Welfare Isn’t Too Generous—Wages Are Too Low
NPR recently published a story that gives undue credence to a Cato Institute study lamenting the generosity of US safety net programs. In reality, welfare benefits are not nearly as generous or accessible as the study claims. The NPR piece provides useful stories from actual welfare recipients, whose experiences more faithfully represent reality.
An important part of Cato’s assertion is that these programs offer a higher level of income than do many low-wage jobs. The real problem here is that wages for the vast majority of Americans are too low, and haven’t kept up with the increased productivity of the labor force.
When the study was first released, we pointed out some of the problems with their analysis. Here’s a quick summary of why their study was so misleading:
The Cato Institute recently released a wildly misleading report by Michael Tanner and Charles Hughes, which essentially claims that what low-wage workers and their families can expect to receive from “welfare” dwarfs the wages they can expect from working. Using state-level figures, their paper implies that single mothers with two children are living pretty well relying just on government assistance, with Cato’s “total welfare benefit package” ranging from $16,984 in Mississippi to $49,175 in Hawaii. They then calculate the pretax wage equivalents in annual and hourly terms and compare them to the median salaries in each state and to the official federal poverty level. Tanner and Hughes find that welfare benefits exceed what a minimum wage job would provide in 35 states, and suggest that welfare pays more than the salary for a first year teacher or the starting wage for a secretary in many states.
So what makes this so misleading?
For one, Tanner and Hughes make the assumption that these families receive simultaneous assistance from all of the following programs: Temporary Assistance for Needy Families (TANF), Supplement Nutrition Assistance Program (SNAP), Medicaid, Housing Assistance Payments, Low Income Home Energy Assistance Program (LIHEAP), Women, Infants, and Children Program (WIC), and The Emergency Food Assistance Program (TEFAP). It is this simultaneous assistance from multiple sources that lets the entire “welfare benefits package” identified by Cato add up to serious money. But it’s absurd to assume that someone would receive every one of these benefits, simultaneously, and it ignores the fact that some programs have time limits.
What’s more, their report carries the clear implication that welfare is (or should be expected to be) pulling low-wage workers out of the labor market by making life on welfare so attractive. In actuality, many low-income working families receive assistance through these programs.
Sharon Parrott and LaDonna Pavetti at the Center on Budget and Policy Priorities provide some solid evidence against some of the claims made by Tanner and Hughes. They provide detailed statistics on how little overlap there is in the assistance families receive for multiple programs, and how few eligible families actually receive any benefits at all.
What’s striking to me is that even Cato’s overblown and exaggerated welfare benefits would leave families in eight states with incomes below the federal poverty line. I’d add that it’s a bit odd to look at hypothetical data, when real data on what low income families actually receive from welfare and work is available. The Congressional Budget Office provides comprehensive data on sources of income for households by income fifths. We looked at this in some detail in the poverty chapter of State of Working America (see here). These reputable data tell a very different story about how low-wage workers live their lives. They are getting far less from government assistance than the Cato report implies and are relying much more on income gained from working.
In 2009, average transfer income for the lowest fifth of workers was $4,633 and average labor income was $12,871. (To be comparable with the Cato report, I’m not including Medicare and Social Security income.) Two things are clear here: government transfers are far less than what Tanner and Hughes claim, and labor income far exceeds government transfers for the lowest income group, meaning that real-world low-income families don’t feel so coddled by lavish welfare benefits that they don’t need to work.
Tanner and Hughes are not telling a realistic story about the lives of low income Americans and the income provided to them by transfer programs. Where they have a point is how poorly work pays for too many American families, particularly low-wage workers. If they want to insure that work pays well for single mothers with two kids, it would seem more worthwhile to push for increases in the minimum wage and affordable child care. Cato’s view instead seems to be that since work alone is failing to provide secure living standards for many Americans, we should take away other sources of income from them, too.