Major welfare reform legislation and a strong economy have 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 nearly two-thirds of those who leave welfare are employed around the time of exit. However, studies also show that many who find employment cycle in and out of jobs and have a difficult time holding sustained employment (Acs and Loprest 2001; and Rangarajan 1996). For some people, job mobility may be expected as they try to find better jobs matches and follow a career path they have defined for themselves. For others, especially those with weak skills and little prior work experience, cycling in and out of employment may be inevitable, as they make an effort to transition out of welfare and into work.
The role of the safety nets available to welfare recipients who exit welfare and find jobs has gained attention in the past several years in the context of a time-limited welfare system. The recent economic slowdown has also highlighted questions about whether former welfare recipients have broken the cycle of dependency, and whether they have been mainstreamed into the labor force, 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 recipients who have left welfare and found work. It is also important to learn how this safety net can be improved 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, work 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 requirementsthat 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 it less accessible to low-wage, entry-level workers, especially former welfare recipients who move in and out of the labor force and often do not have a stable employment history. 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. However, it is likely that the combination of welfare reforms work incentives and a strong economy may have led former recipients who find jobs to have more stable employment and, consequently, to increase their likelihood of becoming eligible for UI in more recent times.
This study, funded by the U.S. Department of Health and Human Services and the New Jersey Department of Human Services (NJDHS) and with the support of the New Jersey Department of Labor (NJDOL), examines the extent to which former welfare recipients are likely to be eligible for UI, and the extent to which former recipients who leave welfare and find work file UI claims. In particular, it examines such questions as: What is the rate of monetary UI eligibility among former welfare recipients who leave welfare and find work, and how does this rate change over time? How are nonmonetary factors likely to affect eligibility? For what benefit amounts are these individuals likely to be eligible? How sensitive are UI monetary eligibility rates to varying program parameters? How many former welfare recipients actually file UI claims and receive payments?
Our study of these and related questions is based on data from the Work First New Jersey (WFNJ) evaluation. The WFNJ evaluation is a comprehensive, five-year study, funded by NJDHS, which tracks a representative statewide sample of 2,000 welfare recipients who received TANF in New Jersey during the first 18 months under the new welfare rules, between July 1997 and December 1998. These recipients are being tracked through a series of five annual surveys, as well as through administrative records data. For this UI study, we examine the subset of welfare recipients who left TANF at any time before December 1999, and were employed around the time of TANF exit. We have data on employment and earnings for these individuals covering the two-year period after TANF exit, and data on UI claims over the three-year period after TANF exit.(2) Wage records and UI claims data were provided by the New Jersey Department of Labor, and TANF administrative data by the Division of Family Development of NJDHS.
Much of the analysis in our study focuses on determining potential monetary eligibility for UI, and 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.(3) Because nonmonetary factors, such as the reason for job separation, might be important for this population, we use our survey data to examine the reasons for job loss reported by those who had experienced a job separation of at least one month. Using survey data, we also examine the prevalence of part-time work for this population. Finally, we use claims data to examine the prevalence of filing claims among this former TANF population and the characteristics of these claims.
The main study findings related to the extent to which former TANF recipients who find employment potentially have eligibility for UI, and simulations to determine the sensitivity to program parameter rules indicate that:
- Nearly three out of four TANF recipients who exited welfare and found employment would potentially have attained UI monetary eligibility at some point during the two-year period after TANF exit. Somewhat fewer (60 percent) would have monetary eligibility in any given quarter after TANF exit, in case of job loss. These numbers are high relative to the estimated monetary eligibility rates of around 33 percent in studies that used data from the pre-PRWORA period.
- The majority (two-thirds) of those who would be monetarily ineligible were ineligible because their earnings during the base period were too low to allow them to qualify. The remaining one-third had no employment or no covered employment during the base period.
- Nonmonetary factors, especially the high rates of voluntary quits, are likely to reduce the fraction that may be able to collect benefits in case of job loss. Data from the survey on reasons for job separation (and the prevalence of part-time work) suggest that as many as 60 percent of former welfare recipients who would have attained monetary eligibility may be disqualified because of a nonmonetary reason. Overall, about one in three are likely to have attained monetary and nonmonetary eligibility.
- Potential average UI weekly benefit amounts are relatively high, especially when compared with TANF payments. In New Jersey, average UI weekly benefit amounts of $200 among those eligible would translate to around $866 per month, compared with maximum monthly TANF benefit amounts of $424 for a family of three. The relatively high UI weekly benefit amounts are also driven partly by the fact that New Jerseys weekly benefit calculations are relatively generous compared with UI weekly benefit calculations in most other states.
- The UI monetary eligibility of former TANF recipients is fairly sensitive to UI program parameters, especially to the employment requirements and the minimum qualifying earnings requirement. Both the amount of time that a worker must work during the base period and the minimum amount of earnings during the base period required to qualify affect UI monetary eligibility rates. These rates increase by around 10 to 15 percentage points if rules from the states with generous eligibility rules are used relative to the rules of the more restrictive states.
