U.S. WELFARE REFORM: POLICY LESSONS FOR AUSTRALIA (and are we prepared to listen)?

1. U.S. WELFARE REFORM:POLICY LESSONS FOR AUSTRALIA (and are we prepared to listen)? Peter Saunders Social Research Director Centre for Independent Studies www.cis.org.au CAPE YORK INSTITUTE PUBLIC SEMINAR December 10 2004, Cairns, Queensland Note: This presentation and the information it contains is not to be used without the author’s explicit permission.

2. The Context: Australia’s growing welfare dependency problem • 1965: 3% working age adults on benefits Today: 16% working-age adults on welfare for 90%+ of their income • Long-term dependency bad for claimants and their children • Also financially unsustainable: 1965: 22 income tax payers for every 1 person reliant on welfare payments. Today: 5:1

3. The three core areas of dependency growth • Working-age welfare dependency concentrated in: • the unemployed • people on disability support • parents on Parenting Payment (Single). • Reform required in all 3

4. ‘Welfare’ = federal means-tested aid to poor (AFDC/TANF plus food stamps) ‘Social security’ = retirement pensions, disability payments, family benefits, Medicare (eligibility through Payroll tax contributions) ‘Supplemental social security’ = Medicaid & housing benefits for low income groups plus payments for old/disabled not covered by contributions ‘Unemployment insurance’ generally paid by employers Welfare reform only applied to AFDC ‘Welfare’ in America

5. Reduce welfare dependency among single parents (succeeded) Increase their employment rates (succeeded) Discourage young girls from having children outside marriage when they cannot afford them (not much impact) Aims of U.S. reform

6. State targets for moving claimants off rolls into ‘work activities’ (1997=25%; 2002=50%) Receipt of welfare conditional on work, vocational training or community service (scrapped exemption for parents with children under 3) Time limits: 2 years maximum per claim; 5 years maximum over lifetime (up to 20% claimants exempt). 17 states adopted tighter limits The 1996 Personal Responsibility & Work Opportunity Reconciliation Act

7. Critics predicted increased poverty and no jobs “Child poverty will increase 12%” Children’s Defense Fund “More malnutrition, crime, infant mortality, drug and alcohol abuse” Peter Edelman, former Clinton adviser “A brutal act of social policy” Sen. Daniel Patrick Moynihan But results were “an embarrassing defeat for academia” (Mead) Reactions and predictions

8. Big reduction in welfare dependency: 4.3m families on welfare 1996; 2.02m in Sept 2002 Halved number of children on welfare Increase in work participation: 1992 68% single mums worked (46% 9+ months) 2002 82% single mums worked (61% 9+ months) Employment of high school drop-outs increased by 2/3rds Employment of young single mothers doubled 60-70% of welfare leavers are working at any one time (20-30% end up back on welfare) Many in low-paid jobs, but incomes improved 63% on welfare Results

9. Poverty fell: 13.7% 1996; 11.7% 2002 biggest falls in states with biggest welfare reductions black child poverty and single parent poverty lowest on record 38% ex-welfare working mums ‘poor’ c.f. 83% welfare mums Subjective wellbeing rose: 60-80% say life same or better self-esteem, optimism about future increased Child wellbeing improved kids under 5 living in single parent families down 21% (1997) to 17% (2002) young children school performance better (teenagers not) Crime? huge fall in US crime rates (now below Australia’s) Results (continued)

10. Bigger savings than expected > state block grants diverted into other spending: Child care $2.1bn 1997, $7.4bn 2000 Individualised support & counselling Improved training IDAs Cash transferred from idle to working poor Savings

11. 231,000 time limits expired by end 2001; 93,000 taken off TANF (NB is termination credible?) Many had other sources of income or family assistance (inc partner), but 20% have no apparent source of income (increased use of food pantries?) Still get food stamps, Medicaid, Child care assistance The casualities?

