from the New York Times Literary Supplement
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.
