UI as a Safety Net for Former TANF Recipients

Background

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Contents

1. UI eligibility and benefits
2. TANF eligibility and benefits
3. Previous research on employment and earnings of TANF leavers
4. Previous research on use of UI by TANF leavers

Endnotes

The introduction of TANF with lifetime limits and work requirements for continued receipt of cash assistance increased the importance of employment and training programs for achieving self-sufficiency for TANF leavers. Research before TANF suggested that few leavers from cash assistance would qualify for UI, but analysis after TANF was in place estimated higher UI recipiency rates (Gustafson and Levine 1997, Rangarajan, Razafindrakoto, and Corson, 2002). As background for the present research, we examine UI and TANF eligibility rules in each of the four states analyzed and review prior research on use of UI by TANF leavers.

Isaacs (2005) reported that between 2000 and 2003, the proportion of low-income single mothers receiving UI benefits at some point in the year increased from 4.6 to 6.7 percent. It is not surprising to see an increase in receipt of UI in times of rising unemployment. What is noteworthy is that the higher UI recipiency rate has continued since 2000, despite the 2001-02 slowdown in aggregate economic activity.

UI eligibility and benefits

Unemployment insurance eligibility rules are set to ensure that those compensated are strongly attached to the labor force and temporarily jobless through no fault of their own. To qualify initially for UI, a claimant must have sufficient prior earnings and employment — these are called monetary eligibility conditions. Furthermore, the job separation must be involuntary. Non-monetary eligibility rules prohibit quits and discharge for misconduct or other causes justifiable by an employer. Employer discharge for cause is usually related to frequent tardiness, unexplained absences, misconduct, or poor job performance.⁽¹⁾ UI applicants must also be able, available, and actively seeking full-time work, as defined by UI rules. For initial and continuing eligibility, beneficiaries may not refuse an offer of suitable work.

Monetary eligibility for UI is determined by base period earnings. The UI base period is normally the first four of the previous five completed calendar quarters before the date of claim for benefits.⁽²⁾ Table 1 lists the minimum base period earnings required to qualify for the minimum UI weekly benefit amount. For 1997, base period earnings requirements in the four states studied ranged from $1,628 in Texas to $3,400 in Florida. By 2003, the requirement remained at $2,640 in Ohio, had not changed in Florida, and had risen to $2,997 in Michigan, and to $1,887 in Texas.⁽³⁾

Table 1.
Comparison of State Provisions for UI and TANF Programs

	Florida	Michigan	Ohio	Texas
UI Minimum Base Period Earnings (*1)    1997    2000    2001    2003	$3,400 3,400 3,400 3,400	$2,020 2,020 3,219 2,997	$2,640 2,640 2,640 2,640	$1,628 1,739 1,776 1,887
UI Covered Weeks of Work (*2)    1997    2000    2001    2003	–	–	$3,058 3,432 3,504 3,680	–
State Average Weekly Wage (*3)    1997    2000    2001    2003	$497 578 596 630	$636 726 731 767	$556 624 637 669	$579 687 708 719
UI Average Weekly Benefit Amount    1997    2000    2001    2003	$192 220 223 225	$222 244 261 291	$208 236 248 252	$196 227 241 261
TANF Earnings Disregard (Table does not show small changes in rules over time or other disregards that may affect benefits.)	$200 plus 50% of remainder	$200 plus 20% of remainder	$250 plus 25% of remainder	$120 plus 90% of remainder (33% for eligibility), $120 after 4 mos.
TANF Breakeven Earnings (*4)    1997    2000    2001    2003	$806 806 806 806	$774 774 774 774	$932 996 996 996	$1568 / 308 1581 / 321 1581 / 321 1593 / 333
TANF Monthly Benefit (*5)    1997    2000    2001    2003	$303 303 303 303	$459 459 459 459	$341 373 373 373	$188 201 201 213
Note:  (*1) Base period earnings (BPE) is the sum of earnings in the first four of the previous five completed calendar quarters. For Michigan in 1997 and 2000, the requirement is for at least 20 weeks in which the person earns 30 times the state minimum wage ($101). An alternative, flat requirement is 14 weeks of work and base period earnings that total 20 times the state’s average weekly wage. High quarter earnings requirement is $2,667 for Florida for all years and is $1,998 in 2002-2003 for Michigan. (*2) For Ohio, the weeks of work requirement is 20 weeks at 27.5 percent of the state’s average weekly wage. The earnings requirements implied by the Ohio rule are listed in the UI covered weeks of work row. (*3) State average weekly wage (AWW) earned by those working in UI covered employment for study states. (*4) This is the point at which the TANF benefit is zero due to earnings. Breakeven earnings is computed as (TANF benefit amount) divided by (1-disregard rate) plus the lump sum disregard. Texas has a $1,400 cap on the earned income that can be subject to the 90 percent disregard for 4 of 12 months of TANF receipt (HHS 2006, Table 12-5, footnote 8). (*5) Family of three (one adult and two children with no income). Sources:  HHS (2006) Tables 12-2 and 12-5; USDOL (2008); USDOL (1997, 2000, 2001, 2003).

