Welfare to work: Why bother!

Back in 1995, the Cato Institute published a study entitled, “The Work vs. Welfare Trade-Off,” which analyzed welfare benefits in all 50 states, and concluded they were a disincentive to work. A year later, the Congress enacted, and President Clinton signed, welfare-reform legislation that ended Aid to Families with Dependent Children, replacing it with the Temporary Assistance to Needy Families (TANF) program.

 

This year, the Cato Institute reviewed the work-to-welfare trade-off and found that our welfare policy is still a disincentive for people to move from welfare to work. Here’s what the study found.

 

Nationwide, less than 42 percent of adult welfare recipients work. Caveat: the 42 percent figure is probably high because “work activities” such as job training and job search are included as work. Cato concludes that less than 20 percent of welfare recipients have unsubsidized, private-sector jobs.

 

Tracking welfare requires following 126 different federal programs in the form of cash, food, housing, medical care, utility assistance, etc., of which 72 either provide cash or in-kind benefits to recipients.

 

The remaining programs are either targeted to communities or are categorical, such as belonging to a disadvantaged group. To this number, add a multitude of state, county, and municipal programs. Federal and state welfare programs combined now cost taxpayers nearly $1 trillion annually.

 

I focused just on New York state to measure the disincentive to move from welfare to work. In inflation-adjusted terms, for a mother with two dependent children, New York has increased its welfare-benefits package between 1995 and 2013 from $33,430 to $38,004, a 13.7 percent increase. Keep in mind that the above numbers are after-tax dollars. A working person in New York must earn $43,700 in gross wages to net the $38,004. Based on a work-year of 2,080 hours, that’s the equivalent of just over $21 per hour or 110.5 percent of the state’s median salary.

 

Clearly, not all welfare recipients utilize all of the programs available, but those on welfare for long periods are likely to receive multiple benefits. Despite help from the earned-income tax credit, the child-tax credit, and other aid to transition from work to welfare, those who opt out of welfare must be prepared to pay for items such as transportation, childcare, and clothing.

 

For all of the hoopla associated with welfare reform back in 1996, not much has changed, except that the level of benefits for New York state recipients is more generous. While welfare recipients are required to work or participate in a job search, the definition of work activity is so broad as to exempt the majority on welfare and the benefits so generous that a recipient can earn more on welfare than in the workplace. The result is a huge financial burden to taxpayers and a trap for many recipients who choose leisure over work.

 

Any idea that the nation has a public policy to encourage work over welfare is belied by the figures. Until we reduce the current benefit level and tighten the eligibility standards, nothing will change.

 

Under these circumstances, deciding to draw welfare and not work is a purely rational choice.

 

 

 

Norman Poltenson is publisher of The Central New York Business Journal. Contact him at npoltenson@cnybj.com