In 1994, the state of Minnesota began a major welfare reform initiative aimed at encouraging work, reducing dependence on public assistance, and reducing poverty. The Minnesota Family Investment Program (MFIP) differed from the Aid to Families with Dependent Children (AFDC) system in three key ways:

• Financial incentives to work. In MFIP, more earnings were disregarded when calculating grant levels, and child care payments were paid directly to providers.
• Participation requirements for long-term recipients. If not working full time, long-term welfare recipients had to participate in services designed to move them quickly into the workforce.
• Simplification of rules and procedures. MFIP combined AFDC, Food Stamps, and the state-run Family General Assistance (FGA) program into a single program with one set of rules and procedures and one monthly payment.

A central concern surrounding the recent wave of welfare reforms is how children will fare if their parents are subject to such policies as work mandates, time limits, and enhanced earnings disregards. Although research in child development suggests that children are affected by changes in their parents’ employment, income, and other aspects of the family environment, the net effects of these types of programs are not well understood. The findings in this report present one of the first looks at the effects of an innovative welfare reform policy on children. It also provides an unusual opportunity to more broadly assess how changes in income and employment can affect children’s outcomes.

MFIP began operating in April 1994 in three urban and four rural Minnesota counties, and MDRC, under contract with the Minnesota Department of Human Services (DHS), has been tracking its implementation and effects. Between April 1994 and March 1996, over 14,000 families were assigned at random, using a lottery-type process, to either the MFIP or the AFDC system. This study, which focuses on family and child well-being, follows a sample of families in the urban counties of the MFIP evaluation who had a child age 2 to 9 at the time of random assignment. MFIP’s effects on families and children are assessed by comparing the outcomes for the experimental group (MFIP) and the control group (AFDC) three years after they entered the evaluation. A companion volume discusses adults in the study and focuses on MFIP’s effects on such economic outcomes as employment, earnings, welfare receipt, and income for the full evaluation sample.

Long-term recipients in this report are identified as those single mothers who had been on welfare for at least 24 of 36 months prior to random assignment. These single mothers were required to participate in employment-related services at the onset of the study. The findings for long-term recipients and their families are:

• Children in MFIP exhibited fewer behavioral problems and did better in school. Compared with mothers in AFDC, single mothers in MFIP reported that their children exhibited fewer problem behaviors, such as being cruel, disobedient, or moody, and performed better and were more engaged in school. Although the improvements in these outcomes were moderate to small in magnitude, they are likely to have important implications for the future well-being of these children.
• Mothers in MFIP were more likely to work and had higher incomes. Throughout the three-year period, single mothers in MFIP, relative to those in AFDC, were more likely to work, earned more, and had higher incomes from earnings and welfare. About half the mothers who got jobs because of MFIP worked part time, and the other half worked full time. Most worked in moderate-wage jobs, and most stayed employed consistently.
• Children in MFIP were more likely to be placed in child care, particularly child care centers, and they were more likely to have continuous health insurance coverage. Single mothers in MFIP were more likely than mothers in AFDC to have used child care during the three-year period, especially formal care. Most of the mothers who used formal child care because of MFIP used it consistently. Children in MFIP were also more likely to have been covered consistently by health insurance, primarily Medicaid or MinnCare. The increase in consistent coverage most likely reflects the fact that, with MFIP’s financial incentives, families were more likely to remain in the welfare system during the three-year period.
• Mothers in MFIP were more likely to marry and less likely to experience domestic abuse. Mothers in MFIP were more likely than those in AFDC to report being married at the three-year mark. They were also significantly less likely to report experiencing domestic abuse, by intimate partners and unrelated individuals, during this time.

Recent applicants in this report are identified as those single mothers who were new applicants to welfare or who had been on welfare for less than 24 months before random assignment. Findings for recent applicants are:

• Children in MFIP generally fared similarly to other children. Single mothers in MFIP reported somewhat similar levels of behavioral problems and school progress for their young children as did mothers in AFDC.2 Young children in MFIP also were more likely to have been covered consistently by health insurance during the three-year period.
• Mothers in MFIP were only slightly more likely to work and did not have higher earnings or incomes, and they experienced few other changes in their well-being. Throughout the three-year period, most mothers in this group faced only the enhanced financial incentives, because the mandate to participate in employment-related services was targeted to long-term recipients. In general, MFIP had little effect on mothers’ earnings and income and no effect on other outcomes, such as marriage, depression, and domestic abuse.