For more than three decades, proponents of welfare reform have tried unsuccessfully to simultaneously increase work, reduce poverty, and reduce welfare dependence among public assistance recipients. Initiatives that provided more income to people made them better off financially, but discouraged work. Initiatives that required work lowered dependency as recipients substituted work for welfare, but had little effect on income. Confronted with this dilemma, policymakers intensified their search for strategies that could both increase work effort and increase total income without deepening dependency.

Two primary approaches have been tried to accomplish welfare reform’s three goals: One approach is to mandate participation in employment and training programs as a condition of welfare receipt. Another approach makes work pay by emphasizing financial incentives that allow recipients to retain more of their welfare benefits when they go to work.

Until recently, these approaches have rarely been used together. Consequently, a combination of mandating work-focused activities and increasing financial incentives to work has remained untested as a single strategy. The Minnesota Family Investment Program (MFIP), a welfare reform initiative aimed at increasing families’ employment and earnings while increasing their total income and reducing poverty, has combined the two approaches to meet its goals. Operating in seven Minnesota counties since April 1, 1994, MFIP provides an unusual opportunity to evaluate the combined effects of financial incentives and mandated activities.

MFIP’s two-part strategy operates like this: First, it enhances welfare recipients’ financial incentives to get a job by allowing them to keep more of their benefits while they are earning income than they would have with the traditional Aid to Families with Dependent Children (AFDC) program. Second, it requires long-term welfare recipients to participate in employment-focused activities. This two-part strategy was designed to achieve the goals of Minnesota policymakers: to encourage work and to make working families better off financially.

This report is the second in an evaluation of MFIP that MDRC is conducting under contract with Minnesota’s Department of Human Services (DHS) and with support from the Ford Foundation, the U.S. Department of Health and Human Services, the U.S. Department of Agriculture, the McKnight Foundation, and the Northwest Area Foundation. The report examines the implementation of MFIP and its effects on welfare recipients’ employment, earnings, welfare receipt, and total income during their first 18 months in the study.

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