Rethinking Social Policy to Reduce Poverty, Strengthen Families, and Benefit Children

1. Rethinking Social Policy to Reduce Poverty, Strengthen Families, and Benefit Children Gordon Berlin President, MDRC Family Impact Seminar April 15, 2008

2. If you could do one thing to reduce poverty… • The Problem: • Declining real wages, increasing single-parenting, a tax and transfer system that distorts incentives • The Evidence: • Work-based earnings supplements are effective • The Proposal: • Enhanced EITC for singles and second-earners • The Payoff: • Immediate increase in income, reduction in poverty; potential secondary effects on employment, child support, and possibly marriage, crime

3. Tracking Earnings, Poverty, and GDP, 1947-2004 Weekly Earnings of Production Workers (2004 $) Poverty Rate 35% 25% 15% 5% Sources: Bureau of Labor Statistics, U.S. Census Bureau, U.S. Dept of Commerce

4. The Problem • Sweeping economic forces • Stagnant and declining earnings for HS and below • Postpone marriage, fewer children, both parents wk • War on Poverty assumed 60’s earnings growth • Rising single parenthood: divorce, out of wedlock • Social welfare system built on families w children • Story, • As earnings fell, employment declined (Katz, Grogger), crime rose (Western, Raphael), marriage declined (Lichter, Carlson, Edin), and poverty rose (Danziger, Hoynes)

5. Antipoverty Strategies: A Framework • If earnings instrumental – marriage and divorce not easily changed by policy – solutions must tackle low earnings • Short-run: • Invest in low-wage labor force • Make work pay, improve retention/advancement, increase employment opportunities for hard-to-employ, child care • Long-run: • Invest in human capital, bolster educational pipeline • Early Head Start, high quality pre-K • Reforms in K-8, high schools • Reforms in postsecondary education: community colleges

6. Solving the Income Problem:Work-Conditioned Incentives for Families • Building a safety net around work: • Minnesota’s Family Investment Program (MFIP) • Canada’s Self Sufficiency Project (SSP) • Milwaukee’s New Hope Project • By • Paying monthly cash supplements tied to earnings • Tying payment to FT work or participation • Aggressively explain/market/outreach • Offering child care, health care, and CSJ’s (New Hope)

7. Experimental Findings: Effects of Policies on Parents’ Economic Well-being • Programs with mandatory employment services increased single parents’ employment but not their income • Programs with generous earnings supplements increased both employment and income • Programs with time limits depend on presence of supplements

8. Effects on Parents’ Economic Outcomes Statistical significance levels are indicated as: *p<.05 **p<.01 † p< 0.10

9. Impacts on Earnings and Income Across Studies Mandatory Employment Programs Generous ES Programs

10. Experimental Findings: Effects of Policies on Children’s Achievement • Preschool-age and early school age children • benefit when policies increase parents’ employment and income • show few effects from policies that increase parents’ employment but not income • show few effects from time limited policies tested • Adolescents show negative effects on school progress from welfare reform policies, especially adolescents with younger siblings.

11. Earnings Supplements… …consistently improved children’s school achievement, so helping parents helps children

12. Making Work Pay for Families vs Singles • Proven strategies for families: • Earnings supplements(Wisconsin, Minnesota, Canada) • Increased employment, earnings, income, child well-being: cost more • Jobs-Plus for public housing residents • Rent-based work incentives (flat rents) increase employment, earnings • Minimum wage, EITC:increase employment and earnings • Key challenges: • No agency accountable for delivering work supports • Increase “take-up” rates of food stamps, Medicaid/SCHIP • Low singles EITC but men bore brunt of earnings decline • Distorts incentives to work, marry and bear children • Erosion of minimum wage’s value, equity between men and women

13. Sketchy Evidence for Men, Singles • The “Make Work Pay” experiments: • New Hope increased employment and income, for singles, but, sample small – results suggestive • EITC effects positive for women, family heads including men; would single men’s employment response be different? • Roaring 90’s economy (1992 to 2000) • Increased men’s employment, including AA men

14. Change in Employment Rates of Young Black Menby Age and Educational Status During the Boom Years 1992-2000 SOURCE: Analyses by the Center for Labor Market Studies, Northeastern University.

15. A Proposal to Solve the Singles, Second Earners Earnings Problems • Keep existing child-based EITC system • Add enhanced EITC for singles, second-earners • Target FT workers (30 hours/week); age 21 to 54 • 25% subsidy rate; maximum $1,950; 16% tax back rate • $6.55/hr job becomes $8/hr job • Radical tax twist: payment based on individual income not joint income • Single man earning $14K receives $1,950 supplement • Couple w/children (earn $14K each) get $6.5K in supplements • Index minimum wage to inflation • Cost: roughly $33 billion/year

16. The Benefits • Impact on poverty among existing full-time workers: certain, large, and immediate • 34 million FT workers would benefit immediately • Incentives to work, support children, cohabit, and marry would improve; opportunity cost of crime would rise • Possible secondary effects? • Employment rates would rise (by 4% to 20%) among part-time and non-workers • Cohabiting/marriage, child support payments might rise as men become more attractive partners and fathers gain economic wherewithal; criminal activity might decline as earnings rise • Size of these second order effects unknown

17. Alternative Strategies • Increase the EITC for all, large families, married families • Expand state and local EITC add ons • Extend child tax credit f low-income fam • Expand singles EIC, reduce marriage penlty • Rangel, Holzer, Scholz, Bloomberg, Raphael • Triple singles credit; test more generous plans

18. For Additional Information… …visit www.mdrc.org