Some states have a high quarter earnings requirement.⁽⁴⁾ Most states also have an earnings dispersion requirement — all of the four states studied require earnings in at least two calendar quarters of the base period. Ohio is one of a few states in the nation with a base period employment requirement, and it is a very restrictive rule.⁽⁵⁾ The Ohio weeks of employment rule limits eligibility to those with at least 20 weeks of work in which earnings each week are at least 27.5 percent of the state average weekly wage in covered employment (Table 1). For Ohio in 2000, a week of insured employment required earnings of at least $172, which is, more than 33 hours of work at the federal minimum wage of $5.15 per hour.

For those who qualify, UI pays benefits weekly with the cash amount increasing with the level of prior earnings up to a state maximum. Table 1 lists the state-wide average UI weekly benefit amounts. Also listed in Table 1 are average weekly wages of all workers covered by UI in the states examined for the years of our analysis cohorts. This provides a sense of the average wage replacement rate provided by UI to regular full-time workers.

Prior research has suggested that TANF leavers would have a high probability of passing monetary eligibility requirements, but speculates that non-monetary eligibility requirements would eliminate a greater share of TANF leavers from UI eligibility. Regarding monetary eligibility, prior research has failed to recognize the importance of employment requirements separate from earnings rules, and there has been little prior direct evidence on the job separation patterns for recent TANF leavers.

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TANF eligibility and benefits

Needy families with dependent children and earnings below the breakeven thresholds listed in Table 1 may have qualified for cash TANF assistance. States set maximum monthly TANF grant amounts and resource levels. Resource limits apply to liquid financial and vehicle assets. There are also employment requirements for continued TANF eligibility. Work is required immediately upon receipt of benefits in 28 states, within six months in 9 states, and within 24 months in 13 states. States also impose lifetime limits between 24 and 60 months on receipt of benefits (HHS 2000).

Regarding earnings, each state sets its own rules. Over half the states disregard a lump sum and a portion of the rest of the earnings up to the breakeven level of income, at which point the household has worked off TANF.⁽⁶⁾ Other states disregard a portion of earnings. In addition, these disregards are often time limited. Some states have adjusted parameters to permit continued support with household income at thresholds as high as four times the poverty level. In computing benefits, other disregards may apply, such as for child care. TANF benefits and earnings levels across our cohorts are quite similar for Florida, Michigan, and Ohio. For Texas, benefits are lower but earnings eligibility is much higher for the first four months and severely limited thereafter (Table 1). In some cases, these rules changed over the period covered by this study.

For the present analysis, a key aspect of TANF eligibility in the study states is an administrative requirement that to qualify for additional cash assistance, applicants must claim all other available sources of income. Rangarajan, Razafindrakoto, and Corson (2002) note that New Jersey had such a rule in place under AFDC and continued to apply it under TANF. Similar administrative rules are in place in Michigan, Ohio, and Texas.

