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05/19/93

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Incentives for reducing welfare dependency discussed at conference

STANFORD -- Welfare benefits may discourage some people from working, but the widely held belief that typical welfare mothers "make welfare a way of life" is exaggerated, according to some of the economic experts and state government officials who met at Stanford University May 14-15 for a conference on California welfare policy .

One recent study has found that most young mothers receive welfare assistance for their families for less than a year. Nevertheless, Governor Pete Wilson concluded the conference Saturday night with a speech in which he said the state must cut its welfare benefits partly because recipients consider welfare a career.

The conference brought together university professors from around the country and high-ranking officials from the California Department of Social Services to discuss the current ills of the California welfare system, and possible methods of reform.

Jointly sponsored by the Stanford Center for Economic Policy Research, the Public Policy Program and the Hoover Institution, the conference was meant to inaugurate the center's public policy research and teaching project focusing on problems specific to California.

Wilson called for reforms of the welfare system that he said would encourage single parents to work more and delay having children until they could afford them. He said he would travel around the state to promote his proposals that were defeated in last November's election as Proposition 165.

The state has to reduce welfare payments, Wilson said, because recipients consider welfare a career in a time of skyrocketing caseloads and a persistent state budget crisis.

The purpose of welfare is actually to end welfare, the governor said, and programs currently operate on the "flawed premise" that government acts as the parent and the adult welfare recipient is the child.

'Movement' among single mothers

Earlier in the conference, Stanford economics Professor Thomas MaCurdy, who also is a senior fellow at the Hoover Institution, described the movement of single mothers on and off welfare as much more active than was previously thought.

Analyzing quarterly data that exposed more of the short-term changes than standard annual data can do, MaCurdy found the majority of women under age 30 received welfare benefits for less than one year.

These results "offer evidence that contrasts with several perspectives advanced by policy makers in their consideration of welfare programs," MaCurdy wrote in his paper, and have led him to conclude that "the problem of permanent reliance on AFDC support is less important than is suggested by existing studies."

AFDC - Aid to Families with Dependent Children - is California's largest welfare program.

People do have to push their way into self-sufficiency against the current of a disincentive effect built into the welfare system, several economists said.

John Pencavel, a Stanford economics professor, offered the example of a typical non-working California welfare recipient, a mother of two who pays $400 a month in rent and receives $827 a month in state support for her family.

A 40-hour-per-week job at $6 per hour would earn her $1,032 a month. After the resulting reduction in her AFDC grant, she would end up with a total of $1,133, Pencavel said.

"Moving from zero to 40 hours of work weekly, her disposable income increases by $300, a net wage rate of $ 1.80 per hour," he said. It is "very unlikely that such low wage rates, or implicit high tax rates, have no effect on work behavior."

The practical effects of these regulations are also evident, he said: Although the fraction of working women has increased over the last few decades among virtually all sectors of the population, there is one group whose participation in the work force has fallen. These are poorly educated, black, unmarried women who live separated from their partners - the group most affected by the welfare system.

Despite a "very persuasive case for the presence of work disincentive effects of AFDC," Pencavel said, economists still do not know enough about its individual components to estimate confidently if and how much specific changes, such as altering the benefit reduction rate for work, will influence work behavior.

Rebecca Blank, professor of economics at Northwestern University and an expert in poverty research, said that such classical economic assessments address only the government benefits side of the issue. The other part is falling wages and demand for unskilled labor. She said real wages for unskilled males without a high school degree have decreased by 15 percent in recent years.

"Too many of the last state welfare reforms aimed at getting people to go look for a job when the unemployment rate was rising with the recession," Blank said.

As a last resort in a continuously sluggish economy, she said she supports public sector employment to provide jobs.

But first, Blank suggested that reformers could make work pay through additional income subsidies for unskilled people, such as offering child support or supplementing a base income with earned income tax credits.

Earned income tax credits, she said, could be a "very powerful incentive for non-working welfare recipients to try to enter the labor market."

Work could also be made more attractive by removing payroll tax for low-wage jobs altogether, Pencavel said.

Subsidiary services, such as transportation and health care are also "terribly important," Blank said.

Michael Genest, deputy director of the Welfare Policy Division of the California Department of Social Services said that although it is difficult to pinpoint the effects on work behavior of welfare reform proposals, those advocated by Governor Wilson are necessary to save money in the current budget situation.

Michael Wald, a Stanford professor of law, said he saw moral problems with conducting welfare reform experiments without a clear concept of what they will do to children.

AFDC is primarily a children's support program, Wald said, but children are often overlooked in discussions that focused on technical points instead of general values.

Reform proposals criticized

Michael Kirst, Stanford professor of education, criticized current reform proposals for not focusing on the disrupted family conditions of many recipients and the "badly fragmented child-care system." There are 36 agencies involved in 144 programs on children's matters, he said, and they cooperate little.

Welfare dependency is partly caused by fathers leaving, family disorganization and abuse - issues that are not discussed as part of welfare reform, he said.

Reformers must consider the state's changing ethnic composition as well, Kirst said, because not all incentives will work equally well with different groups.

The majority of poor Asian children live in intact families, the majority of white children live with a divorced parent, and the majority of poor black children, with an unmarried single mother. "By the year 2000, half of our children will be Hispanic or Asian."

One in five California children enter school with little or no English-speaking background, he said. Their families are especially important to welfare reform, he said, because studies have found the large majority of long-term welfare recipients in several California counties speak English very poorly.

Leslie Frye, chief of the Office of Child Support at the California Department of Social Services, said the state is working on ways to make absentee fathers pay more for the support of their children. One of three births in California is out of wedlock, she said, and the state will begin a pilot program this year to get unmarried couples to declare parenthood voluntarily in the hospital at the time of birth.

The strategy, she said, is to take advantage of new fathers' pride at the time when unmarried relationships are still stable.

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