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Chapter 6. From Welfare to Work Supports
- Brookings Institution Press
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One objective of the work support system is to encourage work.1 The work support system enhances the material well-being of needy workers by allowing them to combine means-tested tax and transfer benefits with earned income. We demonstrated in chapter 4 that the material rewards of work alone pale in comparison to the rewards of work in conjunction with work supports.We now consider, further, whether work supports encourage people to leave the welfare system to enter the workforce. To answer this question, we compare the benefits of welfare participation to the rewards that the work support system provides. There are two dimensions to this exercise. First, we consider the necessary sacrifice of means-tested benefits as earned income increases. This benefit loss amounts to a tax on earned income (what economists call an “implicit benefit tax”) and is expected to discourage work. We measure this negative incentive by comparing the means-tested benefits received by nonworking welfare clients to those received by half-time and full-time minimum wage workers. Second, we consider the work support system’s potential to encourage work by allowing needy workers to combine tax and transfer benefits with earned income.2 We measure this positive incentive by comparing the same welfare package to the income and benefit totals that the work support system offers to half-time and full-time minimum wage workers. 112 6 From Welfare to Work Supports 1. Sawhill and Haskins (2002a, 2002b). 2. We do not explicitly consider the complexity that may be introduced to this decision when there is more than one low-income worker in a family. However, the discussion presented in chapter 2 noted that in such circumstances, receipt of work support benefits might induce some secondary earners to reduce work effort. 06-8191-1 ch06 11/2/05 4:20 PM Page 112 The effects of the work support system on work incentives are important because work incentives are related to welfare dependency.Explanations of welfare dependency often focus on the economic incentives created by means-tested benefits.3 From this perspective, welfare participation is a rational response: when the welfare system provides greater material rewards than the labor market , people are attracted to welfare and stay with it for as long as they can. Chapter 1 linked concerns about the rewards of the labor market relative to the welfare system to three influential ideas that have shaped U.S. social policy : the less eligibility principle, the doctrine of laissez-faire, and the distinction between the deserving and the undeserving poor. The work support system challenges these ideas by providing means-tested benefits that complement rather than compete with work. If needy workers can gain access to the same or similar benefits as welfare recipients enjoy, redistributive programs need not be seen as a source of welfare dependency. If minimum wage work and work support benefits provide a standard of living that exceeds what is possible from welfare participation alone, a generous work support system can be part of the solution to welfare dependency. As noted previously, the work support system and the welfare system include many of the same programs: TANF, food stamps, and medical assistance are examples of the overlap. If employment is required to receive benefits or if benefits can be received in conjunction with work, the dichotomy between welfare and work (and between the undeserving and the deserving poor) that is the basis of concerns about welfare dependency is undermined. Abandoning this dichotomy makes sense because it is an unrealistic description of the lives and experiences of most welfare recipients, who cycle in and out of the labor market for a variety of reasons.4 It also offers a new possibility for thinking about redistribution in relation to work: the rewards of work need not be determined primarily by what the market provides . Therefore, the lowest material rewards available to workers in the labor market need not define or constrain redistributive generosity in the welfare system because a generous and effective work support system elevates the material condition of workers at the bottom of the labor market. This suggests that the work support system can reconcile redistributive public policies with the work ethic. Although contemporary analysts are more attuned to the work support system, past analysis of welfare dependency has sometimes overlooked its significance . For example, Michael Tanner, Stephen Moore, and David Hartman From Welfare to Work Supports 113 3. Murray (1984); Tanner, Moore, and Hartman (1995); Besharov (2003). 4...