Welfare Pays Better than Work

Nearly everyone agrees that a major goal of welfare reform should be to encourage recipients to leave the rolls and enter the workforce. That goal will be undermined, however, to the extent that recipients see work as less rewarding than welfare.

Some people believe that people who receive welfare are lazy. While that may be true for some, surveys consistently show that most recipients would rather work. Public assistance programs carry a lot of baggage even in the eyes of those they assist: they deprive recipients of a sense of self-worth and independence and they put nosy bureaucrats in place of caring parents, family and friends. So if welfare recipients are not inherently lazy and don't really like being on the dole, why don't they just go to work?

The answer is, millions of people on welfare are making a perfectly rational decision based on the economic incentives they face. In Michigan and many other states, welfare benefits are far more generous than commonly thought and substantially exceed the amount a recipient could earn in an entry-level job.

Defenders of current policies argue that average benefits in the Aid to Families With Dependent Children (AFDC) program of about $400 nationally ($490 in Michigan) are too low to be an attractive substitute for work. Today's social "safety net," however, includes far more than just AFDC. When we examine the benefit levels of just the six most common types of welfare assistance-AFDC, food stamps, Medicaid, housing, nutrition assistance and energy assistance-we find that welfare can indeed pay very well.

To assess how welfare compares with finding a job and working 40 hours a week, we must account for the fact that welfare benefits are not taxed, whereas wages are. That means we must calculate the amount of money a welfare recipient receiving these six benefits would have to earn in pre-tax income if that same person took a job and left the welfare rolls. The results are stunning: The value of benefits for a mother and two children ranged from a high of $36,400 in Hawaii to a low of $11,500 in Mississippi.

In 39 states, welfare pays more than an $8-an-hour job. In 16 states, the welfare package is more generous than a $10-an-hour job. In Hawaii, Alaska, Massachusetts, Connecticut, New York, New Jersey and Rhode Island, welfare actually pays more than a $12-an-hour job-or 2-1/2 times the minimum wage.

In eight states, welfare pays more than the national average first-year salary for a teacher. In 28 states, welfare is more generous than the starting salary for a secretary. In 46 states, welfare recipients actually make more than full-time janitors.

The value of the six-benefit welfare package in Michigan in terms of pre-tax wage equivalent is $19,700. That equates to a job paying $9.47 per hour, ranking the state above the national average and 21st in generosity among the 50 states. Within the state, because of widely varying tax burdens, the disparity between what welfare pays and what a worker would have to earn in the private sector to end up with the same income after taxes can be even higher. In Detroit, where workers must pay a whopping 3 percent city income tax on top of both federal and state income taxes, the disincentives for work are overwhelming for many welfare recipients.

Surveys have found that nearly 70 percent of welfare recipients are not currently looking for work. But if a typical inner-city welfare mother, untrained and undereducated, doesn't qualify for a job that pays $10 an hour, taking a job that pays any less and quitting welfare would result in a financial loss. So staying on welfare, in case after case, is the economically prudent decision to make.

True, not every welfare recipient receives all these benefits and there are some who receive even more. The inescapable fact is that for many recipients-particularly the "long-term" dependents-welfare pays considerably more than an entry level job. That strongly suggests that micromanaging welfare programs with carrots like child care and sticks like work requirements will not end welfare as we know it. Only by biting the bullet and beginning to reduce benefits will we infuse the incentives for work and independence that a broken and expensive welfare system have eroded.