UI as a Safety Net for Former TANF Recipients. 6. UI as Income Replacement for TANF Leavers


Among TANF leavers who experience unemployment, those who qualify for and draw UI benefits receive income replacement at rates much higher than those paid by TANF. Levels of income replacement from TANF and UI are compared on a monthly basis. The influence of the UI-to-TANF benefit ratio on rates of returning to TANF is also estimated.

To compare levels of income support provided by TANF and UI, we look only at beneficiaries who received both. Restricting the TANF beneficiary sample to include only those who also received UI benefits does not significantly alter the mean estimated monthly TANF benefit level. The mean level of UI compensation is estimated from actual payment data rather than simply by using the full entitled weekly benefit amounts. Our relative measure of generosity applies the most inclusive measure of TANF benefits and the most conservative measure of UI benefits. The UI/TANF generosity ratio is based on 6 months of prior TANF payments and actual UI payments over the full UI benefit year.

Measures of TANF, UI, and TANF to UI relative generosity are summarized in Table 17 (see also Figure 11). Across the eleven cohorts for analysis, monthly TANF benefits range from $113 to $226, monthly UI benefits range from $389 to $693, and ratios of monthly UI-to-TANF range from 2.0 to 4.6.


Table 17.
UI-to-TANF Relative Generosity and the Percentage of UI Beneficiaries Who Return to TANF
  1997 Cohorts 2000 Cohorts 2001 Cohorts 2003
Florida Texas Florida Michigan Ohio Texas Florida Michigan Ohio Texas
Monthly TANF ($,*1) 145 124 123 212 226 124 113 203 220 123 125
Benefit Year UI Pay ($) 2,441 2,359 2,421 3,919 2,877 2,096 2,240 3,780 3,027 1,928 1,891
Entitled Weeks of UI 18.8 18.0 17.9 22.6 25.5 17.6 17.0 22.0 25.4 17.1 19.5
Actual Monthly UI ($,*2) 520 546 540 693 452 477 526 686 476 525 389
UI-to-TANF Benefit Ratio 3.6 4.4 4.4 3.3 2.0 3.9 4.6 3.4 2.2 4.3 3.1
Return to TANF Rate (%,*3) 42.0 42.1 41.4 46.9 41.2 46.0 40.5 50.1 41.5 42.2 29.2
UI-to-TANF Parameter (*4) -0.0008 -0.001** -0.0015** 0.0000 -0.0022 -0.0022** -0.004** 0.0000 0.0004 0.0000 -0.0012
(*1) Monthly TANF is the sum of payments in the two quarters before leaving TANF divided by six.

(*2) Monthly UI compensation is four times actual UI compensation received in the benefit year divided by weeks of entitlement (potential duration).

(*3) Return to TANF rates are computed for all cohorts applying sample restrictions to permit comparisons across cohorts. New unemployment must have occurred within three years of TANF exit, and checking for return to TANF is done for three years after the last possible cohort exit date. There are only two exceptions to these rules. For the Florida 2001 cohort, two years after TANF exit are checked for new unemployment, and checking for return to TANF is done for two years after the last possible cohort exit date. For the Ohio 2001 cohort, checking for new unemployment is limited to ten quarters after TANF exit, but return to TANF is checked for the normal three years after the last possible cohort exit date.

(*4) These are parameter estimates on the UI-to-TANF benefit ratios in single state models similar to the pooled linear probability models summarized in Table 16 explaining the probability of return to TANF based on observable factors.

** Significantly different from zero at the 95 percent confidence level in a two-tail test.
* Significantly different from zero at the 90 percent confidence level for a two-tail test.

Figure 11.
Monthly UI and TANF Amounts for UI Beneficiaries

Figure 11. Monthly UI and TANF Amounts for UI Beneficiaries. See text for explanation.

The relationship between the UI-to-TANF benefit ratio and the rate of return to TANF was estimated in linear probability models. The results suggest that among newly unemployed TANF leavers who become UI beneficiaries, an increase in the ratio of UI-to-TANF might slightly reduce the likelihood of returning to TANF. However, the parameter estimate on UI-to-TANF relative generosity was statistically significant only for four of the eleven cohorts. The parameter estimates suggest that a one unit increase in the UI-to-TANF ratio decreases the rate of return to TANF by between 0.15 and 0.40 percentage points. Given that the return to TANF rate is 41.2 percent among TANF leaver UI beneficiaries (Table14), an increase in monthly UI benefits by the mean TANF amount reduces return to TANF by between four tenths and one percentage point — an extremely small effect.(1)

Combined with our earlier observation that UI receipt is associated with a lower rate of return to TANF, this evidence that increases in UI-to-TANF relative generosity are not generally associated with the rate of return to TANF, suggests that UI benefit receipt might be serving as a proxy for strong labor force attachment. In other words, it might not be the income replacement function of UI that reduces return to TANF, but more importantly those who receive UI benefits have better prospects for maintaining self-sufficiency through employment.


(1) An increase in the UI-to-TANF ratio by one is equivalent to an increase in monthly UI benefits by the mean TANF amount. There are differences in the UI-to-TANF ratio larger than one across the cohorts examined, so this degree of variation is within the observed range.

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