Consider a young single parent with three small children. The parent is not employed and has no support from other relatives. What does the government provide for the family?
The primary form of cash assistance is likely to come from a program called Temporary Assistance for Needy Families (TANF). This program began with the passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996. It replaced Aid to Families with Dependent Children (AFDC). TANF is funded by the federal government but administered through the states. Eligibility is limited to two years of continuous payments and to five years in a person's lifetime, although 20% of a state's caseload may be exempted from this requirement.
In addition to this assistance, the family is likely to qualify for food stamps, which are vouchers that can be exchanged for food at the grocery store. The family may also receive rent vouchers, which can be used as payment for private housing. The family may qualify for Medicaid, a program that pays for physician and hospital care as well as for prescription drugs.
A host of other programs provide help ranging from counseling in nutrition to job placement services. The parent may qualify for federal assistance in attending college. The children may participate in the Head Start program, a program of preschool education designed primarily for low-income children. If the poverty rate in the area is unusually high, local public schools the children attend may receive extra federal aid. Welfare programs are the array of programs that government provides to alleviate poverty.
In addition to public sector support, a wide range of help is available from private sector charities. These may provide scholarships for education, employment assistance, and other aid.
Figure 19.5 "Welfare Programs and the Poor" shows participation rates in the major federal programs to help the poor.
Figure 19.5 Welfare Programs and the Poor
Many people who fall below the poverty line have not received aid from particular programs.
Not all people whose incomes fall below the poverty line received aid. In 2010, a substantial majority of those counted as poor received some form of aid. However, as shown in Figure 19.5 "Welfare Programs and the Poor", the percentages who were helped by individual programs were much lower. Less than 20% of people below the poverty line received some form of cash assistance in 2010. About 45% received food stamps and nearly 60% lived in a household in which one or more people received medical services through Medicaid. Only about one-seventh of the people living in poverty received some form of housing aid.
Although for the most part poverty programs are federally funded, individual states set eligibility standards and administer the programs. Allowing states to establish their own programs was a hallmark feature of the 1996 welfare reform. As state budgets have come under greater pressure, many states have tightened standards.
Aid provided to people falls into two broad categories: cash and noncash assistance. Cash assistance is a money payment that a recipient can spend as he or she wishes. Noncash assistance is the provision of specific goods and services, such as food or medical services, job training, or subsidized child care rather than cash.
Noncash assistance is the most important form of aid to the poor. The large share of noncash relative to cash assistance raises two issues. First, since the poor would be better off (that is, reach a higher level of satisfaction) with cash rather than noncash assistance, why is noncash aid such a large percentage of total aid to the poor? Second, the importance of noncash assistance raises an important issue concerning the methodology by which the poverty rate is measured in the United States. We examine these issues in turn.