100 Million now on Welfare

Recently, the number of Americans receiving welfare benefits exceeded 100 million.  Now most, I'm sure, are not surprised by this fact given the state of the economy.  With the unemployment rate steadily above 8% over the past 4 years it is easy to see why the number of welfare recipients has increased.  However, this is a staggering 1/3 of the U.S. population.  I'm sure after the 1996 welfare reform bill was signed into law in order to create work incentives for those on welfare would have never expected such a sharp increase only 16 years after the law was passed.  Perhaps, there is more to the story.  

One of the things the passage of the 1996 welfare reform act did was introduce the benefit-reduction rate.  This rate worked by creating an optimal amount of hours per week the beneficiary should work in order to make the most money possible through welfare benefits and earned income.  For example, someone on welfare has a benefit reduction rate of 50% then for every dollar earned there is a 50 cent reduction in welfare benefits.  This creates an incentive to work because one could earn more through working and receiving welfare benefits at the same time.  Now, each state can set the BR rate however they like.  Something to note is the lower the BR rate, the higher the incentive to work because one could simply earn more by working more.  It works the other way as well.  If the BR rate is 100%, as it was before the 1996 bill, then the incentive is to not work at all and simply receive benefits because each dollar earned is a dollar lost in welfare benefits.  

Texas has done well in this economy and perhaps the BR rate has something to do with it.  
Take a look at the map below.



 This map shows which states increased and which states decreased the BR rate from 2007 to 2009.  As the map shows, most states increased their rate (incentivizing more leisure and less work) but Texas and a few others actually reduced their rate.  This is not surprising because in Texas the policies and regulations are very business-friendly and this map may be just one of the many contributing factors for Texas' success during this "great recession".