Bacon's Rebellion

Democracy Thrives in Sunlight

Working Still Beats Welfare in Virginia

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by

James A. Bacon
in , , , ,

welfare

Despite the highly controversial reform of the Aid to Families with Dependent Children program in 1996, welfare benefits actually have  increased in generosity over the past 17 years. Social-services benefits for the poor pay more than minimum-wage jobs in 35 states, even after accounting for the Earned Income Tax Credit, and in 13 states they pay more than $15 per hour. So concludes a new study by the Cato Institute.

It may come as no surprise that Virginia is one of 15 states where welfare benefits do not exceed the value of an entry-level, minimum-wage job. In Virginia, means-tested entitlements add up to only $20,884 for a typical welfare family of a mother and two children — less than half the level of Hawaii, Washington, D.C., and Massachusetts, the states with the most generous welfare systems.

Although Virginia ranks among the 10 wealthiest states in the country, its welfare benefits rated 37th. That was the pre-tax equivalent of earning $7.15 an hour. As a percentage of median income, Virginia welfare bennies amounted to only 41% of the median salary — 46th in the country. Only five states had a lower ratio of benefits-to-median income.

Bacon’s bottom line. Poverty sucks in Virginia. But that means people are more motivated to find work, even in disagreeable jobs, than in many other states. That’s why Virginia also has one of the lowest unemployment rates, and one of the lowest poverty rates, in the country. Poor people may start with minimum-wage jobs that can’t support a family but if they are reasonably diligent, they won’t get stuck there. Anything that encourages people to start the climb up the career ladder is better for them — and for taxpayers — in the long run.

— JAB

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20 responses to “Working Still Beats Welfare in Virginia”

  1. Peter Galuszka Avatar
    Peter Galuszka

    “Poverty sucks in Virginia” But it is still a skinflint on paying the poor. Thank you for your concern. Obviously first-hand experience?

  2. Peter Galuszka Avatar
    Peter Galuszka

    Also, the Cato libertarian report raises a kind of false premise — that welfare has to pay less than the minimum wage. This assumes there are plentiful minimum wage jobs everywhere and that the person on welfare must accept them if they are available, regardless of disabilities, commuting issues, hours, children’s needs, etc.
    Suppose you are on welfare, don’t have a car, and the nearest minimum wage job is 15 to 20 miles away. There is no public transit. What are you supposed to do? Hitchhike? Beg neighbors for a ride?

  3. TMT Avatar
    TMT

    Fairfax County is considering an amendment to its zoning ordinance to allow more residential studio apartments under certain conditions, including proximity to transit. While the ordinance needs work, the concept is good.

  4. Breckinridge Avatar
    Breckinridge

    I’ve got some real problems with this methodology, even if I’m sympathetic to the point they are making. Medicaid benefits are not cash income, and the qualifications are complicated. Children in low-income families do qualify pretty readily, but they also have the lowest costs to the system. The big dollars in Medicaid go the disabled (who shouldn’t be considered in this story) and the elderly. I may look at it again but I’m not sure they used the typical Medicaid cost for a family with school-age children, a family that would qualify for TANF. If they took the total and divided by the caseload, they gamed the data.

    But I agree that people who do qualify for Medicaid are reluctant to give that up and in some cases accepting employment does exactly that. The situation at best is far more complicated than CATO reports. Life at the bottom of the employment scale is hard and the minimum wage jobs that used to be held by high school and college age kids starting out are far too often now held by people who cannot or will not move up. That’s a skills issue as much as anything, a consequence of squandered educational opportunity.

    Peter G. is right, the availability of the so-called minimum wage jobs is another issue. And whether or not the employment, once obtained, can be retained if you don’t have a car or easy day care. The life of many poor families is one minor crisis after the other, and the cost of repairing a tire can be hurdle.

    But as I said, I basically accept the premise that there has to be an incentive to work, and if life is not peachy on the dole, it still is not marginally less comfortable than working. Far too many people who should not be getting SNAP now do qualify, under the Obama era rules. The system remains broken.

    1. larryg Avatar
      larryg

      re: ” they gamed the data.”

      that pretty much describes the right-leaning think tanks approach to these issues now days.

      they cherry-pick data… co-mingle data.. blend it together and then present their “creation” complete with references to authentic source data…

      their goal is not to develop better understanding but to continue to supercharge the ideological churn.

      re: SNAP… keep in mind that any “rules” are those allowed by Congress.