The TANF eligibility manual for the State of Michigan, Department of Human Services states that, “clients must apply for benefits for which they may be eligible. ... refusal by a program group member to pursue a potential benefit results in group ineligibility” (State of Michigan 2007, PEM 270, pp. 1-6).⁽⁷⁾ The Michigan manual specifically identifies UI as a potential source of cash payments to an unemployed person, and lists instructions on how to file an application for UI.

Ohio administrative rules state that “the assistance group must apply for any monthly benefits to which it is entitled. Ineligibility to participate in OWF results if the assistance group refuses to accept unconditionally available income” (ODJFS 2007, p. 350).⁽⁸⁾ Ohio Works First (OWF) is the financial assistance portion of Ohio’s TANF program. Ohio Works First provides cash benefits to eligible needy families for up to 36 months. After 36 months, a family cannot receive additional cash assistance unless the County Department of Job and Family Services approves an extension of benefits.

The Texas Administrative Code permits return to TANF before all other sources of income are exhausted, but application for any other available income must be made within 90 days to maintain TANF eligibility.⁽⁹⁾ The Texas Health and Human Services Commission (HHSC) requires TANF applicants/recipients to pursue and accept all income to which they are legally entitled. HHSC does not require a TANF applicant to apply for UI benefits or provide proof that they have applied for UI benefits before their TANF application is approved. The policy guidance suggests that a reasonable time, at least three months, is allowed for pursuit of other income. This particular policy is not recent; it dates to prior administration of the AFDC program.

These rules could lower measured eligibility rates among TANF leaver UI applicants. Some with little expectation of qualifying for UI may be forced to jump this hurdle on their way back to TANF. Knowing this could help us understand an important pattern in the data. Consider the three groups of TANF leavers who experience joblessness: (1) UI applicants who get benefits, (2) UI applicants who don’t get benefits, and (3) non-applicants for UI. Rates of return to TANF are similar for groups (1) and (3), while the return to TANF rates for group (2) are much higher. This result may be partly driven by TANF eligibility requirements to claim UI benefits. It is important to consider these rules when interpreting estimates of the relationship of UI with the rate of return to TANF.

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Previous research on employment and earnings of TANF leavers

Acs and Loprest (2004) survey and synthesize results from 18 TANF leaver studies done in 14 states covering activity from 1996 to 2000. They examine work among leavers, characteristics of leavers who are not working, and the well-being of TANF leaver families. They account for differences in methodologies when drawing conclusions from the studies. Acs and Loprest (2004) find that a majority (about 60 percent) worked after leaving TANF. When working, TANF leavers tend to earn above the federal minimum wage, but less than half of all working leavers receive a full set of employment benefits like paid sick leave, health insurance, and paid vacations. During the year after leaving TANF, 70 percent worked at some time, but only 40 percent worked in every quarter throughout the year. They estimated that about 20 percent of TANF leavers returned to TANF within a year. Another 10 percent have no observable earnings, but did not return to TANF. On average, leaver families had relatively low earnings, with 40 to 50 percent living below the official poverty level of income in the first year after leaving TANF.

King and Mueser (2005) observe that welfare caseloads in the U.S. hit a peak of over 5 million households in 1994, then rapidly declined by more than half in five years. They studied the impact of welfare reform on caseloads and the labor market success of TANF leavers in six major metropolitan areas in the U.S. (Atlanta, Baltimore, Chicago, Fort Lauderdale, Houston, and Kansas City). To understand the whole picture, King and Mueser looked beyond TANF exit rates to impacts on long-term welfare recipients, new entrants to TANF, employment of TANF recipients, employment of TANF leavers, and the characteristics of jobs held by those involved with TANF. They found that during the 1990s work increased substantially among TANF recipients and also increased among TANF leavers. The kinds of jobs obtained, however, by TANF recipients and leavers did not change much from earlier periods. Furthermore, job stability was low among those involved in work and most jobs obtained did not provide wages and benefits adequate to assure self-sufficiency.

