Impact of States' Policy Response to the Deficit Reduction Act (DRA) on the TANF Work Participation Rate

Since the welfare reform in 1996, Temporary Assistance to Needy Families (TANF) research has been centered on the debate with respect to whether states given more independence to make their own choices after 1996, have engaged in a competitive "race to the bottom" to reduce benefits for needy people. Despite the mixed empirical findings, the race to the bottom (RTB) debate in TANF is still a popular subject due to the states’ adoption of more severe sanctions, more stringent eligibility, and the overall decline in TANF caseloads. While discussing the race to the bottom in TANF, little attention was given to the impact of the Deficit Reduction Act (DRA) of 2005, which caused significant changes in policy related to implementing TANF. Studies have not been undertaken to determine how states responded to the DRA, not only to meet the tougher requirements but also to serve an increasing number of needy people who were the least likely to be assisted through TANF, were it not for states’ strategic plans (e.g., creating solely state funded programs and creating/extending worker supplement programs). This study seeks to test the impact of states’ policy responses to the DRA on the TANF work participation rates, an official performance indicator of TANF. In order to empirically test this, a multivariate model is introduced to reveal the differences in TANF performances between states that actively responded to the DRA by adopting programs for more lenient coverage (i.e., worker supplement programs and solely state funded programs) and implementing severe sanctions for noncompliance with work requirements, and those that did not. The dataset is a balanced panel, consisting of fifty states over a 7-year period (2007-2013). The test results show that states implementing worker supplement programs achieve higher TANF performance than states without them. Also, we find that sanction effects may be much larger than we have known given that states sanctioning entire families and/or imposing harsh disqualification on SNAP for failure to comply with TANF work requirements are more likely to show higher performance in TANF work participation rates. Unlike our expectation, states’ generous stance in welfare programs does not affect achieving higher TANF performance.