Warning: Policy Wonkish post below.
I have been meaning to blog about this NYT article on the recession and America's safety net for quite some time:
Unemployment insurance is not as generous now. Yet the unemployment rate is at 6.5 percent and some forecasters say it could top 8 percent next year. It hit 10.8 percent in the early 1980s.
This is also the first severe economic slump since President Bill Clinton overhauled the welfare system and made it tougher to qualify for, and keep receiving, benefits. Many people who lose their jobs now and fall into poverty may not qualify for public assistance. Other programs designed in part to counter hard times — like job training and housing subsidies — have also been cut back.
If you are a follower of my blog or know me personally, you have probably picked up on some anti-Bill Clinton sentiment. The primary reason for my President Clinton hate is the 1996 PRWORA welfare-reform bill, which should serve as primary example as to how triangulated policies result in very bad policies. I will get to the NYT article, but first let me point out TANF's (welfare) failures:
1. By establishing welfare as a maintenance-of-effort grant, states are tasked with setting benefit levels themselves. This has the effect of fracturing the risk pool. By doing so, it is impossible for high poverty risk states (poor states like Mississippi) to be subsidized by the low poverty risk states (wealthy states like Connecticut). This has made it impossible for TANF to actually reduce poverty rates as the states where poverty is concentrated cannot afford to payout enough benefits to the impoverished.
2. Because 54% of African Americans live in the South, where conservative ideology, racial stereotypes of welfare recipients, and poverty are concentrated, TANF has perpetuated the wage differentials between races.
3. It is economically inefficient - the argument behind unemployment insurance is that substantial time is required to match our labor resources with our employment opportunities. If someone has to settle on the first job available to them, it is an inefficient allocation of the nation's labor resources. However, if someone loses their job but does not qualify for Unemployment Insurance, they are forced to take TANF which mandates that they be employed to receive benefits. Thus they are incentivized to take the first job offered to them no matter if they are overqualified or not.
4. By capping the number of months that can be spent on benefits, recipients must go off TANF every month that they possibly can. Thus many recipients live in constant flux between the TANF rolls and living around the poverty line.
The function of an effective welfare system should be to cycle people out of poverty and into stable jobs. However, TANF, by forcing recipients to take the first job available to them, often with little prospect for advancement, and then forcing them to live floating between the rolls and barely scraping by capping the number of months benefits are available, we have created a system that is economically inefficient and does not reduce poverty.
Now, to bring it back around to the NYT article. The next few years will drastically test TANF's ability to serve the poor during this recession. It has been 12 years since welfare reform, 12 years of recipients floating on and off the rolls. As unemployment continues to skyrocket, many of these current and past recipients will be cycled off the payrolls and forced to find menial work in order to receive TANF benefits. Given the severity of this recession, it is likely that the labor market will take 2-3 years to recover. It is thus likely that we will begin to see the first round of TANF recipients that exhaust their benefits. They will not have any more benefits available to them for the rest of their life. If this happens, poverty rates will begin to rise again and we will be forced to revisit welfare reform.