Breaking Down the Safety Net
Critics argue that welfare programs -- including unemployment insurance -- discourage the unemployed to look for work, but is that really the case?
By Peter Cappelli
As the high unemployment levels in the United States continue, the topic has become a political football -- I know, that’s surprising -- with much of the focus directed at the government safety net for people who are out of work. On the left, the arguments center on people in need -- that those without jobs are suffering and the government support for them is inadequate. On the right, the argument is that government support for the unemployed makes them unwilling to look for work.
Both sides have a point. Government programs to support the jobless do make them less desperate to find and take jobs. Indeed, that was one of the arguments for unemployment insurance, which only applies to those who have lost jobs through no fault of their own, that they should not be forced to take just any job but should be able to look for one that makes sense, given their skills and abilities. There is also little doubt that a great many people without jobs are truly struggling to get by, even with government assistance.
But what is that assistance? Everyone talks about welfare in particular, but no one talks about how much it is. What does the safety net look like in terms of support for the jobless? I’ve never seen any overall assessment, and it is a pain to calculate, because there are at least 10 major federal programs to support those without jobs that can also be supplemented by states. States can have their own programs as well. Eligibility for each program is different. Given these state differences, there are literally millions of combinations of possible aid programs for which a jobless individual could be eligible, depending on his or her circumstances and where he or she lives.
Given those caveats, here is what it looks like.
Let’s start with unemployment insurance, which again only goes to those who have lost their jobs through no fault of their own. The standard has been to replace half of one’s previous job, but the payments vary by state and are capped, from a low maximum of $264 per week in Arizona to a high of $600 in Washington State. Payments last for 26 weeks (except for North Carolina at 19 weeks), although they have been extended in this recession to between 40 to 63 weeks based on state-level employment (three states have gone to 73 weeks). Recipients have to demonstrate that they are looking for a job to keep receiving benefits and typically aren't entitled to them if they turn down jobs deemed acceptable. Payments stop when one takes a job.
The extensive research on unemployment insurance is clear that it does make people wait longer before they take a job. If they are sitting on their hands before taking a job, that’s probably a bad thing; if they are actively searching to find a job that is a good fit for their skills, that’s probably a good thing.
The other benefits comprise the real safety net for those without work and are also the focus of debate. While eligibility formulas are complicated, it is very hard to receive most of these other benefits if one is getting unemployment insurance. The “welfare” program now is Targeted Aid to Needy Families, where the average payment per month in the United States is $395 -- again, it varies by state. It is only available to families with children, and the program requires participation in work-related programs, which includes training and other experiences short of real jobs.
The food-stamp program (Supplemental Nutrition Assistance Program or SNAP) pays, on average, about $377 in benefits per month, but it is actually seven times bigger than TANF because so many more people are covered, including those with low-income jobs. Public-housing support is five times bigger than TANF, paying on average $578 per month and covering more people. Medicaid is by far the biggest program -- 37 times bigger than TANF -- because it also covers more people. The average monthly Medicaid payment is $236 per month.
The Department of Health and Human Services annually estimates the percentage of TANF recipients who receive each of these other benefits. From that, we can calculate what a typical TANF recipient receives overall in federal government safety net benefits: roughly $12,000 per year for a family.
Is that a lot or a little? It’s certainly a lot more than the focus on welfare alone suggests. But it’s also only halfway toward the poverty level for a family of four in the United States: $23,000.
Are these payments discouraging people from looking for jobs? No, because you can still receive most of them if you take a job, at least a low-wage job. So you are not better off by not working.
Peter Cappelli is the George W. Taylor Professor of Management and director of the Center for Human Resources at The Wharton School. His latest book is Why Good People Can't Get Jobs: The Skills Gap and What Companies Can Do About It.