Review of Robert M. Solow's "Work and Welfare" by Robert B. Reich
When during his 1992 presidential campaign, Bill Clinton vowed to "end welfare as we know it" by moving people "from welfare to work", he presumably did not have in mind the legislation which he signed into law in August 1996. The original idea had been to smooth the passage from welfare to work with guaranteed health care, child care, job training and a job paying enough to live on. As a result, former welfare recipients would gain dignity and independence, and society as a whole would have the benefit of their labours.
The 1996 legislation contained none of these supports no health care or child care for people coming off welfare, no job training, no assurance of a job paying a living wage, nor, for that matter, of a job at any wage. In effect, what was dubbed welfare "reform" merely ended the promise of help to the indigent and their children which Franklin D. Roosevelt had initiated more than sixty years before. From now on the Federal Government would provide state governments with a sum of money considerably less than the amount which the Government previously had spent on welfare; the states could do virtually whatever they wished with it, so long as they moved people off welfare within two years, and ensured that no one received more than five years' worth of support during their lifetime. Instead of smoothing the transition from welfare to work, then, the new law simply demanded that people get off welfare.
Although I was a member of the President's Cabinet at the time I even attended the penultimate Cabinet meeting before he made his decision I cannot tell you with certainty why Bill Clinton signed the 1996 legislation. Perhaps it was because he thought it was about as good a deal as he could get from a Republican controlled Congress. Previously, the Republicans had forwarded to him two other bills, even more punitive than this one, and he had vetoed them both. Undoubtedly the President wanted to fulfil his campaign pledge, and the clock was running out on his first term in office.
Yet this cannot be the whole explanation, because Bill Clinton could have vetoed the Republican bill for a third time, and then, during the 1996 presidential campaign, highlighted the differences between the Republicans' punitive approach to eliminating the dole and Clinton's own, more humane approach. Were he re-elected, Clinton could then claim an electoral mandate to reform the dole on his terms. The more likely explanation is that Clinton dared not veto the third bill. Although opinion polls had him then a full twenty points ahead of his challenger, appropriately named Robert Dole, who was then the majority leader of the Senate, Clinton's pollsters warned him that if he did not sign this time, Dole would claim that the President was not really in favour of reforming what everyone knew to be a deeply flawed welfare system, and that Clinton's twenty-point margin would thus be eroded.
In short, being "tough" on welfare was more popular than being correct about welfare. The pledge Clinton had made in 1992, to "end welfare as we know it" and "move people from welfare to work", had fudged the issue. Was this toughness or compassion? It depended on how the words were interpreted. Once elected, Clinton had two years in office with a Congress controlled by Democrats, but, revealingly, did not during those years, forward to Congress a bill to move people from welfare to work with all the necessary supports, because he feared he could not justify a reform that would, in fact, cost more than the welfare system it was intended to replace. The public would not see this as being sufficiently "tough" on welfare. Then the Republicans took control of Congress, and showed their toughness unambiguously. Now, months before the 1996 election, Clinton feared that voters would be attracted to Robert Dole were Clinton demonstrably weaker on welfare than the Republicans. It was a risk Clinton did not want to take.
Regrettably, none of this history appears in Work and Welfare, a thoughtful little book comprising the 1997 Tanner Lectures on Human Values at Princeton University, given by Robert M. Solow, Institute Professor of Economics, Emeritus, at the Massachusetts Institute of Technology, and former Nobel Laureate. Solow's essential argument is that the poorest members of society should not be guaranteed a dole, but instead be guaranteed a job that pays them enough for them to live on, including the cost of adequate job training, child care and health care. Because the market left to its own devices will not supply such things to all who need them, the government must provide them as a last resort. This scheme represents a just compromise between the two commendable, but conflicting, values of self-reliance (among the poor) and altruism (by the rest of society).
Solow bases his argument, first, on a growing work body of evidence suggesting that most welfare recipients would prefer to work rather than remain on welfare. He points, for example, to Canada's experimental Self-Sufficiency Project, now being attempted in two provinces, the relatively prosperous British Columbia and the relatively poor New Brunswick. Those who choose to enrol have a year in which to find one or more jobs adding up to thirty or more hours of employment per week. In return, they receive a supplementary payment which roughly doubles their earnings for up to three years; the supplement is larger for those at lower wages. It is hoped that after three years many of the participants will have increased both their earnings and their attachment to work sufficiently to remain in the job market and off welfare. The full results are still not in, but the scheme appears promising. In interviews, many of the participants clearly state their preference for work over welfare.
Next, Solow points to the relative popularity in the United States of programmes intended to help poorer members of society who are working. The minimum wage, first enacted in 1938, continues to have wide public appeal. Indeed, opinion polls showed that an overwhelming percentage of the public favoured raising the minimum wage in 1996, prompting Congress and the President to do so, at almost the same time that Congress and the President put an end to welfare. Also popular in the United States has been what is called the Earned Income Tax Credit essentially a reverse income tax, which provides working people with a larger income supplement the lower the wage they earn. That these two programmes are premissed on work suggests to Solow that the American public also would be amenable to an expanded system of guaranteed work and additional supports in return for a commitment to work on the part of the individual.
The crux of Solow' s argument is that the market will not, on its own, provide adequate work for everyone who will need it when welfare is ended. Even before the 1996 act, a large fraction of welfare beneficiaries already were moving back and forth between work and welfare, or combining the two at the same time, because they were unable to secure long-term jobs that paid enough to live on. Moreover, a substantial number of people on welfare cannot work full-rime, no matter what the incentives, due to physical or psychological disabilities. Finally, and importantly, Solow argues that any attempt to push millions of welfare recipients into the labor market will displace millions of poor people from the jobs they already have, or drive down the wages of all lower-income people, or, more likely, do some of both. Solow estimates that a 1 per cent increase in the demand for labor would require a 2 or 3 per cent decline in real wages overall, but that most of the burden would fall on low-wage workers who have been employed all along.
