After Welfare Reform, the Poorest Families Had More Trouble Paying Bills

We have noted evidence of a disturbing trend:  growth in the number and percentage of Americans living on less than $2 a day — a type of extreme poverty that, until now, has been associated only with poor nations.

The University of Michigan’s Luke Shaefer, one of the authors of the study that broke the news, has more to report.  He and the University of Chicago’s Marci Ybarra, his co-author, find signs of growing material hardship among families whose incomes fall below half of the poverty line.

The new study, which looked at households with children from 1992 through 2005, notes a widening gap in well-being among low-income families after the national welfare overhaul of the mid-1990s.  The authors found:

[S]uggestive evidence that material hardship — in the form of difficulty meeting essential household expenses, and falling behind on utilities costs — has generally increased among the deeply poor but has remained roughly the same for the middle group (50-99 percent of poverty), and decreased among the near poor (100-150 percent of poverty).

Not surprisingly, these hardships appear to be sensitive to business cycles.  Hardship rates among the deeply poor improved, for example, from 1992 to 1995, when the economy was growing.  But they worsened sharply from 2003 to 2005 — perhaps due to delayed effects of the 2001 recession compounded by the weakened safety net, the authors suggest.

Shaefer and Ybarra say their findings support their hypothesis that “the well-being of the deeply poor decreased substantially following the first economic slowdown after the 1990s welfare reforms. In contrast, the well-being of the near poor improved through 2005.”  They caution that studies that consider the poor as a single group may miss these diverging effects of welfare reform.

These conclusions make sense because “welfare reform,” in a broad sense, was not just one policy but many.  In general, working families received more help after the mid-1990s than before — for example, in the form of higher Earned Income Tax Credits or child care assistance.  Yet, families who lost jobs or could not find steady work generally fared worse — they lost access to cash assistance and often could not qualify for the new work-based tax credits and other work supports.

The study adds to the evidence that economic vulnerability at the very bottom of the economic ladder has grown since the federal government weakened the safety net in the 1990s.