The message from US welfare experience: Get people to work

"We think that the best solution is to encourage people to earn as much as possible on their own, and have benefits that supplement that."

Robert Lerman 88 224 (photo credit: JJ Levine)
Robert Lerman 88 224
(photo credit: JJ Levine)
Ron Haskins was one of the major architects of the welfare reform legislation that in 1996 created a revolution in the US government's dealings with the poor. Haskins and American University economist Robert Lerman visited Israel this week, presenting a comprehensive evaluation of what welfare reform has done in America and what has happened in Israel since the adoption of similar practices in 2005. Lerman says their research very clearly indicates that a government's first move in dealing with the poor must be to get them to work. "We think that the best solution is to encourage/push people to earn as much as possible on their own, and have benefits that supplement that." The welfare revolution that Haskins helped create included carrots, such as enriched wage subsidies and other benefits, that were meant to ensure that people going back to work would not lose the benefits they had previously received. What was more revolutionary about the project was the stick, namely, that those receiving entitlements would have them terminated if, after a number of years, they had not returned to work. Haskins recalls now, 10 years on, that the program was labeled "draconian" and "The Worst Thing That Bill Clinton Has Ever Done," but that the success of the program in driving down poverty rates led to the program becoming consensus both among the public and among politicians of all stripes. "Carrots and sticks work," write Haskins and Lerman in a paper presented at the Taub Center International Conference on Labor Force Participation and Life Cycle Income Assurance, taking place this week. "Social policy should emphasize, and where necessary and possible demand, responsible behavior and then reward the behavior." To back that claim up, the paper points to 1.5 million mothers who found jobs as a result of the program. It was numbers like that which led the Israeli government to begin experimenting with similar welfare-to-work projects, bringing the so-called "Wisconsin Plan" to four Israeli cities in 2005. Beside the idea of cutting incentives, an additional aspect of the Wisconsin Plan was to contract the task of helping people find work to private companies which would receive compensation based on the number of people taken off the welfare rolls. Indeed, the contractors in all four experimental centers, by May last year, had reduced the welfare caseloads by the required 35 percent, and in two of the areas reduced caseloads by 60%, a much greater improvement than that seen in the US. Despite the apparent success of the program, Industry, Trade and Labor Minister Eli Yishai made it a major plank of the Shas party platform to oppose the program, and, upon being appointed minister, brought about the end of the program and its reintroduction as a much more lenient program named "Lights on Employment." Yishai claimed that giving the contractors incentives to force people off the welfare rolls led to "unfair punishment" of the unemployed, so the new program only rewards the companies if the participants find and stay in places of work. One of the criticisms leveled at the programs both in the US and in Israel is that people forced out of welfare find low-wage jobs that can hardly support them. One response of the US government, which has been copied on a more modest level in Israel, is to provide a boost in income to the "working poor," known in the US as the "Earned Income Tax Credit." Haskins and Lerman show data that this and other programs aimed at the working poor were very effective in reducing poverty. The US has also tried increasing worker training and education so that workers would be able to move on to better paying jobs. But Haskins says that the results of such programs have been almost unanimously disappointing. "Our experience is that education and retraining just don't work," says Haskins. "You have to put people to work, and then they have a better chance of improving to better jobs." "That way, a lot of people who haven't worked will, and the government will save on welfare payments." Lerman says the best place to learn how to work is at work, and that the US spent billions on programs that have "a lot of people not learning much." Of course, the main problem with such programs is the case of those falling between the cracks, finding themselves unable to hold down a job, despite the employment centers' best efforts, and having no welfare to fall back on. Haskins says that while governments should prepare for that inevitability with supplementary help, the gains that have been seen for so many poor people justify the program's ongoing implementation.