      Congress did write the laws that do allow the regs to provide the entitlements.

      and Congress does have the ability to go back and re-write the laws ….

      as they did this year with the FEMA flood insurance AND SNAP.

      Much of MedicAid goes to kids – and the elderly in nursing homes – and some problems with their kids trying to hold onto their parents homes as “inheritance” instead of paying for the nursing home… i.e. let taxpayers pay.

      No one talks about this as a problem.. they want to just demonize the poor.

      same deal with Medicare. People who own two homes, 3 cars, pay for college, and take cruise vacations – and pay $100 a month for guaranteed full coverage health insurance.

      not to mention the tax-free employer-provided health insurance and mortgage interest deductions for vacation homes and RVs, etc.

  5. larryg Avatar
    larryg

    the thing that CATO and others tend to capsulate in ideological sound bites is things like tipped employees.

    The minimum wage for tipped employees in Va is $2.13. That’s right.

    The basic combine tip + wage is 7.25.

    How many of you have sat in a restaurant getting ready to pay the bill – and calculate the tip -… THEN do some sort of calculation of how many tables the server will wait over their shift and get an average tip for?

    anyone else done that?

    A friend told me that on a good night at a decent restaurant the server can make several hundred dollars in tips .. on a bad night not so much.

    so then I look at the people who wait tables in restaurants and compare them to the people I see at McDonalds… yes.. I know that is weird…

    but I think there is a difference between the folks that serve tables for tips and those that work at McDs… to some extent – it appears that the very young and elderly work at McD’s and college students and moms wait tables.

    but I do have a question.

    if you had a table that column one showed the minimum wage and column two the minimum welfare “wage” – how would the two columns populate in a state like Va?

    In other words, how many work for minimum wage compared to receiving welfare?

  6. Richard Avatar
    Richard

    One of many perverse effects of our current (pre-Obamacare) system of healthcare is that there is an incentive to stay on welfare in order to qualify for Medicaid coverage. The Cato statistics (Tables 1 and 8) indicate that a significant cost of the total welfare that Cato has included in its analysis is attributable to Medicaid coverage. With Obamacare, low income workers in Virginia will be eligible for Medicaid in 2014.

  7. TMT Avatar
    TMT

    The safety net is still quite generous when contrasted to earlier times. In 1931, my paternal grandfather died in a dentist’s chair. My grandmother was left with four kids and a World War One veteran’s pension of $68 per month, plus anything else they could scrape together. All of the dentist’s assets were in his wife’s name.

    We’ve come a long way on the safety net.

  8. mbaldwin Avatar
    mbaldwin

    There’s a bigger problem outside the box folks have been addressing, which includes such factors (and apparent trends) as:
    — some 7% decline in the median income in America since 2000 (adjusted for inflation)
    — increased gaps between rich and poor (you all know this)
    — economic mobility rates in the US now near the bottom of all developed countries, in contrast to Western Europe and Canada and Australia (which this entry ignores)
    — our leading the industrial world in percentage of low-wage jobs, with 25% of the work force making less than 2/3 of the median wage (versus 21% in Britain, 20% Germany, 15% Japan) see Meyerson’s column in today’s Post.
    — our required minimum wage isn’t close to a living wage, and if raised to $15 that’s $30k/year.

    So failing policy reforms to address these basic problems, we improve our safety net a bit. Hardly surprising, and hardly unreasonable, given our cramped response to the bigger issues.

    1. TMT Avatar
      TMT

      A big part of the problem is the size and cost of government. In a global economy, government costs are overhead to a nation’s economy. Those costs must be paid from the production of the private sector. And, unfortunately, many of these ever-increasing costs are passed along to those without good education and desired skills. Those with better educations and needed skills are able to pass along much of what they pay in taxes and regulatory costs to others in the form of lower prices for goods and services and lower wages.

      We’ve let Wall Street help destroy the economy by its trading instead of investing. Does anyone think a bill to raise the tax on short-term gains of assets held for six months or less to 70-80% and eliminating the tax on assets held more than five years would even get out of committee in either the Senate or the House.

      We import unskilled labor to repress wages by ignoring our immigration laws. Even if we come up with a new immigration plan, any failure to enforce the rules will wind up screwing the newest Americans who will lose out to the new illegals.

  9. mbaldwin Avatar
    mbaldwin

    Government size isn’t the problem, although we’d all like it to be smaller. Government policy and expenditure failures account for much of our alarming conditions and trends.