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Previous research on use of UI by TANF leavers

Some research was done on the interaction between cash assistance and UI before enactment of TANF. Based on employment patterns of women who received Aid to Families with Dependent Children (AFDC) and then left the program, Spalter-Roth, Hartman, and Burr (1994) estimated that only about 10 percent of those who left AFDC for employment would actually collect UI benefits if they subsequently became jobless. Kaye (1997) estimated that about 13 percent of women leaving AFDC would actually draw a UI benefit, while about 35 percent would accumulate sufficient earnings and work experience to qualify for UI (Table 2).

Gustafson and Levine (1997) examined leavers from AFDC using data from the National Longitudinal Survey of Youth and estimated the proportion who would satisfy simulated UI monetary eligibility in data spanning 1979 to 1994. Among those leaving welfare, they estimated that 70 to 85 percent would satisfy the monetary eligibility requirements for UI and about 25 percent of women with job separations would satisfy non-monetary eligibility requirements for UI. Since only a fraction of UI eligible unemployed actually draw UI compensation, they estimate about 10 percent of AFDC leavers would get UI benefits. They assert that the provision mandating that separations be “involuntary” would prevent most workers from gaining UI eligibility and conjectured that the UI system will provide little additional support to the safety net following welfare reform.

Vroman (1998) examined average earnings rates and UI eligibility requirements across states at the time TANF was implemented. He reported that about 35 percent of all unemployed persons receive UI benefits with that rate higher at the beginning of recessions and in states with weaker eligibility criteria. He speculated that compared to others in the workforce, TANF leavers are likely to have higher jobless rates, lower wage rates, higher rates of voluntary quits and discharges, and lower availability for full-time work. Vroman inferred that among jobless TANF leavers only about 20 percent will qualify for UI benefits. He warns that UI is not likely to evolve in ways that broaden eligibility for TANF leavers and that UI is, “likely to play a very limited support role for TANF leavers.” (Vroman 1998, p. 5)

Holzer (2000) examined earnings and employment of TANF leavers in the years immediately following implementation of TANF. Based on his survey of 3,000 employers in four large American cities between 1997 and 1999, he asserted that more claimants would qualify monetarily for UI than in earlier years. Nonetheless, Holzer warned that several remaining barriers to UI eligibility could be significant. These include: job separations due to voluntary quits and dismissals for cause, lack of availability for full-time work, and employment in informal jobs or others not covered by UI.

Kaye (2001) estimates the likelihood that workers at risk of public assistance receipt would meet UI monetary and non-monetary eligibility requirements in 2000. Her analysis uses the nationally representative Survey of Program Dynamics (SPD). Annual waves of the SPD include responses from about 16,000 households and 56,000 persons. She is able to simulate UI eligibility for all but the nine least populated states. She does not analyze welfare leavers, but rather those at risk of welfare receipt. She estimates that 81 percent of at-risk workers would meet the UI monetary eligibility requirements in 1998. Among these, Kaye estimates that less than three-quarters had a qualifying job separation, 40 percent were not available for full-time work, and 64 percent were unlikely to be both available and actively seeking work. The net result is a beneficiary rate of about 25 percent among likely UI applicants.

Rangarajan, Razafindrakoto, and Corson (2002) studied the extent to which former welfare recipients are likely to be eligible for UI and the rate at which those who leave TANF for work file UI claims. Their analysis is based on data from the Work First New Jersey (WFNJ) evaluation which tracks a representative statewide sample of 2,000 TANF recipients who were paid benefits during the first 18 months after TANF started in July 1997. They found that nearly 75 percent of those who left TANF for employment would be monetarily eligible for UI at some point during the first two years after TANF exit. Among these, about 40 percent would satisfy non-monetary eligibility requirements. UI ineligibility for non-monetary reasons would be twice as high among TANF leavers as for all other UI claimants in New Jersey. This could be driven in part by the TANF requirement to claim UI before returning to TANF. Overall, about one-third of TANF leavers would potentially satisfy both monetary and non-monetary eligibility criteria. Potential monthly UI benefits for this group would average about $866 per month, compared with maximum monthly TANF benefits of $424 for a family of three. Relaxing monetary eligibility requirements would modestly raise the share of TANF leavers who would qualify. Relaxing the weeks of work requirement has a greater effect than relaxing the earnings requirement. Alternative base-period rules that consider more recent earnings would allow TANF leavers to qualify for UI faster, but the proportion qualifying would not increase much.

