Does Welfare Reduce Work Participation?

August 24, 2013Danny Vinik Leave a comment

Michael Tanner and Charles Hughes of the libertarian Cato Institute published a report (PDF) this week evaluating the total amount of welfare benefits that individuals can collect on a state-by-state basis. What they found was pretty alarming:

The current welfare system provides such a high level of benefits that it acts as a disincentive for work. Welfare currently pays more than a minimum-wage job in 35 states, even after accounting for the Earned Income Tax Credit, and in 13 states it pays more than $15 per hour. 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 definition of work. Moreover, states should consider ways to shrink the gap between the value of welfare and work by reducing current benefit levels and tightening eligibility requirements.

That’s quite a finding, but it doesn’t really hold up under scrutiny as Josh Barro explains. But that’s not what I want to talk about. I want to assume that those findings are correct and look at their outcome on work. Tanner and Hughes include a table in their report that lists every state and the percent of adults receiving Temporary Assistance for Needy Families (TANF) benefits who are in work activities. Work activities does not necessarily mean employed; it also includes job search activities as well. So, to see if welfare disincentives people to work, we can look at which states have the highest work participation and compare that to the welfare packages they offer, right? After all, if states with substantial welfare packages also have low work participation rates, that’s a sign that welfare may act as a disincentive.

But looking at the benefit levels themselves isn’t helpful. What matters more is the purchasing power of those packages. That’s what people really care about. Five hundred dollars in SNAP (food stamps) benefits will buy you a lot more in Fargo, North Dakota than in New York City and that impacts people’s desire to work. I couldn’t find a measurement of the differences in cost-of-living in different states – possibly because it varies so much within states themselves – but Tanner and Hughes actually provide a metric that can be used as a proxy for cost-of-living: median salary. In fact, they present welfare benefits as a percent of the median salary for each state. Median salary is not a perfect proxy, but it is still a pretty good measure of the cost-of-living in each state.

Now, comparing the welfare benefits as a percent of the median salary to the work participation rate in each state can give us a better idea of the incentive effects of welfare. So, that’s what I did. Here’s a graph of the results with a best fit linear line attached:

There’s certainly a negative correlation between welfare purchasing power and work participation, but it’s not that strong. In particular Idaho’s work participation rate of 87.9% along with its small welfare purchasing power (36.9% of median salary) is impressive. But this analysis isn’t quite right. You may be looking at the welfare benefits as a percent of median salary and are shocked to see so many percentage over 100 percent. That’s because just about no one actually qualifies for all eight of the welfare programs that the Cato Institute includes. As Barro points out in his article, most people on welfare receive SNAP and Medicaid benefits and nothing else.

However, Tanner and Hughes predicted this rebuttal and calculated the maximum amount a person can receive from just SNAP, TANF and Medicaid benefits. They were also nice enough to include a table of those benefits as a percent of median salary in each state. I then compared those numbers to work participation and look what I found:

The correlation is positive now! State’s with greater welfare purchasing power have higher work participation rates. The correlation is even less than in the previous graph so it’s not particularly meaningful. In addition, correlation does not equal causation. This could be a complete coincidence. But it should at least make you pause whenever you hear conservative claims that welfare causes people to forego their job search and mooch off other taxpayers. The evidence on it is very unclear.

Do Obama’s Higher Ed Reforms Have a Chance in Congress?

August 22, 2013August 22, 2013Danny Vinik Leave a comment

Jonathan Chait is pessimistic:

But the comparison raises the question of whether his higher-education agenda will repel Republicans just as his health-care agenda did. Finding ways to get the government to spend less on education sounds pretty conservative.

…

If you put more weight on the ideological explanation [for Republican opposition to the ACA] , then Obama’s higher-education agenda stands a chance of attracting Republican support. Republicans might even take some visceral pleasure in making their cultural enemies in the academy squeal. If you put more weight on the political explanation, then Republicans will convince themselves that Obama’s plan is evil no matter what. Republicans will find themselves believing that free-market principles require that whatever money the government spends on college access must have absolutely no conditions attached.

Josh Barro is more optimistic:

I view scorched-earth Republican opposition to health care reform as having been driven mainly by neither ideology nor animus toward the president. I think the key was a desire to protect Republican constituencies who benefit from the health policy status quo: doctors and Medicare recipients.

In the case of higher education, the constituency getting its ox gored by cost control will be college professors and administrators, hardly a fixture of Republican fundraisers or Tea Party town halls. That bodes well for bipartisan compromise on this issue.

Hmm, I want to side with Barro here, but I can’t for one big reason: Republican rejection of the Medicaid expansion. A quick refresher: Obamacare expanded Medicaid to cover all individuals with income up to 133% of the federal poverty line. Since Medicaid is a state-run program, the government agreed to cover the full costs of the expansion until 2017. From 2017 to 2020, the federal government covers 95% of the costs and thereafter it’s 90%. It’s a great deal for states. But the Supreme Court ruling last summer allowed states to opt out of the expansion. This leaves a gaping hole in Obamacare. Individuals with incomes between 100 and 133 percent of the federal poverty line will still be eligible for tax subsidies, but those with incomes below 100% of the federal poverty line who aren’t eligible for Medicaid already will not receive coverage.

Why does this matter to whether Obama’s higher ed plan has a chance of passing in Congress? Because, as Barro and Chait write, it depends on whether Republicans will immediately reject the plan out of opposition to anything President proposes or whether they will be open to it. Barro’s optimism is based on the fact that Republican opposition to Obamacare was not just pure nihilism, but was also a play to protect their favored constituencies. Except Republican rejection of the Medicaid expansion shows that it was more nihilism than anything else.

That’s because rejecting the expansion will hurt one of Republicans favored constituencies: hospitals and doctors. Obamacare discontinues Disproportionate Share (DSH) payments, which were used to offset uncompensated health care costs of the uninsured pre-Obamacare. When Obamacare expanded Medicaid, those payments became unnecessary. Medicaid would now cover everyone up to 133% of the federal poverty line so uncompensated costs would basically disappear. Thus, there was no need for DSH payments to continue. Except hospitals in states that rejected the Medicaid expansion are still going to face significant costs of treating uninsured patients and now they receive no DSH payments to recoup those expenses. That’s why hospitals have been aggressively lobbying Republican states to expand Medicaid. There’s a lot of money on the line for doctors and hospitals.

But that lobbying has proved ineffective so far. Twenty one states have already rejected the expansion with six still debating it. It’s a great deal from the federal government that allows millions of poor Americans to receive health care coverage. Even more, hospitals are crying out for the expansion. Nope, Republicans are dead set against it. No matter how much hospitals and doctors favor them, Republicans aren’t budging. Republican opposition to Obamacare is less based on protecting Republican constituencies than rejecting anything the President proposes. I don’t see Republicans treating Obama’s education proposal any differently.

Photos: Pardon Bradley Manning Rally

August 22, 2013Danny Vinik 1 Comment

I stopped by the rally for Bradley Manning that happened around 8PM last night in front of the White House. There were a few dozen protesters there, with plenty of signs and whistles to go along. After different people took turns at the mic, the rally moved on and marched towards DuPont Circle. The speeches were what you’d expect. Lots of anger at Manning’s 35 year sentence while the perpetrators of the crimes he revealed go unpunished. In addition to the Free Bradley Manning chants, the protesters also shouted Pardon Bradley Manning, referring to the petition that Manning submitted yesterday afternoon asking President Obama to pardon his sentence. Don’t get your hopes up for that.

Anyways, here are some photos from the rally:

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