Wel­fare-to-work morphs into wel­fare plus work Re­wards em­ploy­ers for low wages

The Washington Times Weekly - - Politics - BY PA­TRICE HILL

The his­toric wel­fare re­form law of 1996 was widely praised for en­cour­ag­ing Amer­i­cans to go back to work and not stay on the dole. But af­ter nearly two decades of ex­pe­ri­ence with the law, an­a­lysts are find­ing it cre­ated un­in­tended side ef­fects such as a per­verse in­cen­tive for some em­ploy­ers to pay skimpy wages.

Buried in the law were lit­tle­known pro­vi­sions en­abling peo­ple who earn wages near the poverty level to sup­ple­ment their in­comes with an ar­ray of fed­eral ben­e­fits, in­clud­ing food stamps, Med­i­caid, child care and cash wage sub­si­dies from the Trea­sury.

The pro­vi­sions were in­tended to pro­vide in­cen­tives for peo­ple to go to work and get off wel­fare, even if they don’t have the skills to com­mand wages high enough to fully sup­port their fam­i­lies. The law worked as in­tended for the most part, and full de­pen­dence on wel­fare pro­grams dropped steeply.

But econ­o­mists and re­searchers now ques­tion whether the avail­abil­ity of gen­er­ous ben­e­fits for peo­ple in low-wage jobs also be­came an in­cen­tive for em­ploy­ers to pay less, es­pe­cially for work­ers who have few skills and lit­tle ed­u­ca­tion. Since the law was en­acted, low-wage jobs with no health care or other ben­e­fits that barely pro­vide enough for work­ers to sus­tain them­selves have pro­lif­er­ated.

The in­crease in low-wage em­ploy­ment ac­cel­er­ated dur­ing the Great Re­ces­sion of 2007 to 2009 when mil­lions of higher-pay­ing jobs in con­struc­tion, man­u­fac­tur­ing and fi­nance were lost. Of the 7.2 mil­lion jobs that have opened since the re­ces­sion, more than half have been in low-wage pro­fes­sions such as re­tail and restau­rants, where work­ers with de­pen­dents of­ten must sup­ple­ment their wages with fed­eral ben­e­fits to make ends meet.

Newt Gin­grich, the House speaker from Ge­or­gia who led ne­go­ti­a­tions with Pres­i­dent Clin­ton to get the wel­fare over­haul en­acted, views wel­fare re­form as one of the Repub­li­cans’ great­est ac­com­plish­ments of the 1990s. He de­clined to com­ment on the poverty wage is­sue de­spite re­peated re­quests for an in­ter­view.

But he re­cently spoke out on other as­pects of wel­fare re­form that aren’t work­ing as planned and said he is par­tic­u­larly disen­chanted with the fraud that has plagued the Earned In­come Tax Credit, one of the pro­grams Repub­li­cans agreed to ex­pand to sup­ple­ment the in­comes of for­mer wel­fare re­cip­i­ents who land poverty-wage jobs. A re­port late last month from the Trea­sury’s in­spec­tor gen­eral found more than $110 bil­lion in pay­ments given out in the past decade to peo­ple who weren’t qual­i­fied.

Tommy G. Thomp­son, the sec­re­tary of Health and Hu­man Ser­vices who pi­o­neered the re­forms, also has con­ceded that the re­form pro­gram has met with “dis­ap­point­ing chal­lenges.”

“It seems like we’re go­ing back­wards,” with spend­ing on the work­ing poor now pro­lif­er­at­ing, he told a Na­tional Press Club fo­rum this sum­mer.

The in­crease in low-wage jobs and the ac­com­pa­ny­ing ex­plo­sion of ben­e­fits were key fac­tors driv­ing fed­eral deficits of more than $1 tril­lion an­nu­ally dur­ing and af­ter the re­ces­sion. Big jumps in spend­ing on food stamps, Med­i­caid and other wel­fare pro­grams were ex­pected for peo­ple who had been laid off. Less an­tic­i­pated was the surge in ben­e­fits for those who could find only low-wage jobs to re­place the higher-pay­ing jobs they lost.

As the pro­grams evolved, they ended up pro­vid­ing huge sub­si­dies for the peo­ple re­ceiv­ing ben­e­fits and for the cor­po­ra­tions that kept pay scales low and steered work­ers to­ward sup­ple­men­tal fed­eral ben­e­fits, said John Slater, a part­ner at Fo­cus LLC, a Wash­ing­ton-based in­vest­ment bank.

The high­est con­cen­tra­tion of work­ing poor is in the fast-food in­dus­try, ac­cord­ing to a study by the Univer­sity of Cal­i­for­nia, Berke­ley, with more than half of non-man­age­rial work­ers un­able to make ends meet with­out fed­eral as­sis­tance.

Tax­pay­ers fund about $7 bil­lion a year in ben­e­fits for such fast-food work­ers, roughly equal to the in­dus­try’s yearly prof­its, the study found. About 5 per­cent of the na­tion’s 15.3 mil­lion re­tail work­ers also re­ceive fed­eral ben­e­fits, a sit­u­a­tion dra­ma­tized by the re­cent air­ing of a taped phone call in which a McDon­ald’s cor­po­rate fi­nan­cial coun­selor ad­vises a 10year em­ployee of the com­pany to ap­ply for wel­fare to sup­ple­ment her reg­u­lar pay.

“The tax­payer is un­wit­tingly sub­si­diz­ing low-wage em­ploy­ers,” Mr. Slater said, “in­clud­ing re­tail­ers such as McDon­ald’s and Wal-Mart, but also many small-busi­ness own­ers” who pay work­ers the fed­eral min­i­mum wage of $7.25 an hour or lit­tle more.

“As al­ways seems to be the case when Wash­ing­ton sets out to fix a prob­lem, it is the un­in­tended con­se­quences that come back to haunt,” he said.


Pro­test­ers rally out­side a McDon­ald’s restau­rant to de­mand higher wages and ben­e­fits. A study found that more than half of non-man­age­rial work­ers in the fast-food in­dus­try can’t make ends meet with­out fed­eral as­sis­tance.

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