"Without some added ingredients", he concludes, "the transformation from welfare to work is likely to be the transformation of welfare into unemployment and casual earnings so low as once to have been thought unacceptable to fellow citizens." Not even the best attempts at helping the poor find jobs will make much difference. Solow notes that in California, during the early 1990s, about a third of welfare recipients held a job at one time or another during any given year. California's successful "GAIN" experiment provided intensive job-search assistance, but participation in GAIN increased the fraction of job-holders by no more than 4 to 6 percentage points. He finds further evidence in the experience of the state of Michigan, which in 1991 ended its system of General Assistance (offering a measly $160 a month to poor people without children). Most former recipients subsequently found work, but the work was usually temporary, and even then did not pay enough to live on.
In only one respect, I believe, is Solow too pessimistic. He holds out little hope for fiscal or monetary policies that might lead to lower interest rates, economic expansion, and better job prospects for the poor. Solow suggests that such policies would pose too great a risk of wage-induced inflation. Even if millions of former welfare recipients crowded into the labor market, he warns, any easing of monetary policy or fiscal stimulus would probably cause the wages of better-skilled or unionized workers to rise long before the poor saw any sign of more and better jobs. Recent experience suggests, however, that the American economy can run at very low levels of unemployment without risking inflation. More to the point, there is new evidence from many locales where unemployment is under 3 per cent that employers are so desperate to find workers that they are actively recruiting and training and paying higher than minimum wages to people who previously had been only marginally connected to the labor market. While low interest rates and tight labor markets do not offer a solution to the problem of moving large numbers of people from welfare to work, they are, in my judgment, a critical component.
But this is a quibble. Solow's logic is indisputable. The White House now claims that the 1996 welfare bill has been a huge success, based on the large number of people who have been removed from state welfare rolls since then. But we have no way of knowing how many of these people are in permanent jobs paying a living wage, or are in temporary jobs paying so little that they have to double up with other family members and leave their children at home alone during the day, or are living on the street. And we may never know, even after the economy slides into recession, and the ranks of the unemployed begin to grow once again. The sad truth is that America has embarked on the largest social experiment it has undertaken in this half of the twentieth century without even adequate base-line data from which researchers can infer what has happened, or deduce what will happen, to large numbers of poor people who no longer receive help.
Solow's analysis is convincing, but his prescription is politically naive. The reason he gives for supposing that the public would accept his scheme is that the public has supported work-based social programmes, such as the minimum wage and the Earned-Income Tax Credit. But if this is so, why did a Democratic President and Democratic Congress fail, in the first two years of the Clinton Administration, to advance a scheme very similar to the one Solow recommends? And why did the President subsequently agree to sign a Republican bill that contained no guarantee of an adequate job?
Included in Work and Welfare are four brief responses to Solow's lectures by authorities from different disciplines. One respondent, Anthony Lewis, a respected columnist for the New York Times, offers a possible explanation for the American public's increasing antipathy toward welfare, and its reluctance to embrace anything more than a simple cessation of benefits. Lewis believes that the growing prosperity of middle- and upper-middle-income Americans has led them more readily to accept Social Darwinist notions that the fittest survive in the market, and those who do not make it have only their own shiftlessness to blame. Perhaps Lewis is correct. Yet it seems equally plausible that prosperity in the middle and upper reaches of a society would result in greater generosity towards the poor.
A more likely explanation is found in what has happened to the lower-middle and working classes in America during the course of the past two decades. Since the late 1970s, the incomes of the bottom fifth of American families have dropped by almost 10 percent in real terms, and families in the next-to-poorest fifth have experienced a drop of 3 to 5 per cent. The median income, which had steadily risen in the three decades after the Second World War, stopped growing altogether. The strong expansion America has enjoyed during the 1990s has barely restored the median to its inflation-adjusted level of 1989.
This downward trend in the family incomes of the bottom 40 per cent is all the more remarkable, and disturbing, for the fact that since the late 1970s women have been entering the American workforce in great numbers. Most entered, not because new opportunities were open to them but because they had little choice but to work if they were to prop up family incomes, given the rapid decline in the wages of male workers with only high-school degrees. Today, in fact, most American women with young children are working. Many of them are struggling to make ends meet. They cannot afford adequate day care. A significant and growing, percentage of them has no health insurance.
Under these circumstances, it has seemed increasingly unfair for poor non-working mothers to receive welfare benefits. That a highly visible portion of these beneficiaries (although not a majority) was black or Hispanic surely aggravated the perception of unfairness. Yet it was the reality of a large and growing number of working poor in America that made the continuance of welfare politically untenable. Being "tough" on welfare thus seemed to be a matter of imposing discipline on a group of people who are morally lax and undeserving, relative to the increasingly hard-pressed working families just above them. Solow's proposal to replace welfare with a guaranteed job at decent wages, plus health care, child care and job training, is likely to seem no less unfair. After all, it may be asked, why should the hard-working people just above them be denied these same benefits?
Had Bill Clinton been willing to use up a great deal of his political capital and also risk the possibility of not being re-elected, he might have been able to sell the American public on a fair and effective system for getting people from welfare into work along the lines that Robert Solow suggests. But Clinton was unwilling to do either. Future historians may well fault him on this score, but they should also understand what he was up against. For the true challenge of reforming welfare in the United States, as perhaps elsewhere, lies not so much in designing decent policies for the very poor as in amassing the political will to do what is decent. And in order to do that, it will be necessary to design and implement decent policies for a much larger group of people who, while not destitute, are becoming poorer and less economically secure with each passing year.
