Unemployment Insurance as a Potential Safety Net for TANF Leavers:
Evidence from Five States

Executive Summary

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Content

• Data and Sample
• Key Findings
• Conclusions

Endnotes

Major welfare reform legislation and a strong economy led to dramatic declines in welfare caseloads during the mid- and late-1990s, with many recipients leaving welfare and finding employment. Studies tracking the status of welfare leavers find that the majority of individuals who leave welfare are employed around the time of their exit. However, studies also show that many who find employment cycle in and out of jobs, and that these individuals have a difficult time holding sustained employment.

During the past several years, increasing attention has focused on the role of the safety nets available to welfare recipients who exit welfare and find jobs in the context of a time-limited welfare system. The economic slowdown of the early 2000s and the subsequent “jobless recovery” has also highlighted the importance of questions about whether former welfare recipients have broken the cycle of dependency, and whether they have been mainstreamed into the labor force, thus enabling them to use the same social insurance programs available to other workers in case of job loss. An important question is whether the unemployment insurance (UI) system, the primary safety net for working individuals who lose jobs, adequately addresses the needs of former welfare recipients who have left welfare and have found work. It is also important to learn how sensitive potential UI eligibility is to changes in UI program parameters, to obtain a better understanding of how any reforms to the program may affect the access to this safety net for low-income workers.

To qualify for UI benefits, unemployed workers must meet certain monetary criteria, such as having a minimum amount of earnings over a “base period” and, in some states, having worked for a minimum number of weeks or quarters during the base period. (The base period is most frequently defined as the first four of the past five completed quarters.) They also have to meet nonmonetary requirements—that is, they generally must have left their jobs through no fault of their own, and they must be available to work full time.⁽¹⁾ Some policymakers and researchers believe that the eligibility rules of the UI program make the program less accessible to low-wage, entry-level workers, especially to former welfare recipients who move in and out of the labor force and who often do not have histories of stable employment. In fact, studies based on the period preceding the Temporary Assistance for Needy Families (TANF) program have found that former recipients who exit welfare and find work have fairly low rates of UI eligibility. More recently, however, it is likely that the combination of welfare reform’s work incentives and a strong economy during the years following the implementation of TANF have led former recipients who find jobs to have more stable employment and, consequently, to increase their likelihood of becoming eligible for UI.

This study, funded by the Office of the Assistant Secretary for Planning and Evaluation (ASPE), U.S. Department of Health and Human Services (DHHS), examines the extent to which former welfare recipients are likely to have monetary eligibility for UI. In particular, it examines the following questions, among others: What would be the rate of monetary UI eligibility among former welfare recipients who leave welfare for work, if they were to lose their jobs, and seek UI benefits? How has this rate changed over time? For what benefit amounts are these individuals likely to be eligible? How sensitive are UI monetary eligibility rates to changes in program parameters?

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Data and Sample

Our study uses data from the National Evaluation of the Welfare-to-Work (WtW) Grants Program Evaluation. The study uses data on welfare recipients who have exited welfare for work in five sites to examine the extent to which these individuals have monetary eligibility for UI.⁽²⁾ Specifically, we examine the extent to which welfare recipients who exited welfare and held jobs potentially had monetary eligibility for UI at subsequent points in time, as well as the amount of benefits for which they likely were eligible. We also examine the sensitivity of monetary eligibility to changes in UI program parameters.

We use data on the caseloads of welfare recipients in these counties for a reference month.⁽³⁾ We obtained quarterly administrative earnings data and monthly welfare benefits data for all individuals in the sample for the year preceding the reference month, as well as for a period of more than two years after the reference month. The five sites provide some variation in terms of geographic location and TANF program parameters. Texas has very low benefits and a comparatively restrictive TANF program, while Illinois and Pennsylvania have more-generous benefits and less-restrictive TANF programs. For instance, a family of three in Texas with no other counted income is eligible to receive $201 per month, compared with $377 in Illinois, and $421 in Pennsylvania. Similarly, the break-even level of income above which a person no longer has TANF eligibility is $407 per month in Texas but more than $1,100 in Illinois.

This study focuses on welfare recipients who exited the welfare rolls within one year of the reference month and who were employed at the time of their exit. We focus on recipients who left the rolls and who held jobs around the time of exit because the primary intent of the UI program is to provide support for workers in case of job loss. Our sample sizes range between 1,000 and 15,000 across the sites, depending on the size of the original caseload and on the fraction exiting welfare for work within one year of the reference month. We also observe considerable variation across the sites in the fraction of reference group members who left welfare and found employment; these figures range from 31 percent to 67 percent across the sites.

Much of the analysis in our study focuses on determining potential monetary eligibility for UI. We examine the extent to which former welfare recipients would have monetary eligibility for UI if they were to experience a qualifying job separation (a job separation occurring through no fault of their own), and if they were available for full-time work.⁽⁴⁾ We also conduct simulations to examine the sensitivity of UI monetary eligibility to changes in UI program parameters.