- Alternative base-period rules that include more recent periods to calculate eligibility, such as used in New Jersey, would allow former recipients to become monetarily eligible more quickly after TANF exit. However, they do not have much effect on the overall fraction that become eligible over a two-year period, despite the prevalence of relatively high job turnover in this population. This is probably because the monetary eligibility requirements are sufficiently low that once a person has entered the labor force, they are likely to retain monetary eligibility, even if they become unemployed for a few months.
Analyses of the claims data to determine the access to the UI system and characteristics of the claims indicate that:
- Access to the UI program does not appear to be a problem, as many who lost jobs filed claims. Just over half of those who exited welfare and found work had filed one or more initial claims during the three year period after TANF exit. These relatively high rates of claims filed may be partly due to the fact that job cycling is relatively common for those who leave welfare and find jobs. In fact, nearly half of the claims filed were during the early months after job start, when rates of job loss are the highest. Additionally, to the extent that some of these job cyclers return to welfare, TANF program rules require those who have ever worked to file claims, further increasing the number who file UI claims.
- Ineligibility due to nonmonetary issues was twice as high in claims filed by former TANF recipients as in claims by filers statewide. These rates are driven by high rates of voluntary quits (without good cause), as well as by job separation due to misconduct. The claims data confirm our analyses from survey data that nonmonetary issues are likely to be quite important for this population of former welfare recipients.
- Relatively few claimants were disqualified for seeking part-time work. A considerable minority of former recipients had worked part-time and had filed claims, but very few claimants were disqualified because of a part-time work requirements. Either they chose to seek full-time work, or were not disqualified because of New Jerseys rules regarding part-time work. New Jersey law allows claimants to seek part-time work if the claim is based on part-time work, if part-time work is available in their occupation and locality, and if the claimant is looking for sufficient hours to earn an amount equal to the weekly benefit rate.
- Fewer claims filed by former TANF recipients than those filed by claimants statewide resulted in first payments. Fifty-six percent of claims filed by former TANF recipients resulted in first payments, compared with 70 percent of the claims statewide. This difference is driven largely by higher rates of monetary and nonmonetary disqualification in this group, rather than by failure to receive payments among those eligible. New Jerseys relatively generous rules with respect to separation denials for misconduct allow many former TANF recipients to begin receiving payments after a five-week waiting period. Rates of first payments are likely to be lower in states with less generous rules.
- The majority who file claims, however, eventually return to work. Consistent with their patterns of cycling in and out of jobs, the majority (90 percent) of those who filed claims had found employment subsequent to their filing a claim. Nearly two-thirds returned directly to employment, while one in four returned to TANF first, and then subsequently found a job.
Our findings suggest that compared with earlier times, a higher fraction of former TANF recipients who leave welfare and find employment potentially attain monetary eligibility for UI. Additionally, access to the UI system among former TANF recipients does not seem to be a problem. Former TANF recipients are aware of, and file for UI insurance. However, because former TANF recipients who find jobs tend to have low wages and intermittent employment, and because they are more likely than other workers to have noncovered jobs, they are somewhat less likely to have monetary eligibility for UI than all other workers. The somewhat lower rates of monetary eligibility for this group are also driven in part by those who return to TANF who are required to file UI claims regardless of their likelihood of UI eligibility. Furthermore, higher rates of voluntary quits and firing due to misconduct among this population further reduce the groups eligibility relative to the broader population of workers.
Concerns about decreases 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 advocate reforms to the UI system. Many of these reforms focus on defining labor force attachment, identifying what constitutes separation through no fault, defining ability and availability for work, and increasing the currently low levels of benefits in many states. Our study shows that potential monetary eligibility rates for this population are sensitive to UI program parameters, especially the levels at which states set their minimum qualifying earnings and the amount of employment required over the base period. We find that alternative definitions of the base period that allow more recent quarters of work to count toward eligibility will allow more former TANF recipients who leave welfare for work to potentially become eligible for UI more quickly, but it does not affect eligibility in the longer period. Thus the extent to which these rules might affect this population depends on the extent to which these individuals experience job turnover, especially soon after they enter the labor force for the first time. Finally, our findings suggest that expansions of good cause quits may enable many former TANF recipients who leave welfare and find employment to access UI benefits in case of job loss. Of course, one has to keep in mind that any expansion of eligibility or increase in benefits would add to the costs of the program and to UI taxes.
1. UI program rules are complex and vary substantially by state. Chapter I summarizes in greater detail program features, and how eligibility is determined when someone files a UI claim.
2. It should be noted that the two-year period after TANF exit was still a period of relatively strong economic conditions for most of those who left TANF and found work. It is possible that those who exit welfare in more recent times, and face weaker labor market conditions, may have different employment experiences, and consequently, potential eligibility for UI.
3. In estimating eligibility, we use New Jerseys UI program rules. Relative to other states, New Jerseys rule makes the state somewhat more restrictive with respect to monetary eligibility, but somewhat less restrictive with respect to nonmonetary eligibility and payments.