilled workers rose 5%-8% 1995-1 After-tax wages climbed even faster because of EITC A benign environment for harsh reforms
Summary USA has limited the duration of cash assistance to loneparent families Compelled lone parents into jobs (or more rarely, into training) as a condition for receiving assistance payments Offered new earnings supplements to low-wage workers Increased lone parents employment rate & net earnings BUT... the drop in lone parents poverty rate is due to stronger job market rather than reform The long-term impact of reform on child bearing & family formation is uncertain No social disaster, but worst off lone parents are worse off