    America’s upper 1 percent of Americans now takes nearly a quarter of the nation’s income annually, and the top 1 percent control 40 percent of national wealth, versus corresponding figures of 12 percent and 33 percent 25 years ago.

    Incomes of the top 1 percent have risen 18 percent over the past decade, while those in the middle have have seen their incomes fall. Wealth and income growth in recent decades has gone to those at the top.
    Corporate revenues have vastly increased, but they haven’t resulted in higher wages or significant dips in unemployment. We all know how the ratio of CEO salaries to worker salaries have risen by an order of magnitude in the past decades. Dividends, share by-backs have received the other rewards from higher corporate revenues.

    Our inequalities far transcend conditions in the 19th century. Society’s wealth distribution has become lopsided, thanks in large part (albeit not solely) to government tax policies.

    And then we have government expenditure failure. Modern economies require collective investment, by government, in infrastructure, education, and technology. We did that in the past. Now we’re failing to invest as we should, and our economy suffers, and will suffer more, from this rather stupid neglect, with more of that likely with the likes of Tea Party Republicans.

    1. TMT Avatar
      TMT

      The concentration of income and wealth (assuming arguendo it’s static, which it isn’t completely) proves the cost of government is being passed along to those lower on the income (and often education and skill scale). Raise a business’ cost of operation through additional regulation or higher taxes, and the managers cut elsewhere — often eliminating wage increases.

      Obamacare is proving this too. Look at all the companies that are reducing hours for employees to avoid the mandate trigger. Other companies are cutting back on health care insurance. And the management is not taking a hit. Many of the costs are being passed along to the employees, who may be contract workers. And more and more costs will be similarly passed along. Ask Mark Warner about this. He voted for it.

      Much of the huge jump in executive salaries stems from Bill Clinton’s grandstanding in 1993, when he propose to limit the deductions of executive compensation to $1 million. But not for Hollywood Stars or athletes. The compromise plan allowed for higher deductions when tied to performance standards. The market reacted by creating ultra compensation plans – much higher than if the Democrats wouldn’t have grandstanded.

      What is important is the economic incidence of taxes and regulations, not the legal incidence. We’ve allowed government become an excessive overhead on the economy and, now, most of us are losing ground because of it.

      1. reed fawell III Avatar
        reed fawell III

        I agree.

        Increased productivity at lower cost creates then radiates wealth.

        This “new” wealth rippling through society should have the potential to create yet more wealth, raising everyone’s boat. Dysfunctional systems and policy however works to reverse this ripple, contracting its affect.

        In my view we are daily shooting ourselves in the foot. It’s hard to count the ways. Daily we dream up new ways to increase costs on others, and distort the free and fluid operation of markets, harming everyone.

        An example is electricity. Many people are daily working hard to increase its costs. Electricity is a basic cost of living and thriving in today’s society. It’d essential to prosperity. Cheap electricity is a huge economic advantage. The low cost ripples benefits throughout our society. The high cost ripples damage throughout are society. Artificially jacking up the cost of everyone’s electricity damages everyone. Those least able to afford it are damaged the most.

        So every time we increase the cost of electricity we undermine someone’s ability to survive and/or thrive. The damage we inflict on others, the poorest among us, is incurable. We do it daily, gleefully, in ignorance.

        Now we are gleefully about raising the cost of everyone parking everywhere. The damage we’ll end of doing is incalculable.

        1. reed fawell III Avatar
          reed fawell III

          “Incurable’ should be “incalculable”.

          I need to find a way to turn off this infernal bell and whistle that finishes words on its way fixing typos. Otherwise one is left with perfect spelling that’s wrong but difficult to fix because its more difficult to see. This latter subject deserves an extended essay, suggesting an analogy to certain elements of modern economic policies.

  10. larryg Avatar
    larryg

    re: govt spending.

    we take in about 1.5T in tax revenues.

    that’s about 4545.00 per capita.

    compare that to what you pay in Fed Taxes.

    keep in mind that we worry about Fed welfare payments but welfare is at the state level.

    keep in mind that “excessive” when taking about entitlements without recognizing that we already spend about 85% of our taxes on “national defense” is … respectfully – myopic.

    if you look at what other OECD countries spend on “entitlements’ vs “national defense” – you’ll see a very different world – and I include countries like Japan, Australia and Singapore.

