#103 Jan/Feb 1999

Shelter Shorts

The Welfare Shuffle As President Clinton and other politicians hail the news of the drop in welfare rolls across the country, a less rosy scenario is emerging. In Washington state, […]

The Welfare Shuffle

As President Clinton and other politicians hail the news of the drop in welfare rolls across the country, a less rosy scenario is emerging.

In Washington state, for example, 13,600 of 30,000 former welfare recipients who had found work either lost jobs or quit them between January 1997 and November 1998 and applied for unemployment benefits. Further, sharp declines in welfare rolls nationally in the past few years have slowed to a trickle in recent months in some states. New Mexico, after nearly cutting its rolls in half, experienced a 40 percent increase during 1998, The New York Times (1/25/99) reported. And many in Washington state and elsewhere worry about what will happen if an economic downturn occurs. Already, in a supposedly robust economy, 50 percent of newly employed welfare recipients nationwide lose their jobs within the first six months and 75 percent in the first year, according to the U.S. Department of Health and Human Services.

President Clinton plans to announce several proposals to further reduce the rolls, including $1 billion to help 200,000 long-term welfare recipients in high poverty areas find work; $430 million for 75,000 housing vouchers, and $150 million in transportation money to help people get to jobs. Washington Governor Gary Locke’s budget proposal includes a request for $10 million to set up a pilot WorkFirst program to hire additional employment specialists who would intervene when a former welfare recipient is about to apply for unemployment aid, the Associated Press recently reported. Potential applicants would be offered counseling, job training, and child care in an effort to keep them off the unemployment rolls.

Americans support such changes designed to help families successfully complete the transition from welfare to work, found a recent survey sponsored by the W.K. Kellogg Foundation, reported by U.S. Newswire (1/13/99). However, “Americans are not willing to judge the success of reform efforts merely on the basis of a reduction in the numbers of those receiving public income support,” according to William C. Richardson, president and chief executive officer of the foundation. The survey of more than 3,400 American households also found that the majority believe that those who cannot take care of themselves, such as children, the elderly, and people with disabilities, should be eligible for social services paid by the government, and that the “working poor” should be eligible for the same benefits as those making the transition from welfare to work.

Discrimination in Business Lending

Black-owned small businesses are almost three times more likely than white-owned businesses to have a loan application denied, according to a study released in December 1998 by the National Bureau of Economic Research. Even after taking into account differences in an extensive array of measures of credit-worthiness and other characteristics, the study found that loan denial rates are significantly higher for black-owned firms than for white-owned firms.

The study, by economists David Blanchflower, David Zimmerman, and Phillip Levine, also found that black-owned firms obtaining credit pay approximately 1 percent higher interest rates than white-owned firms with similar measures of credit worthiness. The difference actually increases to 1.5 percentage points when only firms with no credit problems are included in the analysis.

Once the selection bias problem is accounted for (i.e., firms don’t even apply because they fear rejection), Hispanic-owned firms are also found more likely to be denied credit than white-owned firms are, with a difference of 13 percentage points.

Even these results are likely to understate the differences, the authors contend, because many potential black-owned firms are not in operation due to lack of credit, and some of those in business may not bother to apply at all.

An abstract for the paper, Discrimination in the Small Business Credit Market,  and instructions for downloading ($5), is available at https://papers.nber.org/papers/W6840

Wages Not Keeping Pace with Rents

A study from the University of Massachusetts’s Donahue Institute and the Citizens’ Housing and Planning Association has revealed that one quarter of Massachusetts households are contending with a severe housing affordability problem, with a number facing homelessness, eviction, or foreclosure.

According to the study, over 36 percent of all renters in Massachusetts – which passed a ballot measure to abolish rent control in 1994 – were paying more than they could afford for housing in 1996. Evictions increased by 64 percent from 1993 to 1997, and the state has experienced a 100 percent increase in the number of homeless families since 1990. About 10,000 Massachusetts families live in shelters or on the streets, the study finds.

The study concludes that the supply of affordable rental housing is diminishing due to demolitions, conversions of rentals to owner-occupied housing, and the low production of multifamily housing. Housing advocates and policymakers say that a major part of the problem is that wage increases have failed to keep up with steep increases in Massachusetts’s apartment and home rental rates.

Citizens’ Housing and Planning Association, 617-742-0820.


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