Will Mounting City Job Losses Lead to Soaring Welfare Rolls? Maybe Not.

Posted by Paul Lopatto, February 2, 2009

The New York Times reported this morning that despite rising unemployment, public assistance rolls in 30 states declined or remained flat in 2008, while 20 states had an increase in their welfare caseloads. Does an increase in job losses necessarily lead to an increase in the welfare rolls? Some observers who project increases in the city’s welfare caseload and grant expenditures think so. But evidence from the last two recessions suggests the relationship between job losses and public assistance isn’t so clear. History suggests that the effect on welfare rolls will depend largely on the size of the economic downturn and how government policies treat those applying for and receiving public assistance grants.

From 1989 through 1992, the city experienced a deep recession, with job losses totaling more than 350,000 over four years. The job losses brought about a reversal of a prior downward trend in the welfare caseload. During the years of job losses, the number of welfare recipients increased by 231,000, including a rise of 118,000 in the program for families with children and 113,000 in the program for single adults and childless couples. The link between changes in employment and caseload was quite strong: for every three jobs lost about two more individuals were added to the welfare rolls.

In 1995 the city began to implement new local welfare reform policies that were later reinforced by changes at the state and federal levels. The new initiatives included intensive screening of new applicants, work requirements, and the use of job placement firms to push recipients aggressively into the paid workforce. The changes affected the ability of city residents to access and retain public assistance grants. The new policies helped to bring about a long period of caseload decline, with the total number of welfare recipients dropping by 60 percent between March 1995 and September 2001.

In early 2001, the city once again began to slide into recession. Later in the year, the attacks on the World Trade Center pushed the economy into further decline, leading to heavy job losses. By the end of 2003, the city had suffered a net loss of about 220,000 jobs. Compared to the prior recession, the rise in unemployment had a much smaller effect on the public assistance caseload because of the more restrictive welfare policies. In fact, the caseload of families on welfare continued to decrease. (It leveled off for a while in 2003 before resuming its decline.) Over the same period the caseload of single adults increased by a modest 20,000, but far less than in the prior downturn.

These findings are relevant today, since the more restrictive welfare policies remain largely in place. Although it is likely that large job losses in the next few months or years would lead to an upturn in the city’s public assistance caseload, IBO expects the welfare reform policies that began in the mid-1990s to limit their effect. Any increase in the city’s welfare caseload would likely lead to further increases in the Medicaid and Food Stamp rolls, since eligibility for public assistance generally makes an individual eligible for both of these programs.