All Hail Welfare Reform?

Ron Haskins updates us on the post-welfare-reform condition of the bottom fifth of Americans. "According to a Congressional Budget Office (CBO) study released this month," he enthuses, "the bottom fifth of families with children, whose average income in 2005 was $16,800, enjoyed a larger percentage increase in income from 1991 to 2005 than all other groups except the top fifth." The driver is clear: "Low-income families with children increased their work effort, many of them in response to the 1996 welfare reform law that was designed to produce exactly this effect...This increase in earnings and total income by low-income families is the biggest success in American social policy of recent decades."

Except, that's not what the CBO study Haskins' op-ed is based off of concludes. "The change was driven by a large increase in earnings during the late 1990s for this group, the effect of which was partially mitigated by a decline in public benefits (or what is often called welfare)." In other words, the supercharged economy of the late-90s brought us to full employment, which sparked higher wages and better working conditions for even unskilled workers, which attracted this group into the workforce, which increased their incomes, and those gains were held down slightly by reductions in public aid. So yes, if anyone knows how to recapture the economy of the late-90s, please inform your nearest flight attendant. But for all Haskins' pleasure over the numbers, things haven't been that good for this group over the past five years:

There was a genuine and impressive spike there in the late-90s. But we've seen stagnation and even losses in the period since. So not only are these gains quite decidedly the child of the roaring 90s rather than welfare reform, they're not proving particularly sustainable, even as welfare reform and the Earned Income Tax Credit remain in effect. Haskins' suggestions, which include better public services, aren't particularly objectionable, but his op-ed seems misleading, and meant to give welfare reform far more credit than it appears to deserve. The program was no disaster, and, given its aims of getting folks off the rolls, it was even a success. But it had the good fortune to be implemented during the best economic years of the past few decades, and it was not then, and is not now, capable of playing of sparking broad economic uplift.

Update: In comments, Tim Worstall corrects me on the graph -- the Y Axis is growth in earnings, and thus the drop does not imply stagnation, but merely slower growth. The points on this being about the hyper-charged economy of the 90s still stands, and folks are drifting down from their peak then. It's also a bit confusing as these aren't tracking the same households, but instead you're seeing churn within the low income category. As you can see in the growth numbers, were these tracking the same households, the groups would be flush with cash after years of double and triple digit wage increases. That's obviously not the case, and evidence that you're seeing both a lot of folks rising out of poverty and a lot of folks dropping into poverty in any given year.