Uninformed welfare reform

...As Christopher Jencks asks in the Fall 1992 American Prospect, what is so terrible about dependency on the government anyway...

...However, over half (between 50 and 60 percent) of those on the rolls at any given time are from this long-term group...

...Approximately half of AFDC recipients use welfare episodically, while a minority (between 17 and 30 percent, depending on definitional differences) are on the rolls for eight years or more...

...The combination of increased output (GDP grew at an annual rate of 4.8 percent in the fourth quarter of 1992) and decreased demand for labor has led to the high productivity numbers of the last few quarters...

...These declining wage trends result directly from the economic policies of the past twelve years...

...How do liberal and conservative notions of reform differ...

...Liberal reformers have realized this and place welfare-to-work job training at the center of their reform efforts...

...Any serious welfare reform based on welfare-towork must face up to the fact that the contemporary labor force is failing many blue- and white-collar workers with years of experience and education...

...These programs are initially very expensive...

...What, for example, will we do about those mothers (and there are sure to be more than a few) who either cannot or will not seek employment...

...Instead of clamoring for reform that is ill-suited to the realities of the current market, let us accept that we are buying some temporary well-being for those who need it...

...The welfare debate poses two questions...

...Also, although the average welfare payment only affords a poverty-level lifestyle, it takes a decent paying job with family health insurance coverage to match the welfare package plus pay job-related expenses (like 278 • DISSENT child care and transportation...

...That this is happening so soon after the last wave of reform (which resulted in the Family Support Act of 1988) suggests the intractable nature of the problem...

...Yet it is far from clear that anything immoral is going on...

...Such transgressions are no more or less acceptable if the offender is a welfare recipient, a defense contractor, or CEO whose inflated salary package has no relation to firm performance (a case of a less-thanmoral private market outcome...

...Experiments from the mid-1980s found that recipients who received training gained earnings increases 10 to 20 percent above those who did not...

...It is undoubtedly true that some single mothers would rather be on welfare than work...

...But few seem to have thought through the implications of such a policy...

...The fiscal argument against dependency seems weak given the size of the expenditures relative to other, more popular, transfer programs...

...Benefits fell in real terms starting around 1970 (by 1992 they had fallen 43 percent) and eligibility rules were tightened...

...Liberal welfare reformers would prefer that poor persons not have the choice of removing themselves from the labor market for long periods...

...But the long-termers are the most costly recipients to maintain, since they dominate the caseload at any given point in time...

...Starting in the mid-1960s, welfare rights organizations and progressive lawyers helped to make AFDC more accessible than ever before...

...First, is dependency the problem it is made out to be...

...Unemployment is historically high for a recovery...

...But as economist Lawrence Mishel has pointed out, this increased productivity is a mixed blessing...

...In 1991, a mother of two children who was employed full time, full year at $5.13 per hour would have earned about $2,000 more (before taxes, some part of which would be rebated to her) than she would have received through the combination of AFDC and food stamps...

...For high school dropouts, the percentage decline is less, but the levels are lower...

...The question of welfare dependency is relative...

...The evidence shows low wage levels and sharp wage decline experienced by this group...

...If we assume eight years of uninterrupted welfare receipt as an arbitrary definition of dependency, we find that eliminating spending on such cases in 1991 would have saved something like $12 billion, or 0.7 percent of total government expenditures...

...This time, the centerpiece of reform is the idea of a two-year time limit on the welfare rolls...

...In this climate, it is unrealistic to force welfare mothers off the rolls or to impose a time limit on welfare...

...The first, associated with Charles Murray, suggests that welfare is the problem, not the solution...

...It also suggests substantial competition for the jobs that are offered, putting an additional burden on welfare-to-work training programs...

...Concern with these economic trends, the result of structural deficiencies in the U.S...

...Welfare reform, as currently conceived, fails to come to grips with the nature of the contemporary labor market...

...Between 1979 and 1989, high school graduates in the group saw their wages fall 16.7 percent...

...over the full period a worker in this group lost 25.3 percent of her hourly wage, on average...

...We are in the midst of a sluggish recovery with spotty job growth...

...In addition, these savings must be balanced against the increased social costs —from homelessness, illness, crime—that will inevitably follow when benefits and services are withdrawn...

...Union membership, long associated with decent wages, has precipitously declined...

...All Americans in the labor force, be they white collar or blue collar, are facing a slack labor market characterized by skittish firms and falling wages...

...Under the Reagan administration's 1981 budget, as many as five hundred thousand families were cut from the rolls...

...And second, what results can we expect from the proposed solutions of human-capital investment and time limits...

...Why should the morals of welfare recipients be a topic for social analysis any more than those of farmers or homeowners...

...Perhaps the most relevant wage analysis concerns black female entry-level workers, with high school educations or less, since this group is disproportionately represented on the welfare rolls...

...Created in 1935 as part of the New Deal, Aid to Dependent Children (as it was first called) was essentially the federalization of state programs of mothers' pensions...

...Former recipients raise their earnings capacity to the point where they are better off than they were on welfare...

...Once this is undertaken, we can turn again to welfare reform, with the serious intention of investing in the future of welfare recipients, so they too might prosper from an equitable economy...

...First, since only about one-quarter of those on welfare receive benefits for long periods of time, the dependency problem has been overstated by critics...

...In fact, an economist might consider this the rational choice, given the constraints of her earning capacity, child-care costs, and home-care responsibilities...

...A policy that eliminated them from the rolls would generate the greatest savings (leaving aside its social costs...

