Helping Welfare Recipients Become Their Own Bosses

Building a Better Bootstrap

A successful way to get some welfare recipients to work is to help them become their own bosses.

State Legislatures Magazine, May 1997

By Jack Tweedie

Many poor people want more than just to find work and leave welfare. They want to be their own bosses. The Women's Self-Employment Project (WSEP) in Chicago is one of many organizations around the country that help them do just that. It works with low-income women to help form small enterprises, learn business and financial skills, develop marketing plans and obtain loans. It has helped women leave welfare to become clothing designers, word processors, manicurists, caterers, jewelry makers and child care providers.

More than 5,000 women have enrolled in the Chicago program and more than 600 businesses have been started SINCE 1986. About a third of these participants were on welfare.

"We're providing women access to opportunity by offering training, technical assistance, networking and peer support, as well as loans," says Connie Evans, president of WSEP. Its Women's Business Initiative is a 12-week program in entrepreneurial training in marketing, finance and management. The Full Circle Fund uses "borrowing circles," groups of four to five borrowers who share responsibility to ensure that everyone pays back their loan. Peer pressure substitutes for collateral.

A WSEP savings program helps welfare recipients build up capital. Through Individual Development Accounts, WSEP matches recipients' savings up to $20 a month on a 2 to1 basis. If a woman can save $20, WSEP puts in an additional $40. Money from the accounts can only be spent for asset-building purposes--education, starting or expanding a business, or buying a first home.

Microenterprise programs across the country, such as WSEP, the Acre Family Day Care Corporation in Massachusetts and the Good Faith Fund in Arkansas, show substantial promise. A study of seven different programs involving 400 businesses showed that 85 percent are still in operation after three years. About one-third of program participants actually establish a business; another 20 percent go on to additional training or education and find jobs. Among the welfare recipients that start their own business, two-thirds report additional family income and more than half earn enough to leave welfare. While most of these businesses are small, a third of them hire additional employees, including former welfare recipients.

KNOCKING DOWN BARRIERS

WSEP and other microenterprise programs for low-income women are non-profit ventures established to help poor women become self-sufficient. Trying to help women on welfare start their own businesses has been difficult because the system hasn't been set up to meet the needs of entrepreneurs. A person on welfare can't accumulate assets and the system doesn't recognize the expense of running a business as a deduction from income. Microenterprise is usually a long-term strategy for women seeking to leave poverty. Many entrepreneurs need to stay on public assistance while their business grows large enough to be self-supporting.

WSEP has been aggressive in working with the Illinois legislature to develop policies that can help women overcome these barriers. Representative Barbara Flynn Currie sponsored legislation in 1992 that established a "self-employment exemption" with the state AFDC program. The legislation set up self-employment programs as a JOBS activity that provides training in business, finance, marketing and credit applications. WSEP became the model for drafting the regulations for Illinois' self-employment programs. It provided for careful screening of applicants to focus on those who had the motivation and skills needed to succeed at business. The program also enabled participants in self-employment programs to set up separate business accounts and accumulate up to $5,000 in business assets without affecting their eligibility for AFDC, child care or Medicaid.

Later legislation also set up the Work Pays Initiative that allowed recipients, including those who are self-employed, to keep a larger share of their earnings. Instead of losing $1 of benefits for every dollar of earning, recipients can keep $2 of every $3 of earnings. This motivates recipients to earn additional income. It also helps self-employed recipients during the years it often takes to get a business going. Other states have followed similar approaches in allowing recipients to keep more of their earned income and to accumulate more assets without losing welfare eligibility. The flexibility accorded states under the new federal Temporary Assistance for Needy Families (TANF) program allows further development of these policies.

WSEP is one of the many programs that demonstrates the potential of microenterprise programs for welfare recipients. While these programs are not suitable for all, or even most, recipients, they provide an opportunity for women with the requisite skills and interest to start a business. They provide a special form of job creation--one where recipients become their own bosses--creating their own jobs and making their own contribution to the local economy.

NCSL Contacts for More Information on State Welfare Reform

Call the Denver office at (303) 830-2200 to talk with our state specialists, or click on name to e-mail:

Jack Tweedie--state welfare policy, work programs
Christi Goodman--child support
Scott Groginsky--child care

Call the Washington, D.C. office at (202) 624-5400 to talk with our federal specialists:

Sheri Steisel--federal welfare reform, federal human services, child care, child support, child welfare, immigration
Ann Morse--federal, state and local immigration