New CEA report highlights welfare’s disincentives, and suggests how to fix them

By Robert Doar of AEI.

"The president’s Council of Economic Advisers (CEA) has a new report out on the relationship between large welfare programs and work, which echoes many of the themes I learned while administering such programs in New York City.

First, it identifies a fairly large group of non-disabled working age adults who receive various government benefits but do not work at all, though they could — and if they did, they would be significantly better off.

As the CEA report emphasizes, self-sufficiency is the goal, and work requirements help to get people there. Via Twenty20.

The number of such people in Medicaid, for instance, is about 9.1 million. What’s more, 55 percent of non-disabled Medicaid recipients ages 18–49 and without children do not work at all, a higher rate of non-work than for adults with a child between the ages of 1 and 5. Think about that for a moment — Medicaid recipients who are parents of children under 6 are working more than Medicaid recipients who are not parents at all. And if just half those 9.1 million people rejoined the labor force, the frustratingly low labor force participation rate would spike to 65 percent — our highest rate in eight years. (Every additional million people in the labor force would increase the rate by 0.4 percentage points.)

The numbers are just as stark when it comes to the Supplemental Nutrition Assistance Program (SNAP, or food stamps), which provides benefits to more than 10 million non-disabled working-age adults who do not work at all. A staggering 60 percent of SNAP recipients ages 18–49 with no children do not work, a rate 3 percent higher than the rate of non-work for SNAP recipients with infants.

These statistics mean that even in good economic times, with jobs available, millions of Americans have dropped out of the labor force and are being supported by a safety net which makes little effort to help them escape poverty by getting a job.

The CEA report points out a shortcoming of work subsidies like the earned income tax credit, which are frequently cited as useful tools to draw people back into the labor force. The problem is that by only providing subsidies or rewards for work through the EITC — and not requiring work in other programs – we don’t really reduce the disincentive to join the labor force or work more hours. Increases to such programs have led healthy adults to “become increasingly reliant on welfare” while experiencing “stalled employment growth, in part because of the disincentives welfare programs impose on increasing one’s own income.”

High marginal tax rates formed by the combination of safety net program benefits and wage subsidies may be keeping people from taking a job or working more hours. Work requirements would provide the necessary nudge to help people leap across the gap between what benefits provide and what can be earned through work.

The report makes clear that when we did try work requirements, in the wake of the 1996 welfare reform law, the results were positive. Welfare reform “provides evidence that applying work requirements to existing welfare programs can increase employment and reduce dependency,” and the report notes that TANF’s work requirements produced more work (a 10 percent increase in the employment rate of single mothers), less poverty (a 20 percent decline), and better outcomes for children, while not increasing the extent of deep or severe poverty.

But the best aspect of the report is that it shows how work requirements need to be applied to a subset of those on Medicaid, SNAP, and housing assistance — adults who are not disabled, not caring for a child under 6, and not working at all. To leave this group trying to survive without either income from earnings or the dignity that comes from employment is not compassionate: It does more harm than the benefit provided by a health insurance card or a debit card for food. What would do the most good is consistent work for wages — but it can be difficult to make the leap off assistance programs and into self-sufficiency. As the CEA emphasizes, self-sufficiency is the goal — and work requirements help to get people there.

The report is clear: Our welfare system has made tremendous strides in the fight against material hardship, but has discouraged self-sufficiency in the process. As a former administrator of welfare programs, it’s encouraging to hear that others share my belief that government agencies can do the equivalent of walking and chewing gum: They can both provide financial aid and help people get to work."