...In the meantime, we can correct the labor-market policies that have depressed wages for the majority of workers over the last decade...

...It should eventually lead to wage growth and better living standards for those producing more efficiently, but it means that GDP has to grow a lot faster if we are to employ additional workers, including those who would be pushed off the welfare rolls...

...Where have past reforms failed...

...In addition, the average benefit grew about 35 percent between 1960 and 1970...

...The average welfare recipient has less education than the average worker...

...For instance, early studies from states that have eliminated general assistance programs [welfare generally for single men] have found that increased costs of criminal justice have outpaced the welfare savings...

...Surely, we won't let them and their children starve...

...Since these earnings led to reductions in benefits, there were also welfare savings for states (though usually less than 10 percent...

...in addition, as noted above, there is a discussion of imposing a two-year time limit on welfare receipt...

...This surplus would have to cover child care and health insurance, unlikely to be provided by her low-paying job...

...A similar critique, associated with Lawrence Mead, also maintains that welfare leads to moral decline...

...This does not imply that welfare dependency, if it is truly a social problem, ought to be ignored, only that the fiscal return from eliminating it will be relatively small...

...However, they believe that dependency is caused by structural factors, such as unequal educational and job opportunities, which put certain persons at a disadvantage...

...It sounds simple, but of course it's not...

...Does welfare really need reform...

...production workers in competition with workers in other countries who work for a fraction of their wage...

...The war on welfare had begun...

...Is this the time to be forcing persons who are at a distinct disadvantage into the labor market...

...Jencks notes: "The elderly certainly don't complain about it much...

...The moral argument is hollow for a number of reasons...

...From the right, two related critiques have emerged...

...Welfare dependency" became the focus of both political and academic debate...

...Few entry-level, service-sector jobs provide this level of compensation...

...For high-school dropouts, the wage loss was even greater...

...The real minimum wage has fallen 30 percent since 1979...

...Meanwhile, many, if not most, firms continue to reduce the size of their workforce, a trend that began in the late 1980s...

...There are many families throughout the income scale who depend on government transfers of one type or another, and at a much greater cost than AFDC...

...Moreover, non-welfare transfer recipients typically receive benefits for extended periods: in the case of deductible mortgage interest payments, for the life of the loan...

...Close to 90 percent of eligible families sought assistance, indicating that both the stigma associated with welfare receipt and the usual administrative hassles had been relaxed...

...Many firms are also hiring part-time and temporary workers as a way to avoid fringe benefit costs...

...Lax trade policies have put U.S...

...Today the popular proposal is to take the welfare option away, at least after a prescribed time period...

...Most welfare-to-work programs, severely strapped for funds, have become nothing more than employment referral services, referring recipients to the lowest paying service sector jobs...

...Certainly, many people bilk the public purse, some through the welfare system...

...While the median wage fell by 4.9 percent between 1979 and 1989, the average hourly wages of entry-level workers with a high-school education (persons with one to five years of experience in the labor force) fell much further, by 13.5 percent for females and 22.4 percent for males...

...Other policy options, like wage subsidies or enforcing child-support payments, would be useful, but these, too, are constrained by fiscal and labor market realities...

...The first striking historical point about welfare is how different its current mandate is from its original charge...

...These critics see welfare as a perverse force that decreases SUMMER • 1993 • 277 the labor supply and increases immorality by encouraging out-of-wedlock births and single-parent families...

...The initial goal was to keep both mother and child out of the work force...

...Their solution: end the system, or at least cut it drastically...

...The current administration also has adopted the human capital rhetoric...

...SUMMER • 1993 • 279...

...For example, tax expenditures from deductions for interest on home mortgages were 3.1 percent of federal spending in 1992, while spending on AFDC was less than 1 percent of federal spending (the average state share was slightly more than 1 percent of average state expenditures...

...in the case of subsidies to farmers, there are no time limits...

...Unless a single mother on welfare can find a job that pays her a net wage (after work-related expenses) comparable to her welfare budget, including food stamps and medical coverage, we should expect her to resist being forced into the labor market...

...We can pursue minimum-wage, trade, tax, and labor policies to ameliorate the income inequalities that characterized the 1980s...

...but interestingly, Mead's solution involves more government—he recommends public policies to enforce employment, and his recommendations have been taken seriously by policy makers...

...Controlled experiments have found that training programs can have long-term benefits...

...The last stab at reform, the Family Support Act of 1988 (in large part the work of Senator Moynihan) had a substantial training component, but one that has never been seriously funded...

...Although I consider it socially appropriate to use welfare as a safety net for families in economic trouble, someone else may believe that such use encourages excessive dependence on government largesse...

...Why are certain departures from private market outcomes uncritically accepted, while scholars write extensively about the morals of welfare recipients who fail to live by the market...

...The popular critique of dependency on welfare depends on who's doing the criticizing...

...What can we expect from welfare reform based on work requirements and time limits...

...Enemies of dependency add to this happy ending an increased level of self-esteem, as former recipients are more fulfilled...

...In addition, public sector spending is constrained, at least politically, by the deficit...

...economy, have been conspicuously absent from the welfare debate...

...In contrast to the current emphasis tying welfare to employment, early advocates of welfare were primarily interested in breaking the dependency that single-mother families had on their children's labor...

...These percentages reveal two important points...

...Yet these numbers can only inform, not answer, the question of welfare dependency...

...This leads liberals to the human-capital solution (that is, expanding recipients' earning capacity...

...Most liberal policy makers also appear to accept the proposition that welfare dependency is an important problem...