USA: Trump’s response to poverty in the USA
Picture credit to: Big Think.
On the 12th of July 2018, Trump’s Council of Economic Advisers (CEA) released the report “Expanding Work Requirements in Non-Cash Welfare Programs”, in response to an executive order made in April 2018 on reducing poverty in America.
The poverty rate of 3%, as measured in the CEA report, is at an all-time low. Although a favorable result, the authors point out that “many non-disabled working-age adults do not regularly work, particularly those living in low-income households. Such non-working adults who receive welfare benefits […] can become reliant on welfare programs.” In an attempt to increase self-sufficiency in recipients of benefits, they propose strengthening and increasing work requirements.
- Are the measures of poverty used in the report appropriate?
In the report poverty was measured through consumption starting in 1980, when the first reliable data is available. After adjusting for changes in purchasing power, the results show that the poverty rate has fallen compared to 1980. Although this approach has solid ground in research, Dolan argues that alternative measures produce different results (examples available here and here), mainly due to different definitions of poverty itself and using different years as the base for comparison.
- Who are the recipients?
The CEA distinguishes between two groups that currently receive welfare support: i. recipients unable to work, and ii. non-disabled recipients able to work. They report that non-disabled recipients have lower employment rates compared to the general population of working age. The authors explain this finding with the fact that recipients receive less benefits as their income raises which demotivates them to find work.
Dolan challenges this argument by saying that recipients cannot be easily grouped into non-disabled and disabled welfare beneficiaries. The Kaiser Family Foundation study found that some individuals that reported not working due to some form of disability do not qualify for Supplemental Security Income (SSI) or Social Security Disability Insurance (SSDI) support, making them officially non-disabled. These individuals are unlikely to get employed despite policy adjustments, effective tax rates and work requirements.
- Are work requirements effective?
According to the CEA, there is sufficient evidence to support the claim that work requirements would be effective in reducing dependency on welfare benefits and increasing employment. Their argument is based on the welfare reform that took place in the 1990s.
Dolan disagrees with this conclusion, pointing out that the golden standard among experts for evaluating the 1990s reform is a series of eleven experiments known as the National Evaluation of Welfare-to-Work Strategies, conducted in the 1990s across the country with each lasting five years. In these experiments, participants were divided into two groups. The treatment group received benefits as a function of work requirements, while the control group continued to receive payments without conditions. The treatment group had modest gains in employment and there was a 1% decrease in total income on average. The results showed that the increase in wages was often smaller than the decrease in benefits. Finally, positive results were produced only where administrative support was provided (one-on-one interactions, training etc.). Dolan believes this provides little evidence that work requirements would help recipients move towards self-sufficiency. He also criticizes the CEA report for not emphasizing the crucial role of administrative support.
- What is the real agenda?
Dolan believes that work requirements are not likely to be effective at increasing employment and raising self-sufficiency: “Think of it this way. As currently configured, the message to in-kind welfare beneficiaries is, ‘We encourage you to work, but if you do work, we will take your benefits away.’ Adding work requirements changes the message so that it becomes, ‘If you work, we will take your benefits away, but we will also take them away if you don’t work.’” However, as a tool to lower welfare payments and reduce administrative costs work requirements could be effective, since more individuals would be excluded from the system, according to Dolan.
More information at:
“CEA Report: Expanding Work Requirements in Non-Cash Welfare Programs”, Council of Economic Advisers, July 12th 2018
Ed Dolan, “Do we really want expanded work requirements in non-cash welfare programs?”, July 23rd 2018