This paper tests the effectiveness of the six major welfare reform policies—(1) time limits, (2) work requirements, (3) sanctions, (4) financial work incentives, (5) family caps, and (6) age related work exemption reductions—on the outcomes of welfare use, employment, labor supply, earnings, income, and poverty. To do this, it employs a two-pronged approach using data from the Current Population Survey (CPS). First, a first-best methodology specifying a model that includes each of the six reform policies is employed on each of the tested outcomes. Then, as a follow-up and check on these first-best results, a second-best methodology of looking at each of the six reform policies on its own while bundling the other five into an “any other reform” variable is carried out.

The results indicate that if the process of moving from impoverished welfare to successful workfare can be divided into three stages—getting off welfare, moving into workfare, and consequently getting out of poverty with higher earnings or income—then the six major welfare reform policies had their greatest impact on the first stage, a smaller effect on the second, and an even lesser impact on the third. In terms of welfare use, the reform policies led to a greater than 6.5 percentage point reduction, on average, accounting for nearly 27 percent of the decline over the period from 1993 to 2004. In terms of employment, they caused only a 2.58 percentage point increase, and in terms of earnings and income, they led to almost no significant changes.

Other policy changes, however—most importantly the Earned Income Tax Credit (EITC)—and, to a lesser extent, the business cycle did significantly improve these second and third stages of employment and poverty. The EITC alone accounted for a 10.2 percentage point drop in welfare use, a 9.66 percentage point increase in employment, and 7.3 percentage point decrease in poverty.

Thus, from these regression analyses, it seems that the push of welfare reform policies removed people from the government’s dole, while the pull of the EITC did more to get them into employment and better earnings, and out of poverty.