12. Favourable economy explains 15-25% of reduction (but strong economy never reduced welfare before – or elsewhere. Min wage/tax changes explains 30-50% Welfare reform explains 30-45% (Besharov) Key predictor of caseload decline across states is stringency of sanctions (explains 20% variation); economy = only 5% “Compelling evidence that dramatic changes in incentives can affect behaviour” (Ellwood) Welfare/poverty reduction not all due to welfare reform

13. 100,000 welfare families in 1986 reduced to 10,000 by 2001 Logic: Same requirements/expectations in welfare as in work - reciprocity Principle: Generous support for the working poor (big government conservatism) > only 19% savings (child care spending doubled in 2 years) Wisconsin “proved that traditional welfare could virtually be abolished” Wisconsin: “Little short of a revolution” (Mead, Government Matters)

14. Diversion – investigate work opps, family, friends etc as alternatives to welfare ‘Self Sufficiency First’ – requires 60hrs job search before claiming welfare Parents of child 1+ must work (later reduced to 12 weeks) Earn your benefits (benefit reduced by min wage rate for every hour under 40 not worked; cut off altogether under 10 hrs) – everyone works Paid work, not training and education (four tiers – unsubsidised job, subidised job, community service job, remedial activity with PT work) Intensive care work – wake-up calls, etc (admin costs increased x6 per case) Subsidised health, child care, transport for all low-paid workers “Hardship did occur, but it was seldom severe or lasting. It was the dog that didn’t bark” “Helping people, even generously, was not counter-productive as long as those aided also helped themselves” Wisconsin: What Tommy Thompson did

15. “Many progressives, ourselves included, fought hard against the program… so far the evidence reveals that many of our fears have not been borne out” (Bernstein & Greenberg) “Welfare reform is working better than I thought it would. Whatever we have been doing over the last 5 years we ought to keep going” (Wendell Primus, resigned 1996 as Human Services Dep.Asst.Sec 2002 renewal proposed raising targets to 70%, increased minimum activities to 40hrs/wk inc 24hrs real work, promoting marriage “Not even liberals are talking about whether welfare recipients ought to work. The main bone of contention now is how much money should go to childcare so that the work requirement can be increased” (Wall St Journal 13 May 2002) Reflections on the US reform

16. Welfare is temporary (hence time limits) Requirements of welfare should be no different from requirements of working (Less eligibility) Work is always better than welfare (working poverty better than welfare poverty) Generous public funding to support low income workers “Help and hassle” (Big government conservatism; paternalist authority rather than rights discourse) Need is not sufficient grounds for getting help (responsible behaviour also required – core belief in self-reliance) Best work preparation is work (not training, community activity, etc) Learn from best practice (state autonomy for experiments) Principles driving US welfare reform

17. Australian welfare academics not impressed: Results due to “booming economy and extremely low wages”; welfare reform was “ineffectual” Paul Henman, Lecturer in Social Work, University of Queensland “US welfare reform has moved large numbers of families including children into increased poverty” Philip Mendes, Snr Lecturer in Social Policy, Monash Is Australia willing to learn anything?

18. Australia should “follow the line of the European social democratic countries rather than Americanisation” Terry McCarthy – St Vincent de Paul “Australian policy makers need to avoid ideologically following down the US path of welfare reform and consider what can be learned from the Europeans” Bruce Duncan, Catholic Social Justice Welfare activists prefer to learn from crisis-ridden European welfare states

19. Mutual obligation “exploitative” (Pamela Kinnear) Mutual obligation “breaches human rights” (Schooneveldt & Thompson) “Welfare support should be available as an unconditional right” (Fred Argy) We have a right to an income “whether we work or not” (Anna Yeatman) “A basic universal benefit subject only to proof of citizenship” (Peter Saunders) Welfare intellectuals resist conditional welfare (oppose any mutual obligation)

20. Tax reformto improve work incentives (Raise threshold above welfare minimum floor – BUT do not follow US/UK tax credits) Labour market reformto generate more jobs for lower-skilled workers (freeze minimum wage, more flexibility in awards, unfair dismissal reform) Welfare reformto reduce dependency and encourage self-reliance If we do wish to emulate US success, welfare reform alone is not enough

21. The welfare lessons • Do not raise benefits any further (they are already above generous Henderson poverty line) • Use time limits to reduce long-term unemployment (with FT Work for Dole after 26 weeks) • Reform Parenting Payment to stop chronic long-term dependency (PT work requirement once child at school) • Limit Disability Pension to those who genuinely cannot work