Declining Caseloads: What Do the Dynamics of Welfare Participation Reveal?

Abstract

Recent research has attempted to explain the sharp decline in welfare caseloads that began in the mid‐1990s, well before the implementation of the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), by focusing on patterns in aggregate caseloads at the state level. Although this approach has aided our understanding of caseload trends, several important issues remain unresolved. In this article I assess these patterns from a different perspective and, instead, examine the flows into and out of welfare that underlie the net changes in the caseloads. I find that a decline in the rate of initial entry into welfare, a shortening of the length of welfare spells, and a reduction in the likelihood of welfare recidivism all contributed to the marked decline in aggregate caseloads observed before PRWORA’s enactment. I do not find evidence providing firm support for the view that welfare‐reform waivers played an important role in the shifts observed for the three transition rates that determine movements in welfare caseloads. While the presence of such waivers is found to be associated with a shortening of welfare spells in the 1990s, further examination raises doubts about a causal interpretation of this finding.