    1. TMT Avatar
      TMT

      Larry, we could make significant reductions in defense spending without jeopardizing our national security. But no one has the stones to stand up to the lobbyists. Ike warned about the military-industrial complex. Now we have many more complexes sucking money away from the economy.

    2. TMT Avatar
      TMT

      Education too.

      I have a copy of a 1997 interview with former Secretary of Health, Education & Welfare Joseph Califano. He helped preside over the creation of the Department of Education in the Carter Administration. The entire interview was in the Washington Lawyer.

      Califano was asked, “Which cabinet departments are expendable?” To which he replied, “The Department of Education, for example, never should have been separated from HEW. It was created and continues to exist to keep the teachers union, the National Education Association, happy.” I think he is still correct.

      So at the top, we are unnecessarily spending billions on bureaucrats, contractors, and consultants. It’s a jobs program. Moreover, it is practically impossible this financial payoff to a special interest group does not extend into state education agencies and local school staff.

      This phenomenon is simply wrong. It wastes taxpayer money and deprives students of resources. If we really care about education, teacher pay, classroom size, and, God forbid, taxpayers, we need to be willing to say “The Emperor has no clothes.”

  11. larryg Avatar
    larryg

    “The concentration of income and wealth (assuming arguendo it’s static, which it isn’t completely) proves the cost of government is being passed along to those lower on the income (and often education and skill scale). Raise a business’ cost of operation through additional regulation or higher taxes, and the managers cut elsewhere — often eliminating wage increases.”

    more like the increasing cost of health insurance… but how does that explain CEOs making more?

    “Obamacare is proving this too. Look at all the companies that are reducing hours for employees to avoid the mandate trigger. Other companies are cutting back on health care insurance. And the management is not taking a hit. Many of the costs are being passed along to the employees, who may be contract workers. And more and more costs will be similarly passed along. Ask Mark Warner about this. He voted for it.”

    that’s just propaganda. health care costs have been rising long before ObamaCare. The funny thing is that the more people who lose their health insurance, the more they are
    going to go to the ObamaCare exchanges….

    “Much of the huge jump in executive salaries stems from Bill Clinton’s grandstanding in 1993, when he propose to limit the deductions of executive compensation to $1 million. But not for Hollywood Stars or athletes. The compromise plan allowed for higher deductions when tied to performance standards. The market reacted by creating ultra compensation plans – much higher than if the Democrats wouldn’t have grandstanded.”

    Good Lord TMT – 20 years ago? and how much of this happened under “W”?

    “What is important is the economic incidence of taxes and regulations, not the legal incidence. We’ve allowed government become an excessive overhead on the economy and, now, most of us are losing ground because of it.”

    taxes are the lower than since Ronald Reagan… and remember this – no tax and no regulation is created by the POTUS. Both houses of Congress much approve them.

  12. mbaldwin Avatar
    mbaldwin

    Why can’t critics of government size/welfare and so forth show capacity to listen to facts such as larryg presented? Certainly they have points: we needn’t have a separate Department of Education, and we could cut a host of other programs, like our farm subsidies to rich farmers. Better competition and regulatory relief for small businesses in particular are much needed (although the latter requires local and state government action mostly).

    Savings and economic benefits from these kinds of reforms are indeed useful, but they’re inconsequential compared to the economic needs for government investment in infrastructure/basic research/education and tax reform. It appears to me that those on the right remain stuck in Reagan economics and prefer simply to ignore economic understanding of the facts and trends today, but of course that the rest of us need to listen to and perhaps do a better job than they in probing what valid points they should be making. Pretty clearly we all need to work at listening.

  13. larryg Avatar
    larryg

    Most folks do not realize what the Fed Dept of Education funds – primarily.

    If most of you would go to your local county school budget and look at the Federal funds – you’d see that it’s about 1K per student but what it is spent on most do not realize.

    this is what it goes for:

    Title I — Improving The Academic Achievement Of The Disadvantaged

    SEC. 101. IMPROVING THE ACADEMIC ACHIEVEMENT OF THE DISADVANTAGED.

    http://www2.ed.gov/policy/elsec/leg/esea02/pg1.html

    yet many want the Feds to get out of education.

    of course, it’s an honest question as to what would happen to these children if the Feds did get out…

    of course, then that might cause us to ask – WHY the Feds got into this part of elementary education to start with.

    why would local school board themselves not prioritize funds toward these needs to start with – and not need nor want the Feds to do it…??

    why is that?

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