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Objectives of the 1996 overhaul of the US welfare system included reducing dependency, raising employment and de-incentivizing out-of-wedlock fertility. Using public use state-level panel data from 1990 to 2005, I analyse how state implementation of welfare reform simultaneously affects the caseload, employment and out-of-wedlock births (henceforth, Temporary Assistance for Needy Families (TANF) objectives). Because endogeneity and simultaneity could not be rejected, I use Three-Stage Least Squares (3SLS) method. Results indicated that most of the steep decline in the caseload is attributed to welfare reform, while the economy's overall effect paled in comparison. However, lagged and contemporaneous unemployment individually ranked second and third behind the Hispanic share of state population. The conservative tilt over the period studied ranked forth, followed in declining order by full family sanctions, Earned Income Tax Credit (EITC) payments, time limits (lagged by length), access to abortion clinics, lump-sum TANF diversion payments, and TANF benefit payments. Findings also suggest that policy does not always work as intended: caseloads are found to be higher in states that have highly regarded family formation and job retention TANF programs; and EITC payments are associated with lower not higher caseloads. The most compelling finding in this study is that low-income families likely turn first to unemployment insurance and then to TANF assistance.

We analyze the work choice of welfare recipients. Potential welfare recipients compare their on and off welfare utility from after-tax income and in-kind benefits via employment or welfare, and choose whether to work. Our null hypothesis, which we reject, is that benefits affect only the decision to work or not, not the hours worked, which will depend on wages. Using Temporary Assistance for Needy Families (TANF) administrative data from Washington state, we find that employer provided health insurance and child care subsidies significantly raise exit rates of TANF recipients and induce greater work effort. Other work inducing factors include wages and the Earned Income Tax Credit, while increased levels of Medicaid, Food Stamps and the income guarantee increase welfare dependency.

Over the past decade narrowly focused studies have evaluated the effectiveness of state-level welfare policies. In general, they evaluate reforms within a particular state, focus on a small number of outcome variables (usually caseload levels) and/or use a very narrowly defined time period. This narrow and partial analysis is perplexing, from an institutional perspective, as Temporary Assistance for Needy Families (TANF) forces states into a zero-sum funding game, where shares depend on differential relative success in achieving policy objectives metrics. This institutional structure incentivizes states to mimic and improve upon more successful counterparts to recapture a larger share of TANF block grants. Given this dynamic institutional structure, an evolutionary evaluation of state TANF programmes is warranted. This article uses cluster analysis to explore evolutionary changes in state TANF policies (as characterized by a comprehensive set of outcome variables) immediately following the imposition of TANF (1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005). We identify or benchmark clusters of 'successful' and 'less successful' TANF programmes. The results allow us to track which states in which year fall into the 'successful' and 'less successful' clusters over the 9-year period. The results support the notion that initially unsuccessful states mimic other successful state programmes over time.

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