Ethos Issue 3, Oct 2007

Making Workfare Work: The US Experience
Interview with Lawrence M. Mead

One can argue that the gains in income may not necessarily offset the strains and difficulties that come with working. Some academics have concluded that while mothers who work have higher incomes, they also have higher expenses than non-working mothers. Thus, they may not be better off than their non-working counterparts. However, welfare recipients typically also receive monies from other sources such as families or partners to whom they may not have been married. When they go to work they usually get more from these sources than they did while on welfare, so again they are usually better off than they were on welfare.

Clearly there is progression of earnings over time, provided a mother keeps working steadily. These gains are lost, however, if mothers drop in and out of work, as many do. Welfare recipients who work continuously usually get out of poverty within a few years.

Do the children of welfare recipients do better in future if their mothers work? Evaluations suggest that some young children do better in school if their mothers have to work, while some adolescents are more likely to get in trouble after school if their parents are working and unavailable to supervise them. But all these effects are small. In the longer term, we can only presume that it is good for the children to see their mothers get off welfare and start to work. Furthermore, the children may receive more stimulation in childcare than they would if they had stayed at home with a mother who does not work. As a consequence of having been in a stimulating environment, children of recipients may perform better in schools.

In the US, former welfare recipients are usually better off because they have additional rewards such as childcare support and the Earned Income Tax Credit (EITC),¹ a wage subsidy for low-paid workers much like what Singapore is instituting. This subsidy on earnings is different from traditional welfare since it is conditioned on work. While EITC does not spur people to work, as welfare work requirements do, it does make them better off if they work.

However, welfare recipients have not utilised this benefit to the fullest. Currently, they can receive this benefit for any amount of work they engage in. Many work in dribs and drabs and so do not use the credit as much as they could. One reason for that is that EITC subsidises even very short working hours. It sets no minimum of hours before you get the subsidy. Some welfare reform experiments require clients to work 30 hours a week to get subsidised. This is to ensure that they get the maximum benefit.

Enforcing a threshold also has another good effect: it offsets the possible income effect that may be produced by receiving the subsidy. That is, the subsidy might permit people to cover their financial needs by working fewer hours than before, which is undesirable. Some policymakers are hesitant about increasing the EITC, as has been proposed, because this income effect might reduce rather than increase working hours among the poor. Instituting a 20- or 30-hour threshold for EITC would be one way to forestall this.

Many welfare reform programmes in the US have been carried out with the assistance of non-profit organisations and private agencies. Do you think this is a good strategy for success?
Initially I was hostile to sub-contracting of welfare reform programmes to non-profit bodies and profit-making companies. I thought this would complicate the structures and cause confusion among welfare recipients. However, there are many instances where contracting has played a constructive role in implementing reform, especially in implementing job search requirements for welfare recipients. It was the difficulty of building the job search aspect into welfare that caused many states to turn this task over to private agencies. Generally contractors have proven more constructive than I once thought, and I say now that we should consider this strategy. However, I still have doubts about extreme privatisation, such as in Australia where they abolished the public job service and now have a maze of private agencies.

One question this strategy raises is whether it cuts back on the Government’s role in welfare reform. At one level, it might seem that the Government is heading in that direction when it turns to private agencies. That is one reason why privatisation may be impolitic. In reality, however, welfare reform is closely controlled by the Government even where private agencies are used. The benefits and the work requirements are always defined by elected officials, either at the federal or state level, and the funding is public.

Do you think that the workfare model would see success even in times of economic downturn when jobs are scarcer?
Whether or not poor people are expected to work by law has more effect on dependency than economic upturns and downturns. In determining whether welfare recipients work, the unemployment rate remains important, but it is secondary to enforcement pressures. Even during a downturn, jobs are frequently available and there is a great deal of hiring and firing. The immigration rate shows that low-level jobs are still widely available. Job seekers may be unemployed for a little longer than if the economy was thriving. The more skilled probably face a tougher time because they seek higher-paying jobs, and these are less readily available.

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