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Commentary

Why the Welfare Reform Will Fail


     
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Both Democrats and Republicans are clamoring to claim credit for the "historic" welfare reform. They had best celebrate now, because the heralded reform will soon be recognized as a failure. It will fail because its main objective clashes with the many barriers to the employment of unskilled workers erected by governments, licensing boards, and unions. When the failure becomes too apparent to ignore or paper over, the politicians will turn to bailing-wire expedients to repair the failing system.

One must appreciate at the outset that able-bodied people go on welfare quite rationally. They are not totally without alternatives. But the alternatives open to them have less appeal than receiving welfare benefits and remaining unemployed. In the succinct phrase of policy analysts Michael Tanner and Stephen Moore, welfare pays.

Although the situation varies greatly from state to state, a typical unskilled welfare mother would have to get a job paying $10 to $12 per hour to improve her financial condition, according to Tanner and Moore's calculations. In eight states, a typical welfare benefits package for a mother with two children is worth more than $20,000 per year.

The central objective of the reform is to move people from welfare to work. The federal government will no longer give cash indefinitely to all eligible applicants. States will set their own rules but will be required to reduce benefits to recipients who refuse to work. Within five years, states must have at least half their welfare recipients working at least 30 hours a week. By failing to comply, a state stands to lose up to 21 percent of its federal block grant.

The upshot is that more than 2 million of the heads of the more than 4 million families now on welfare must find work. Unfortunately, welfare reform does not operate in a vacuum. A multitude of other government policies and union practices virtually guarantee that few of the millions thrust into the labor market will find private-sector jobs.

Many welfare recipients have attended horrible government schools. Although they have spent 9 to 12 years in school, they are barely literate. Many cannot do basic arithmetic, understand written instructions, or perform simple tasks such as making change. The governments that now require them to work have so woefully prepared them that their labor has little value.

Even unskilled job-seekers could find work if employers were free to pay wage rates commensurate with the low value of the labor. But thanks to the minimum wage laws, employers cannot pay wages low enough to justify hiring such high-risk workers. Shamefully, the same Congress that passed the welfare reform also hiked the federal minimum wage by 90 cents an hour, thereby insuring that hundreds of thousands of job-seekers who otherwise might have found employment will not do so.

Workers have the alternative of self-employment, but here too governments have cut them off. Local and state governments require licenses for hundreds of ordinary occupations such as hairdressing, installing fences, operating a taxi, or cleaning septic tanks. Licensing boards, composed of practitioners eager to restrict the entry of competitors, require extensive training, long residency, or passing a test, thereby slamming the door on people seeking self-sufficiency.

Unions, despite their avowals of compassion for the jobless, support many policies and practices that limit access to employment-everything from higher minimum wages to compulsory union membership to threats of violence against "scabs" (people willing to work during a strike).

Outside the labor market, governments enforce many rules that make employment more difficult for the unskilled. Zoning laws make it hard for low-wage workers to find affordable housing in suburban areas where jobs are more abundant. Building codes have a similar effect. Regulatory requirements for day-care providers effectively exclude many welfare mothers from an occupation they could readily pursue.

With so many artificial hurdles to leap, most job-seeking welfare recipients are destined to fail. Confronting this reality, the states will demand exemption from or delay in meeting their legal requirements under the new system. They will resort to accounting tricks, as some already anticipate. They will lobby for Congress to create hiring subsidies and a resurrected WPA. Erstwhile welfare recipients will wind up in pseudo-jobs at taxpayer expense.

Senator Paul Simon spoke the truth when he called the welfare reform "a cruel joke for millions of families." But neither he nor his colleagues in Congress recognize that the cruelty springs not from the new system's work requirement but from the pervasive barriers to unskilled employment thrown up by unions, licensing boards, and governments at every level.


Robert Higgs is Senior Fellow in Political Economy at The Independent Institute and Editor at Large of the Institute’s quarterly journal The Independent Review. He received his Ph.D. in economics from Johns Hopkins University, and he has taught at the University of Washington, Lafayette College, Seattle University, and the University of Economics, Prague. He has been a visiting scholar at Oxford University and Stanford University, and a fellow for the Hoover Institution and the National Science Foundation. He is the author of many books, including Depression, War, and Cold War.

Full Biography and Recent Publications

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