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Maximizing Welfare Programs for the Poor: Balancing Assistance and Work Incentives

Explore means-tested programs that offer cash or in-kind assistance for the poor, examining work incentives, TANF characteristics, work requirements, and the impact of benefit levels on poverty reduction. Learn about state administration, tax credits, Medicaid, and more. Discover new ideas to enhance earnings and address root causes of poverty.

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Maximizing Welfare Programs for the Poor: Balancing Assistance and Work Incentives

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  1. EXPENDITURE PROGRAMS FOR THE POOR Chapter 13

  2. A Quick Look at Welfare Spending • Means-tested • Cash versus in-kind assistance • Anti-poverty impact of non-means-tested programs 13-2

  3. TANF • Aid to Families with Dependent Children (1935-96) • TANF-Temporary Assistance for Needy Families (1996-?) • No entitlement • Time limits • Work requirement • Fixed $ Block grants to states • States have much flexibility and authority over structure of their welfare system • Benefit reduction rates

  4. 0 Work Incentives The Basic Trade-offs G – basic grant if not working t – rate at which grant reduced when recipient earns money B – benefit received B = G – tE B = 0 if E = G/t Challenge: How to provide an adequate income support program while minimizing work disincentives?

  5. Analysis of Work Incentives D |Slope| = w Income per month c b 2w w a 0 T Hours of leisure per month Time endowment

  6. Analysis of Work Incentives D |Slope| = w Income per month E1 G iii Income ii Leisure i 0 T Hours of leisure per month F Work

  7. Analysis of Work Incentives D |Slope| = w Income per month (= earnings + transfers) |Slope| = 3/4w S Hours before TANF Q $100 Hours of leisure per month 0 T F K Hours after TANF

  8. Analysis of Work Incentives Budget constraint with t = 100% D 0 hours of work selected P1 P Income per month (= earnings + transfers) S R G $338 Hours of leisure per month 0 T F

  9. Analysis of Work Incentives D E2 P Income per month (= earnings + transfers) R Hours worked Hours of leisure per month 0 T M

  10. Work RequirementsWhen welfare recipient can’t choose work hours • Workfare: able-bodied individuals receive income-support only if they agree to participate in a work-related activity • TANF • Mandated work

  11. TANF Characteristics • Time Limits • Lifetime • Per spell of welfare • Family Structure • Marriage • Childbearing • Empirical results as to whether TANF affected the structure of low-income families

  12. National versus State Administration Does State Administration create a Race to the Bottom? State Administration allows state experimentation

  13. Other Benefit Programs for the PoorEarned Income Tax Credit 2012 for a single parent with two children

  14. Other Benefit Programs for the PoorEarned Income Tax Credit

  15. Empirical Evidence: The Effect of the Earned Income Tax Credit on Labor Supply Labor force participation Work hours

  16. Other Benefit Programs for the Poor • Supplemental Security Income: Federal program for aged, blind, disabled. • SSI vs. conventional welfare • Uniform minimum federal guarantee • Benefit levels • Work incentives • Medicaid • How Medicaid works • Work disincentives: Medicaid Notch

  17. The Medicaid Notch M Income per year D R S Z N $1,000 0 T X Hours of leisure per year

  18. Other Benefit Programs for the PoorUnemployment Insurance • Why does government insure against unemployment? • Adverse selection • Moral hazard • Benefits • Gross replacement rate • Financing • Experience rated • Effects on Unemployment

  19. Other Benefit Programs for the PoorSupplemental Nutrition Assistance Program SNAP as an in-kind transfer Direct cost paid by federal government Administered by the states Participation rates

  20. Other Benefit Programs for the PoorHousing Assistance • How housing assistance works • Housing subsidies • Section 8 certificates • Voucher programs • Impact on stock of housing • Public housing and economic self-sufficiency of inhabitants

  21. Other Benefit Programs for the PoorPrograms to Enhance Earnings • Education • Head Start • Employment and Training

  22. New Ideas Replace current hodgepodge with single cash assistance program Are benefit levels high enough? Faith-based social services might address the hypothesized (by some) “spiritual” and “moral” roots of poverty

  23. Chapter 13 Summary Means-tested programs transfer income and services such as housing, health insurance, food, education, and job training, to people whose resources fall below a certain level Economic research surrounds how well these programs achieve the dual goals of providing adequate assistance and minimizing work disincentive

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