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Key Findings

Main study findings indicate that:

• The vast majority of TANF recipients (90 percent) who exited welfare and found employment would potentially attain UI monetary eligibility at some point during the two-year period after TANF exit. Potential eligibility rates during any quarter were also fairly high; between 50 percent and 80 percent of those who left welfare in the five study sites potentially would have monetary eligibility for UI during any given quarter after the first year following TANF exit. These numbers are higher than the estimates of 30 to 40 percent based on data from the mid- and late-1980s on clients of the Aid to Families with Dependent Children program.
• Many of the TANF leavers who exited for employment and would have attained monetary eligibility, would also have lost potential UI monetary eligibility over time. Across the sites, between 30 and 50 percent of TANF recipients who exited for work and who became eligible during the first year after exit would have lost their potential eligibility between the time they became eligible and the end of the eight-quarter period. This finding suggests that although many former TANF recipients may “ever” potentially attain monetary eligibility, there is considerable movement in and out of UI monetary eligibility. Across the sites, only about half the sample members who would have attained eligibility within the first year after TANF exit would have retained it throughout the eight-quarter period.
• The rate of potential eligibility among all TANF workers is relatively high. Not surprisingly, given minimum earnings requirements, the likelihood of qualifying for benefits among those who actually experienced a job loss is considerably lower, especially among those who lost their jobs during the first year after TANF exit. Between 12 and 20 percent of those who left TANF for work lost their jobs during each quarter of the first year after TANF exit. When the first job loss occurred, say, for example, during the second quarter, only 33 to 45 percent of sample members who lost their jobs would potentially have monetary eligibility for UI as compared to 53 to 71 percent among those who did not lose their jobs until the same quarter. Although the overall rate of potential UI monetary eligibility becomes relatively high for those who lose their jobs after four quarters, TANF leavers who lose their jobs during the first year—the group most likely to need UI assistance—would be considerably less likely to have monetary qualification for UI.
• Most former TANF recipients who would not have attained monetary UI eligibility had some earnings during the base period, but their earnings were too low or of insufficient duration to enable them to qualify. Around 20 to 30 percent of former TANF recipients were monetarily ineligible in any given quarter but had some earnings in the relevant base period for that quarter. (This group represents about two-thirds of those who would not have attained monetary eligibility.) Many of them also worked intermittently, preventing them from becoming monetarily eligible. For example, between 40 and 55 percent of those who had some earnings during the base period had covered employment in only one of the base period’s four quarters.
• Potential UI benefit amounts for former TANF recipients were higher than what these individuals would have received as TANF payments. In general, UI benefit amounts for these individuals would typically be more than twice the amount of the TANF benefits. UI benefits can typically be received for only up to 26 weeks for each claim, compared with a lifetime total of five years for TANF benefits under the reformed federal law.
• UI monetary eligibility does not seem to be strongly sensitive to changes in program rules using parameters being currently used across various states in the country; however, other changes such as an elimination of the two-quarter work rule would likely increase potential UI monetary eligibility considerably. UI monetary eligibility is only weakly sensitive to changes in the minimum qualifying earnings and alternate base-period rules. If a state that was in the top decile of minimum qualifying earnings were to change its rule to be similar to that of a state that was in the lowest decile, the new rule would increase monetary eligibility among former TANF recipients by only about four or five percentage points. This result is driven partly by the fact that, even in the high-requirement states, the minimum qualifying earnings are relatively low; consequently, an individual working at minimum wages for a third of the year would likely qualify for UI benefits. Similarly, alternate base period rules that include more-recent periods would enable former TANF recipients to attain monetary eligibility more quickly, but they would not substantially affect the fraction likely to be eligible in any given quarter. In contrast, removing the two-quarter work requirement in the base period rule could potentially increase monetary UI eligibility by between 9 and 14 percentage points among employed former TANF recipients across the sites.

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Conclusions

Our findings suggest that, compared with previous periods, a higher fraction of former TANF recipients who leave welfare and find employment potentially attain monetary eligibility for UI. A large part of this observed increase may be attributable to the new welfare reforms and their increased emphasis on work, as a large part of the study period includes the years 2001 and 2002, years in which economic conditions were not particularly strong.

Concerns about declines in UI participation rates and need for UI program rules to keep pace with the changing characteristics and needs of the UI workforce have led some to reexamine the UI system. Many of these proposed reforms have focused on redefining labor force attachment, better identifying what constitutes separation through no fault, redefining ability and availability for work, and increasing the currently low levels of benefits in many states.

Our study shows that rates of potential monetary eligibility for this population are only slightly sensitive to the key UI program rules when we consider the parameters used in various states across the country. In particular, potential monetary eligibility is only somewhat sensitive to levels at which states set their minimum qualifying earnings. We find that alternative definitions of the base period that allow more-recent quarters of work to count toward eligibility will enable more former TANF recipients who leave welfare for work to potentially become eligible for UI more quickly, but that they do not affect those individuals’ eligibility over the long run. The extent to which these rules might affect this population depends on the extent to which individuals experience periods of joblessness, especially soon after entering the labor force for the first time. Finally, when we examine the reasons for ineligibility among those ineligible, we find that the elimination of the two quarters of work requirements in base period rule and the high-quarter requirements both would likely make between half to two-thirds of those who have no eligibility potentially attain monetary eligibility for UI. The remaining had no earnings in the relevant base period.

In this study, we have not been able to examine the extent to which individuals who have monetary eligibility fail to qualify due to nonmonetary reasons. Other studies suggest that nonmonetary disqualifications are likely to be fairly important for this population; the population’s high rate of quits and the lack of availability to work full-time may cause many who have monetary eligibility to not qualify for nonmonetary reasons. Further research could focus on exploring these factors more carefully, as well as on assessing the implications of changes in nonmonetary factors on both UI eligibility rates and UI program costs.

Endnotes

(1) UI program rules are complex and vary substantially by state. Chapter I summarizes program features in greater detail and explains how eligibility is determined for individuals who file UI claims.

(2) The five sites are Phoenix County, Arizona; Cook County, Illinois; Baltimore County, Maryland; Philadelphia County, Pennsylvania; and Tarrant County, Texas.

(3) The “reference month” drawn was the month in which WtW programs began enrolling WtW participants in the main evaluation sample. It ranges between September 1999 and August 2000 across the study sites.

(4) In estimating eligibility, we use each state’s program rules for the relevant year. The states included in this study cover a relatively wide range of program rules (see Chapter I).

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