Stanford News

2/18/97

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Not just the underclass on welfare, California study shows

About a third of all California families ­ nearly 4.5 million ­ receive some form of public assistance, not counting the retired on Social Security, according to a new study by Stanford economists Thomas MaCurdy and Margaret O'Brien-Strain.

One quarter of the state's families participate in what are considered the country's major welfare programs ­ Aid to Families with Dependent Children, Food Stamps, Supplemental Security Income and Medi-Cal (known as Medicaid in federal jargon).

The study is unusual in that it focuses on families, rather than individuals, and on the proportion of family income that comes from the public coffers, an approach the researchers hope will help the legislature and governor in redesigning the state's welfare programs to comply with federal changes. Unless the Clinton administration proposes new federal regulations, the new federal law gives states considerable flexibility in redesigning their welfare programs.

"Using families as the reference unit maintains a consistent definition across welfare programs and, more important, considers the income, resources and work activities of all family members together. This approach, in our judgment, more truly reflects the living conditions of welfare participants," the authors wrote.

Funded by the San Francisco-based Public Policy Institute of California, the study was released Feb. 11 in Sacramento where MaCurdy and O'Brien-Strain answered questions from state legislators, their aides and welfare agency officials. MaCurdy is a Stanford professor of economics and a senior fellow at the Hoover Institution. O'Brien-Strain is a doctoral student in economics here and a researcher on the staff of the policy institute.

The study challenged some popular perceptions of welfare families. Most AFDC families do not include a woman who was ever a teenage mother. Nearly 60 percent of the heads of welfare families completed high school and many had some college education.

The welfare population is ethnically mixed with non-Hispanic whites comprising the largest group in all major programs except Food Stamps, where Hispanic families represent the largest share. Among recent immigrants, Asian families dominated in the SSI program.

The researchers were surprised by the number of families receiving aid, O'Brien-Strain said in an interview. "You can't just call welfare an underclass issue when you have one in four families on [a major] program." The reform passed in the last Congress did not reduce benefits for about a quarter of the families ­ those who received only Medicaid benefits ­ she said, "but that program is still being talked about in Congress, and Medicaid is a huge expense for the state."

She also noted that because the data was from 1993-94, a recession period, it might show somewhat heavier usage of public assistance than in 1997, when the state economy is improving.

Earned Income reports

O'Brien-Strain said she was also surprised by the amount of paid work by members of families on Aid to Families with Dependent Children. The families studied had at least one member working in 31 percent of the months they collected benefits. On average, they had less job experience, worked fewer hours and earned lower hourly wages than individuals in families below the poverty line but who are not on welfare. Among those who received 50 percent or more of their income from AFDC, the average wage earnings was just 7 percent of the family's income. About 17 percent of AFDC families were headed by an adult who had never worked.

Studies that use the AFDC program's administrative data have not found as much work in these families, which may be for several reasons, she said. Administrative data does not include income earned in months when families are off AFDC, people may be more likely to report all income sources to census pollsters who offer them confidentiality, and the survey may include family members in the household who are not included in AFDC data, she said.

The Stanford study was based on census data collected from surveys, at 4-month intervals, of 5,000 California households over a 21-month period in 1993 and 1994. By combining the overlapping timeframes from two separate national polling panels, O'Brien-Strain said, she and MaCurdy were able to get enough California family data for a statistically significant sample. Families in the census data included people who are related by birth or marriage so that elderly parents would be counted as part of the family if they lived in the same household, but not adult siblings of the family receiving aid.

Most past analyses of welfare have focused on how long recipients stay on a given program, which is part of the reason Congress decided to set time limits on assistance, but MaCurdy said "how long a family is on welfare is not nearly as important as how dependent they are on the system."

To measure that dependency, he and O'Brien-Strain looked at the proportion of family income coming from public assistance programs and found that approximately 45 percent of all families receiving AFDC ­ or 432,000 of nearly 1 million ­ received at least half of their annual income from public assistance. If you added those families that had been on AFDC for the entire two-year period, he said, "we are talking about 450,000 families who are highly affected by changes" in the program. Not nearly as many recipients of Food Stamps, SSI or Medi-Cal were as dependent on public aid, when dependency is measured as the portion of family income coming from aid.

The new federal legislation permits the state to exempt up to 20 percent of its AFDC caseload from the time limits imposed by the new federal block grant program that replaces AFDC, Temporary Assistance for Needy Families. But MaCurdy said the highly-dependent group is more than twice the size of this exemption. (The time limits include a five-year lifetime limit on welfare under TANF and a requirement to work at least 20 hours a week after two years of assistance.)

"The sheer size of this group ­ and the uncertainty about how they will respond to time limits ­ presents the most crucial challenge for policymakers in the effort to reform state programs," O'Brien-Strain said.

Immigrant families

Immigrant families also are a potentially large population affected by the reforms in California, where 38 percent of the nation's non-citizen residents live. The new law ended SSI and Food Stamp eligibility for non-citizens who have not worked at least 40 quarters in the United States. States have the option of deciding whether to make legal immigrants eligible for the new TANF and Medicaid programs. Recent immigrants are likely to be most affected because they have not been in the country long enough to meet the work requirement or to apply for citizenship.

The study found that of the half-million recent immigrant families who receive welfare benefits, 281,000 could be affected somewhat by the reforms, but 83 percent would lose less than 10 percent of their family income, MaCurdy said. About 20,000, however, are likely to suffer a 50 to 80 percent reduction in their total income, and could wind up on county general assistance programs unless the state makes them eligible for other benefits.

The worst-case scenario for immigrants, MaCurdy said, was "not nearly as big a problem as I imagined" because of other sources of family income and because families often have some citizen members who still qualify.

Recent immigrant families ­ defined as those with at least one family member who has arrived since 1985 ­ have welfare participation rates nearly twice that of citizen families, and the difference in one program, SSI, was especially significant. SSI is a cash welfare program intended to support low-income disabled or elderly individuals at rates higher than AFDC.

"The difference between immigrants and others is especially striking in SSI, where the median family income of recent immigrant recipients was over $40,000 and 25 percent had incomes over $64,000," the researchers wrote. "The results suggest that immigrant use of SSI and Food Stamps was an appropriate target for reform."

The SSI data show that "there are very few in that program who are below the poverty level, which is disturbing," O'Brien-Strain said. "There are some who are really dependent upon it, but the others are probably the elderly parents of engineers in Silicon Valley. The data cannot tell us exactly who they are, but they have high family incomes."

Those with low incomes, MaCurdy said, "are probably elderly couples who are no longer covered by their sponsors."

Overall, "welfare is not a way of life for most participating families," the researchers say in their written study summary. The typical recipient family receives only 6 percent of its annual income from welfare programs, including the nearly one fourth of participants who receive only Medi-Cal, which is not a cash benefit. Less than one third of all welfare families take part in AFDC and two-thirds of those have additional sources of income.

The 184-page study is available on the World Wide Web site of the policy institute at http://www.ppic.org/. The two-year-old institute was endowed by William Hewlett to support nonpartisan research on economic, social and political issues that affect California. Arjay Miller, dean emeritus of Stanford's Graduate School of Business, is the chairman of its board of directors.

By Kathleen O'Toole