The Impact of Welfare Policy Shifts on Poverty and Work Rates

April 2018

Abstract:
The purpose of this analysis is to examine the impact of two aspects of the Temporary Assistance for Needy Families (TANF) policy: sanctions for noncompliance with work requirements, and the magnitude of the welfare benefit. The current debate questions whether welfare benefits reduce employment among their recipients, and whether strict work requirements for these programs are necessary. Over the last decade, several states made significant changes to their TANF rules. This study examines Colorado, which significantly increased its maximum benefits over the span of one year, as well as Kansas, which strengthened its work requirements and sanctions. Synthetic controls and difference-in-differences estimation take advantage of sudden policy changes in individual states, using them to create natural experiments. This analysis suggests that increasing welfare benefits reduces poverty but also reduces work participation, while increased sanctions appear to have no effect on poverty rates and an unclear effect on work participation.

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