Welfare to work programmes like the UK’s New Deal seem to be the most effective
way of increasing employment among the poor and socially excluded. But according
to Professor Robert Moffitt, writing in the November 2006 issue of the Economic
Journal, where such schemes involve a requirement to work, they must strike a
balance between protecting the most disadvantaged and strongly encouraging work
among those with the capacity for it.
He argues that there needs to be a recognition that not all families are able to take up
work, and there should be exemptions for those with very young children or family
members with special care needs, and for those who do not have the skills to find a
job. The government must use all information it has to make that determination: the
family situation, education level, past work experience and other indicators.
The government will inevitably make some errors, forcing work requirements on
some who have low skills and allowing exemptions from work requirements from
many who can work. To minimise such errors, the government must commit the
expenditure necessary to determine the work capacity of unskilled individuals to the
maximum extent. In the absence of such an effort, the errors made in a work
requirement programme will exceed their potential benefits.
Professor Moffitt notes that governments in most advanced industrial countries have
struggled in the last decade with how to increase employment among the poor and
socially excluded. Most countries now recognise that a generous social welfare
system may provide adequate benefits to low-income families but may not provide
them with the proper encouragements to work.
Countries like the UK and the United States have enacted generous programmes that
pay special in-work benefits to those who work. But in the United States at least,
these programmes have not been regarded as sufficient to increase employment
among the poor to a high enough level.
The US government has consequently introduced work requirements into their social
welfare programmes, requiring most recipient families to work to continue to receive
benefits. While controversial, these programmes are regarded as a success in the
United States. Work requirement programmes may be considered seriously in Europe
in the future, but they need to be carefully designed to minimise the chances of
hurting the most disadvantaged while helping those who have the capacity to work.
Both the US and UK governments currently strongly encourage work among the poor
and unskilled. With its Earned Income Tax Credit, the United States subsidises
earnings by up to 40% per year, and provides subsidies to families as high as $30,000
in annual income. The UK’s Working Tax Credit provides even more generous
benefits to those poor who work, but does not provide payments to families as high up
the income distribution.
Both programmes have been shown to increase work effort to some degree, but not by
large amounts. In 1996, the United States turned to the use of work requirements in its
main social welfare programme. Most families were required to work at least 20 hours
per week and were usually required to find their own jobs; the government did not
provide them. Families refusing to participate in searching for a job or finding
employment were given benefit reductions and, in many cases, were terminated from
the welfare rolls entirely.
As a result of this reform, and the good fortune of a strong economy in the 1990s, the
United States reduced the caseload in the programme by over 50%, an historic change
unequalled by any prior reform.
Work requirements have not been used in most European countries. The UK does
have a mandatory component to its New Deal for Young People, and in its New Deal
for Lone Parents, recipients are required to have an interview with a social welfare
official to be counselled on how to obtain a job, but are not required to take action
towards finding one. But these programmes are the exception rather than the rule.
ENDS
Notes for editors: ‘Welfare Work Requirements with Paternalistic
Government Preferences’ by Robert Moffitt is published in the November 2006 issue
of the Economic Journal.
Robert Moffitt is at Johns Hopkins University.
For further information: contact Robert Moffitt on +1-410-516-7611
(mailto:moffitt@jhu.edu); or Romesh Vaitilingam on 07768-661095 (email:
romesh@compuserve.com).