The effect of welfare sanctions on TANF exits and employment

• We estimate effects of being sanctioned and the effects of agency sanction policy.
• Importance of accounting for time on welfare, time sanctioned, level of sanctions
• Sanctions increase the likelihood of transition off TANF cash assistance.
• A higher agency sanction results reduced time on welfare.
• Effect of sanctions on W–2 exits increase with the duration of the sanction spell.

Using longitudinal administrative data for Wisconsin, this article accounts for the length of time on welfare and the length of sanctioning to better understand the effect of work-related financial sanctions on cash welfare (TANF) participants' program exits and subsequent employment. Temporary Assistance for Needy Families (TANF) remains an important, if less generous, part of the safety net for families with children. Our findings highlight the importance of considering the time on welfare, duration of sanctions, and post-welfare employment and earnings outcomes. The results indicate that being sanctioned increases the likelihood of transition off TANF cash assistance and this effect increases with the duration of the sanction. In addition to measuring the effects of welfare sanctions on individual participants, the article also estimates the effects of agency sanction policies, using measures of the risk of sanctions at the agency level. Agency policy effects were of interest both because they addressed the potential effects of changes in the threat of sanctions—even on those not directly subject to them—and because the agency effects were not subject to the same concerns about unobserved individual heterogeneity between sanctioned and non-sanctioned participants. We found that an increase in an agency's use of sanctions resulted in increased exits to no job, to jobs paying less than cash benefits, and to jobs paying more than available cash benefits. Our results have important implications for understanding the consequences of financial sanctions for public program participants.