The Work versus Welfare Trade-Off: 2013
August 19, 2013
In 1995, the Cato Institute published a groundbreaking study, The Work vs. Welfare Trade-Off, which estimated the value of the full package of welfare benefits available to a typical recipient in each of the 50 states and the District of Columbia. It found that not only did the value of such benefits greatly exceed the poverty level but, because welfare benefits are tax-free, their dollar value was greater than the amount of take-home income a worker would receive from an entry-level job.
Since then, many welfare programs have undergone significant change, including the 1996 welfare reform legislation that ended the Aid to Families with Dependent Children program and replaced it with the Temporary Assistance to Needy Families program. Accordingly, this paper examines the current welfare system in the same manner as the 1995 paper. Welfare benefits continue to outpace the income that most recipients can expect to earn from an entry-level job, and the balance between welfare and work may actually have grown worse in recent years.
The current welfare system provides such a high level of benefits that it acts as a disincentive for work. Welfare currently pays more than a minimum-wage job in 35 states, even after accounting for the Earned Income Tax Credit, and in 13 states it pays more than $15 per hour. If Congress and state legislatures are serious about reducing welfare dependence and rewarding work, they should consider strengthening welfare work requirements, removing exemptions, and narrowing the definition of work. Moreover, states should consider ways to shrink the gap between the value of welfare and work by reducing current benefit levels and tightening eligibility requirements.
There is little doubt that one of the most important long-term steps toward avoiding or getting out of poverty is taking a job. Only 2.6 percent of full-time workers are poor, as defined by the Federal Poverty Level (FPL) standard, compared with 23.9 percent of adults who do not work. Even part-time work makes a significant difference; only 15 percent of part-time workers are poor.1 And while many anti-poverty activists decry lowwage jobs, a minimum-wage job can be a springboard out of poverty.
Moreover, while periods of high unemployment undoubtedly make it harder for individuals to find work, especially lowskilled workers, the relationship between unemployment rates and the number of families on the Temporary Assistance for Needy Families (TANF) welfare program is tenuous at best, as indicated in Figure 1.2 Contrary to stereotypes, there is no evidence that people on welfare are lazy or do not wish to work. Indeed, surveys of welfare recipients consistently show their desire for a job. At the same time, however, the evidence suggests that many are reluctant to accept available employment opportunities.
Despite the work requirements included in the 1996 welfare reform, nationwide less than 42 percent of adult welfare recipients are actually working. The actual work participation may be much lower than that. Many recipients credited as working do not have jobs, but are participating in other “work activities” such as job training or job search. In fact, less than 20 percent of recipients have unsubsidized private-sector jobs.
The entire paper can be read at http://object.cato.org/sites/cato.or...ff_2013_wp.pdf.