Welfare benefits are far more generous than commonly thought and substantially exceed the amount a recipient could earn in an entry-level job. As a result, recipients are likely to choose welfare over work, increasing long-term dependence.
Those are the principal findings in “The Work vs. Welfare Trade-Off” (Policy Analysis no. 240) by Michael Tanner, director of health and welfare studies; Stephen Moore, director of fiscal policy studies; and David Hartman, CEO of Hartland Bank in Austin, Texas. The paper was released at the height of the welfare debate in Congress.
The study examines the combined value of benefits–including Aid to Families with Dependent Children, food stamps, Medicaid, and others–for a typical welfare recipient in each of the 50 states. The value of those tax-free benefits is then compared with the amount of take-home income a worker would have left after paying taxes on an equivalent pretax income. The following are among the study’s findings.
* To match the value of welfare benefits, a mother with two children would have to earn as much as $36,400 in Hawaii or as little as $11,500 in Mississippi.
* In New York, Massachusetts, Connecticut, the District of Columbia, Hawaii, Alaska, and Rhode Island, welfare pays more than a $12.00-an-hour job–or more than two and a half times the minimum wage.
* In 40 states welfare pays more than an $8.00-an-hour job. In 17 states the welfare package is more generous than a $10.00-an-hour job.
* Welfare benefits are especially generous in large cities. Welfare provides the equivalent of an hourly pretax wage of $14.75 in New York City, $12.45 in Philadelphia, $11.35 in Baltimore, and $10.90 in Detroit.
* In 9 states welfare pays more than the average first-year salary for a teacher. In 29 states it pays more than the average starting salary for a secretary. In 47 states welfare pays more than a janitor earns. Indeed, in the 6 most generous states, benefits exceed the entry-level salary for a computer programmer.
The authors conclude that if Congress or state governments are serious about reducing welfare dependence and rewarding work, the most promising reform is to cut benefit levels substantially.
The study has been the subject of major news coverage. In a September 28 Wall Street Journal guest column, Tanner and Moore wrote, “The welfare reform proposals just passed by the Senate, and the earlier House version, are designed to reduce ‘hard-core’ welfare dependency and reward work. But we believe the most critical public policy implication of our findings is that ultimately these goals can be accomplished only by cutting benefit levels substantially. Unless and until this is done, Congress will have failed to end welfare as we know it.”
Hourly Wage Equivalent of Welfare
This article originally appeared in the November/December 1995 edition of Cato Policy Report.