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A number of financial incentives have been incorporated into TANF programs to encourage and enable recipients to move from welfare to work. Earnings supplements and benefits such as the Earned Income Tax Credit (EITC) are designed to make work in the low-wage labor market considerably more advantageous than public assistance. Earnings disregards allow working TANF recipients to keep all or some of their employment for a limited period of time. Increased asset limits allow TANF families to retain certain assets, such as a car, that will not affect their benefit allowance. Other financial incentives include bonuses or benefit increases for enrolling, participating, or completing a program; Individual Development Accounts; and utility, food, rent, child care, or shelter allowances often paid directly to the recipient.
Selected Summary Findings in Brief
Earnings supplements: Results from programs in 6 states (Minnesota’s MFIP, Florida’s FTP, Connecticut’s Jobs First, Vermont’s WRP, Canada’s SSP, Milwaukee’s New Hope) using random assignment methods (From How Welfare and Work Policies Affect Employment and Income: A Synthesis of Research, MDRC May 2001): - Earnings supplements encourage work. For example, MFIP had strikingly consistent positive effects across a range of adult, child, and family outcomes. It was found that to encourage full-time work, an earnings supplement should be designed to reward only full-time work.
- Programs that provided earnings supplements substantially increased income and reduced poverty but also increased government spending. For example, Canada’s SSP increased earnings by 30% over a three-year period.
- Programs that combined earnings supplements with employment services raised employment and earnings more than programs that offered earnings supplements alone.
- The elementary school-aged children of parents in programs with earnings supplements fared better than they would have without the programs. In Canada, there were small positive effects on cognitive and school outcomes.
Tax Credits: Research specifically examining the federal and state Earned Income Tax Credits has found positive effects of the EITC on employment and income. For example, one CBPP paper (How State Earned Income Tax Credits Help Working Families Escape Poverty in 2004, CBPP May 2004) reports that state EITCs reduce poverty among children through increasing employment and earnings. A paper by NCCP (Untapped Potential: State Earned Income Credits and Child Poverty Reduction, NCCP April 2001) reports that state EITC programs can significantly reduce child poverty. A report (Making Work Pay for Public Housing Residents: Financial-Incentive Designs at Six Jobs-Plus Demonstration Sites, MDRC January 2001) from the Jobs-Plus Community Revitalization Initiative for Public Housing Families, a national demonstration project operating in six cities that is testing ways to increase employment among public housing residents, found that even without rent reform, changes in welfare rules and the Earned Income Tax Credit (EITC) have made work substantially more rewarding for public housing residents over the past decade.
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