Health & Human Services

Welfare's Not a Work Issue, It's a Wage Issue

A new conservative report claims welfare benefits disincentivizes people to work. Federal data, however, suggests that's not the case.
by | September 10, 2013

The right-leaning Cato Institute created quite a dust-up last month with the release of its report "The Work Versus Welfare Trade-Off: An Analysis of the Total Level of Welfare Benefits by State". The basic thesis of the report is that taken as a package, welfare benefits are so generous nationally that they act as a disincentive to work.

The authors of the study take great pains to point out that they don't think recipients of public assistance are lazy. What they are, however, is logical. "Contrary to the stereotypes, there is no evidence that people on welfare are lazy or do not wish to work," the authors wrote. "Indeed, surveys of welfare recipients consistently show their desire for a job. At the same time, the evidence suggests that many are reluctant to accept available employment opportunities."

It's serendipitous, then, that around the same time that the Cato Institute came out with its report, the Bureau of Labor Statistics (BLS) released its Quarterly Census of Employment and Wages, which illustrates just how poorly paid many Americans are. It creates, the report said, a class now familiarly known as "the working poor."

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A state-by-state break down of average wages -- not a great measure, because higher paid workers skew the numbers upward -- finds Mississippi stepping into its familiar last place spot, sporting an average weekly wage of $690. First place, not surprisingly, goes to the District of Columbia at $1,592. A more accurate reflection of wages is the median weekly earnings reported by the Labor Department's Current Population Survey. The national median weekly earnings for full-time U.S. workers last quarter was $776, or less than $20 per hour.

What's interesting is how Cato can exert such a huge amount of effort to get some interesting state-by-state facts about public benefits, and then come to such a backwards conclusion that government needs to get tougher with work-for-benefits requirements, or reduce benefits as an inducement to work.

Analyses of BLS wage data by Governing's Data Editor Mike Maciag finds that wages have for the most part stagnated nationally, suggesting that even if people found jobs they'd still need some form of public assistance to make ends meet, whether it's food stamps or the earned income tax credit.

Unlike with past economic recoveries, the use of food stamps hasn't declined as employment has bounced back, although it does appear to have finally plateaued. In other words, employment per se has nothing to do with how heavily Americans rely on public benefits. Rather, the issue is wages.

This underscores a fundamental truth about the evolution of public benefits since welfare reform in 1996: Rather than serving as a temporary leg up as families struggle momentarily to find their economic footing, they have become a permanent subsidy for American employers who are either unwilling or unable to pay a living wage.

Cato even makes the argument for public benefits necessarily substituting for a living wage when it points out that "[o]nly 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." The FPL for a family of eight is a ludicrous $39,360; public benefits are more in tune with the actual cost of living than the FPL.

Meanwhile, the report cites as prima facie evidence of the power of welfare that 42 percent of those receiving benefits don't work. Only 42 percent? If being on welfare was such a great deal, you'd think that at least 50 percent or more of those receiving benefits would be staying home.

As for boosting the minimum wage, Cato argues that those kinds of increases do little more than suppress employment. "Although it would be nice to raise the wages of entry-level service workers," says the report, "government has no ability to do so -- attempts to mandate wage increases in the minimum wage, primarily result in increased unemployment for the lowest skilled workers."

Cato is simply wrong on one count: Governments do have the ability to mandate higher minimum wages. What they are right about is that there's plenty of debate on the subject of the impact of such increases.

Another head-scratcher, the report argues early on that rates for Temporary Assistance for Needy Families (TANF) use don't correlate with rates of employment. If that's the case, then why insist that TANF -- or any other welfare benefit -- come with a work requirement? It only bolsters the argument that the use of benefits is a wage issue not a work issue.

All of this is to say that the Cato report doesn't move the ball forward at all when it comes to trying to figure out the real reasons for persistent poverty, or why so many people in this country struggle with "food insecurity," which, according to the Department of Agriculture's last look in 2012, afflicted nearly 50 million Americans. If these problems were so easy to solve, and weren't so incredibly complicated, we wouldn't be spending any money on public benefits at all.

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