I n t h I s c h a p t e r y o u w I l L

G u e s s W h a t ?
W e l f a r e R e f o r m W o r k s
B
Y
G
ARY
S. B
ECKER
The welfare reform act of 1996 is one of
the most revolutionary pieces of legisla-
tion since the welfare state began half a
century ago. Contrary to the predictions
of many skeptics, this law has been re-
markably successful—helped, to be
sure, by the strong economy of the past
several years.
The success of earlier reforms by a
few states led to a bipartisan effort by a
Republican Congress and President
Clinton to “end welfare as we know it”
by forcing recipients in all states to look
for work. The 1996 law limits families to
two years of welfare income during any
one spell and caps the total time on wel-
fare over a mother’s lifetime at five
years.
The number of recipients rose
sharply from the early 1960s, to a peak
in 1993, when over 4 million American
families were on welfare. In that year, an
incredible 1 million residents of New
York City alone were receiving welfare,
up from 250,000 in 1960.
Wisconsin, Massachusetts, New
Jersey, and a few other states decided in
the late 1980s that this upward trend in
welfare was unacceptable and could be
reversed. They introduced reforms that
discouraged women from having children
while on welfare. More important, they
dropped the assumption that most
women on welfare are not capable of
getting and holding jobs, and put pres-
sure on them to find employment to help
support their families.
These states managed to cut their
welfare populations while at the same
time improving the economic situation of
single-parent families. Recently, a careful
evaluation of the Massachusetts reforms
by economists M. Anne Hill and Thomas
J. Main of the City University of New
York concluded that they not only greatly
reduced that state’s welfare caseload
but also encouraged more young women
to finish high school and sharpen their
economic skills.
What worked in Massachusetts and
other pioneering states was applica-
ble throughout the nation, but the re-
assessment of federal welfare policy
I N T H E N E W S
Welfare Reform

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C H A P T E R 2 0
I N C O M E I N E Q U A L I T Y A N D P O V E R T Y
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person would be no more than four times the income of the poorest person. Al-
though the measurement of inequality is difficult, it is clear that our society has
much more inequality than Plato recommended.
One of the 
Ten Principles of Economics
discussed in Chapter 1 is that govern-
ments can sometimes improve market outcomes. There is little consensus, how-
ever, about how this principle should be applied to the distribution of income.
Philosophers and policymakers today do not agree on how much income inequal-
ity is desirable, or even whether public policy should aim to alter the distribution
of income. Much of public debate reflects this disagreement. Whenever taxes are
raised, for instance, lawmakers argue over how much of the tax hike should fall on
the rich, the middle class, and the poor.
Another of the 
Ten Principles of Economics
is that people face tradeoffs. This
principle is important to keep in mind when thinking about economic inequality.
Policies that penalize the successful and reward the unsuccessful reduce the in-
centive to succeed. Thus, policymakers face a tradeoff between equality and effi-
ciency. The more equally the pie is divided, the smaller the pie becomes. This is the
one lesson concerning the distribution of income about which almost everyone
agrees.
was opposed by many intellectuals.
Some members of President Clinton’s
team quit after the 1996 federal law,
over what they considered a betrayal of
the welfare state. They argued that most
women forced off welfare would become
homeless or destitute, since they sup-
posedly are too mentally or physically
handicapped or lacking in requisite skills
to obtain and hold jobs.
However, this law has been highly
successful in reversing the large growth
in the number of welfare recipients in the
United States. Most mothers forced off
welfare found work and provide financial
support for their children.
Certainly, the huge decline—by over
40 percent—in the number of single
mothers on welfare from the 1993 peak
is partly due to the booming economy of
the past seven years. However, most of
this decline took place in the two years
after the passage of the 1996 act. The
study of Massachusetts’ experience
cited earlier confirms the importance of
the new approach to welfare, since the
authors’ research attributes more than
one-third of the decline in that state’s
welfare role since 1995 to the reforms
and not simply to its buoyant economy.
The federal law recognizes that the
number of families in need of assistance
always rises sharply during bad eco-
nomic times. This is why each welfare
spell is allowed to last up to two years,
and mothers with dependent children
can have multiple spells, up to a total of
five years over their lifetimes. It further
acknowledges that some women are
handicapped and unable to work. What it
aims to discourage is the attraction of
welfare to able-bodied women during
good times when jobs are available.
The act also recognizes that many
poor working mothers will not earn
enough to provide a decent standard of
living for their families. Children of un-
married working mothers continue to be
eligible for Medicaid and food stamps,
and they benefit from the earned-income
tax credit that is available only to poorer
working parents with children.
One of the most important, if hardest
to document, gains from taking families
off welfare is their greater self-respect
when they provide for themselves. Moth-
ers on welfare convey the impression to
their children that it is normal to live off
government handouts. In such an environ-
ment, it is difficult for children to place a
high value on doing well at school and
preparing for work by seeking out training
on jobs and in schools.
Welfare reform has been a resound-
ing success in inducing unmarried moth-
ers to find jobs. This revolutionary
approach to welfare is based on the ap-
preciation that the vast majority of fami-
lies do much better when treated as
responsible adults and offered effective
incentives to help themselves.
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