Sanford et al. (2003) did a correlation analysis of factors related to UI monetary eligibility for a sample of 3,085 of the 3,097 welfare recipients in Wisconsin who left TANF for work in the second quarter of 1998. They found that monetary eligibility for UI had a strong positive correlation with being a high school graduate, and having access to child care and medical insurance coverage. They estimated a negative correlation between UI monetary eligibility and the presence of a child less than 6 years of age.

Rangarajan and Razafindrakoto (2004) study the extent to which former welfare recipients would have monetary eligibility for UI if they were to experience a qualifying job separation. They used data from the national evaluation of the Welfare-to-Work (WtW) Grants Program. The sample included those who left TANF for employment between September 1999 and August 2000. Employment and earnings were tracked for 8 calendar quarters after TANF exit. Sample sizes ranged between 1,000 and 15,000 welfare recipients who exited welfare for work in five sites in Maricopa County, Arizona; Cook County, Illinois; Baltimore County, Maryland; Philadelphia County, Pennsylvania; and Tarrant County, Texas. They estimated that 90 percent would potentially attain UI monetary eligibility in the two-year period after TANF exit, while between 50 percent and 80 percent would qualify in any quarter during the two-year period. The rate of potential monetary eligibility was estimated to increase with the length of time from TANF exit to first jobless experience. Rates of expected monetary eligibility were not sensitive to changes in program eligibility rules. Changes examined included adjustments to consider more recent earnings when determining benefit eligibility and relaxing rules requiring availability for full-time work.

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Endnotes

(1) In the case of benefit denial due to voluntary quit or discharge for cause, the UI applicant may re-qualify for UI benefits in the following manner: In Florida, 'by earning 17 times the client’s weekly benefit amount (WBA); In Michigan, by earning the lesser of seven times the client’s WBA or seven times 40 times Michigan’s minimum wage (7 x 40 x MI minimum wage); In Ohio, by having six weeks of work in covered employment with the amount of wages in each week at least 27.5 percent of the state’s average weekly wage; and for Texas, by earning six times the client’s WBA. Source: “Comparison of State Unemployment Insurance Laws (2001),” U.S. Department of Labor, Employment and Training Administration, Tables 401 and 402.

(2) For claimants not eligible based on earnings in the standard base period, earnings in an alternate base year (ABY) — the most recent four completed calendar quarters, is checked in Michigan and Ohio. In Texas an ABY may be considered where work is missed due to a medically verifiable illness, injury, disability, or pregnancy during a major portion of the usual base period. An ABY amendment was considered in the 2002 Florida legislature, but did not pass both houses.

(3) The Base Period Earnings (BPE) requirement is indexed to a multiple of the state average weekly wage (AWW) in UI covered employment or the state minimum wage in Michigan, and to a multiple of the minimum WBA in Texas. The required level of earnings to qualify for UI is set by the legislatures in Florida and Ohio.

(4) The minimum base period earnings to qualify for UI is 1.5 times the minimum high quarter earnings in Florida and Michigan.

(5) Three other states have employment requirements. New Jersey requires 20 weeks or a different earnings formula. Pennsylvania requires 16 weeks. The Washington rule requires 680 hours and one dollar of earnings.

(6) Breakeven earnings are computed as the TANF benefit amount divided by (1-disregard rate) plus the lump sum disregard.

(7) Legal basis for this policy by the Michigan Department of Human Services is set forth in Michigan Public Act 280 of 1939, as amended, which is known as the Social Welfare Act.

(8) Administrative Legal basis for this policy by the Michigan Department of Human Services is set forth in Michigan Public Act 280 of 1939, as amended, which is known as the Social Welfare Act. Policy requiring claiming of UI is stated in the Ohio Department of Job and Family Services (ODJFS) Cash Assistance Manual.

(9) Legal basis for this policy is in the Texas Administrative Code, Title 1, Part 15, Chapter 372 (Texas Works), Subchapter B (Eligibility), Division 7 (Income).

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