Moving People from Welfare to Work. Lessons from the National Evaluation of Welfare-to-Work Strategies.. Costs Relative to Benefits: What is the government's financial return on its investment in welfare-to-work programs?

07/01/2002

The programs' five-year benefits were also calculated in NEWWS. Benefits included the increases in earnings and decreases in welfare and food stamp payments discussed earlier, as well as dollar valuations of the programs' estimated effects on Medicaid, job fringe benefits, taxes paid, and the costs of administering transfer programs such as food stamps. All of these effects were considered along with the programs' estimated net costs to ascertain the net gains and losses to government budgets as well as to program group members resulting from the programs. Some limits on the comprehensiveness of the benefit-cost analysis, however, should be recognized. The analysis did not, for example, consider education benefits that are not reflected in earnings or put a dollar value on families' or children's well-being.

  • Government budgets came out ahead on their investments in about half of the NEWWS programs.

One measure of cost-effectiveness is the return to government budgets per net dollar invested, that is, the average gain to government budgets from increased tax revenues and savings in transfer programs and associated administrative costs divided by the net cost of program services. By this metric, government budgets come out ahead if a program produces more than a dollar's worth of additional revenues and savings for every extra dollar spent on services for program group members relative to control group members. About half of the NEWWS programs returned at least as much to government budgets as was invested in them. Four of the programs, however, returned only about $.40 to $.80 per dollar invested. Programs that produced larger welfare savings had a better chance of paying for themselves, and those that generated the largest welfare savings resulted in the largest returns, bringing government budgets as much as $2.83 per dollar invested. The programs that generated smaller welfare savings had a harder time breaking even and more often resulted in losses. In contrast, the programs that led to the largest employment increases did not necessarily produce the largest government returns.

  • Returns to government budgets that are driven by welfare savings do not appear to improve welfare recipients' economic well-being.

Where savings to government budgets were found in NEWWS, they were driven by welfare savings, leaving the sample members no better off financially than they would have been without the programs. In general, the benefit-cost findings from the welfare recipients' perspective mirror the findings on income: In most of the NEWWS programs, program group members' financial losses from decreased welfare and food stamp payments exceeded their financial gains from increased earnings and the EIC. Taking into account the dollar value of program group members' decreased Medicaid eligibility over the whole five-year follow-up period, program group members' losses -- compared with control group members' -- were even more pronounced.

  • Higher-cost programs do not necessarily result in larger returns to government budgets or in larger earnings and welfare impacts than do lower-cost programs.

To have generated a return on the government's investment as large as that generated by the employment-focused programs, the education-focused programs would have had to generate larger welfare savings and/or larger increases in tax revenues. Not surprisingly in view of the earnings and welfare impacts discussed earlier, this was not the case (for the average return to government budgets per net dollar invested for each of the four primary categories of programs examined in NEWWS, see Table 7). On average, the greater investment in education-focused programs resulted in a greater loss from the government budget perspective. Likewise, the additional cost of program services for graduates did not result in a larger return to government budgets; in fact, the return to government budgets was not consistently higher or lower for graduates than for nongraduates for any type of program. Finally, no relationship was found between the NEWWS programs' net costs and earnings impacts: For example, the Portland program had one of the lowest net costs, yet programs with much higher net costs produced much smaller effects on earnings and employment than those found in Portland.

Job search firstHigh enforcement$1.58

Table 7.
Returns to Government Budgets over Five Years:
The Education-Focused Programs' Higher Costs Did Not Bring Higher Returns per Government Dollar Invested
Employment-focused approach Education-focused approach
SOURCE:  Hamilton et al., 2001.
Varied first activity Education or training first
High enforcement High enforcement Low enforcement
$2.83 $0.87 $0.84