National Public Radio (NPR) recently published a story on why millions of Americans are leaving the workforce. The four reasons they came up with: More people are retiring, going to college, staying home with the kids, and simply cannot find work.
Well, maybe NPR should have included a fifth reason 36 percent of Americans 16 or over – the highest rate since the 1980s – are currently out of the labor market: it would actually cost them money to get a job.
A new report published by the Cato Institute, entitled, “The Work Versus Welfare Trade-Off: 2013: An Analysis of the Total Level of Welfare Benefits by State,” explains that some welfare recipients actually receive more in benefits than many workers earn in a year.
“Welfare benefits continue to outpace the income that most recipients can expect to earn from an entry-level job, and the balance between welfare and work may have actually grown worse in recent years,” the report says. “The current welfare system provides such a high level of benefits that it acts as a disincentive for work.”
The Aug. 19 report, written by Cato Institute Senior Fellow Michael Tanner and Research Assistant Charles Hughes, calculates the value of welfare programs on a state-by-state basis in the case of the typical welfare family of a mother with two children. The benefits included in the calculation are Temporary Assistance for Needy Families, Medicaid, food stamps, Women, Infants and Children (WIC), public housing, utility assistance and free commodities.
Among its key findings, the 48-page report notes that “welfare currently pays more than a minimum wage job in 35 states.” Furthermore, “In 11 states, welfare pays more than the average pre-tax first year wage for a teacher. In 39 states, it pays more than the starting wage for a secretary. And, in the 3 most generous states a person on welfare can take home more money than an entry-level computer programmer.”
Perhaps the most damning statistic included in the study is the salary that one would need to earn in order to make it advantageous to take a job and stop receiving welfare voluntarily. This is different than simply calculating how much one can earn off of welfare because welfare benefits are not taxed; however, these statistics may still fall short of the actual value of receiving welfare benefits, as they do not account for the price that one puts on leisure.
In Hawaii, the most generous welfare state, the study finds that it would take an annual salary of $60,590 to make a potential job more profitable than welfare benefits. The rest of the top 10 consists of nearly the entire Northeast, including the District of Columbia ($50,820), Massachusetts ($50,540), Connecticut ($44,370), New York ($43,700), New Jersey ($43,450), Rhode Island ($43,330), Vermont ($42,350), New Hampshire ($39,750) and Maryland ($38,160). If you’re out of work and don’t have any moral qualms with rooting for Bill Belichick, go east!
Despite the exorbitant costs of some of these programs, there is little reason to believe that welfare actually helps people get out of poverty.
“There is little doubt that one of the most important long-term steps toward avoiding or getting out of poverty is taking a job,” the report says. “Only 2.6 percent of full-time workers are poor, as defined by the Federal Poverty Level (FPL) standard, compared with 23.9 percent of adults who do not work.”
Tanner and Hughes conclude the report by advocating for policies that promote “work over welfare.”
“…if Congress and state legislatures are serious about reducing welfare dependence and rewarding work, they should consider strengthening welfare work requirements, removing exemptions, and narrowing the list of activities that qualify as ‘work.’ Moreover, states should consider ways to shrink the gap between value of welfare and work by reducing current benefit levels and tightening eligibility requirements.”