The lessons of W-2

Public Interest, Summer, 2000 by Amy L. Sherman

LIKE pious Muslims making the pilgrimage to Mecca, policy wonks have been flocking to Milwaukee to study its ambitious experiment in welfare reform. The reason why isn't hard to figure out. Since 1987, Wisconsin's welfare rolls have plummeted a stunning 88 percent; in Milwaukee, the state's largest city, the welfare caseload has fallen 75 percent, far bigger than the average drop of other large cities. "Wisconsin Works," or W-2, is the pinnacle of Wisconsin governor Tommy Thompson's reform efforts. Launched in 1997, W-2 has won praise from conservatives for its hard-nosed "work-first" principles and from liberals for its generous benefits. W-2's ultimate success, though, will depend on what happens in Milwaukee, since over 80 percent of Wisconsin's remaining welfare caseload--made up of the hardest cases--resides in that city. Milwaukee's experience will demonstrate whether W-2 can serve as a model for all cities or works only for the easier-to-employ.

Critics of welfare reform gloomily predicted that W-2 would devastate Milwaukee's inner city, but so far it hasn't. In fact, in conversations with about 50 individuals in three low-income Milwaukee neighborhoods (Parklawn, Keefe Avenue, and the Hispanic south side), I found that many poor families are faring better. Even more important, W-2 promises to have beneficial long-term effects on families, community life, and the culture as a whole. Yet while the news from Milwaukee is heartening, frontline poverty workers are identifying key points where the system isn't living up to its promise. If W-2 supporters dismiss these constructive criticisms as the tired laments of antireform liberals, they'll miss a crucial opportunity to improve the program and preserve it from the backlash that just a few, easily avoidable, horror stories of welfare-reform failure will surely provoke.

A successful program

The roots of W-2 go back to 1987, when the state began, through a series of incremental reforms, to strengthen work requirements as a condition of receiving public assistance. Precursors to W-2 instituted the "diversion" principle--insisting that an applicant for welfare complete a thorough job search while her application for aid is under review. Wisconsin's 1996 "Pay for Performance" initiative established financial incentives for counties (which oversaw welfare provision) to boost job placements among welfare recipients.

W-2 built on both ideas--diversion and incentives--but it went much further. It opened up the very administration of welfare to competition, shattering the counties' monopoly on the delivery of services. In Milwaukee, five agencies--the for-profits Maximus and YW-Works and the nonprofits UMOS, OIC, and Employment Solutions--soon won state contracts worth, in total, $357 million to serve various areas of the city. The drop in the caseload and the cost savings from privatization (the Wisconsin Policy Research Institute estimates that Wisconsin saved $10.25 million in W-2's first 28 months) have enabled the state to spend 45 percent more per family while keeping W-2's aggregate costs below what they would have been under the old system.

The idea of work is central to the new system. Almost no one, including the disabled, the drug-addicted, and mothers of young children, is exempt from working. Under W-2, a needy individual visits the job center assigned to her locality. A "Resource Specialist" assesses whether she can be diverted from aid (i.e., simply given job tips or a referral to a private helping organization) or should meet with a Financial and Employment Planner (FEP)--W-2's version of the old caseworker. The FEP judges which of W-2's four "tiers" provides the most appropriate level of assistance. Thus far, approximately one-third of the caseload has needed only modest, "first tier" aid (e.g., transportation or daycare benefits). But as agencies reach down to help the remaining welfare caseload--made up of the hardest cases--the percentage of applicants assigned to tiers offering intensive support (such as a "work experience" placement or drug rehabilitation) is growing.

From the start, critics have relentlessly criticized W-2. The biggest fear has been that not enough jobs would be available for those individuals W-2 pushed into the labor market. But using pilot study data from the Bureau of Labor Statistics, economist John C. Weicher estimates that in May 1996, there were probably 35,000 job openings with 30,000 people looking for work in Milwaukee. Today, the city's unemployment is a mere 3.1 percent.

W-2 participants seem to be taking advantage of these abundant opportunities. The state's 1998 study of individuals leaving the welfare rolls showed that a full 83 percent had worked at least at some time since leaving, and that 62 percent were working at the time of their interview (most of them full time). Those not working were not bereft of support: More than half received Food Stamps or unemployment compensation; nearly 20 percent lived with a working spouse or friend; and more than 80 percent received Medicaid benefits.