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Research suggests that policies providing financial incentives
to make work pay can both increase employment and reduce
poverty among welfare recipients. Early results from programs
in Minnesota and Canada found employment and earnings
gains that, especially for long-term welfare recipients,
were among the largest found in any previously evaluated
welfare-to-work program. These two programs also produced
unprecedented income gains and poverty reductions.[1]
A program in Milwaukee also had positive results for individuals
who were unemployed when they entered it. On the other
hand, past welfare-to-work programs— even those that
successfully increased employment—generally did not
result in increased family income; paychecks simply replaced
welfare checks.[2]
The initiatives were also very efficient. In Canada's
Self-Sufficiency Project (SSP), every extra dollar spent
on work incentives produced more than $2 in increased
earnings, for a total increase of more than $3 in income.
For long-term recipients in Minnesota's Family Investment
Program (MFIP), every dollar spent on incentives yielded
approximately $1.67 in increased earnings and a bit more
than $2.67 in total income. The increased income translated
into greater expenditures for food, children's clothing,
and housing and also reduced reliance on food banks.[3]
Moreover, people took steps to increase their assets by
opening savings accounts and taking other actions. Additional
benefits can result from work incentives. A special study
in Milwaukee's New Hope Project found that children of
program participants had better educational outcomes and
greater social competence and that boys showed fewer behavioral
problems in the classroom.
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The Three Programs |
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The
Minnesota Family Investment Program (MFIP) increased
the “earned income disregard”—the amount
of earnings not counted when calculating a family's welfare
benefits—and increased basic benefits by up to 20
percent for those who worked. MFIP required participation
in employment-focused services for long-term welfare recipients
not working at least 30 hours a week. |
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The
Canadian Self-Sufficiency Project (SSP) offered
a substantial monthly earnings supplement, for up to three
years, to long-term, single-parent welfare re-cipients
who worked at least 30 hours a week. Sponsored by the
Canadian government, SSP was operated outside the welfare
system, by private agencies in the Vancouver area of British
Columbia and parts of New Brunswick. |
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Milwaukee's
New Hope Project was a community initiative, open
to all low-income people living in two target areas. Its
package of incentives included earnings supplements, child
and health care subsidies, and—for people who could
not find jobs—access to temporary community service
jobs. Participants had to work at least 30 hours a week
to receive the incentives, and they could be eligible
for up to three years.organization will have to take.
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Implications for Policy and Program
Practice
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The
success of these three programs suggests that financial
work incentives should be a key focus for state and local
welfare-to-work efforts. The research and program experience
suggest the following “best practices” for designing
and implementing work incentives:
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Promote
full-time employment. |
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While
financial incentives can promote both part-time and full-time
employment, those conditioned on full-time work can affect
a wider range of outcomes—employment, earnings, and
income. Both SSP and New Hope made their incentive payments
only when someone worked at least 30 hours a week, and
MFIP required anyone who was not working at least 30 hours
a week to participate in employment-related services.
The rules limited the extent to which those already employed
reduced their hours, and they encouraged more people who
would not have worked at all to work full time. Allowing
part-time work will likely lead to larger impacts on total
employment but smaller impacts on full-time work.
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Combine
financial incenties with participation requirements and
employment services. |
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Combining
financial incentives with other requirements and services
can increase the effectiveness of work incentives. Both
MFIP and SSP provided additional services to a subset
of participants (in MFIP, to long-term welfare recipients;
in SSP, to participants in a small-scale experiment).
In both cases, results were stronger for participants
with the extra services. The full-MFIP program—which
required recipients not working at least 30 hours a week
to par-ticipate in employment-related services—doubled
employment and substantially increased earnings and income.
SSP Plus—which provided employment counseling and
job placement assistance along with the financial incentive—increased
to 50 percent the share of recipients who ever worked
full time, although the difference declined over time.
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Target
long-term welfare recipients. |
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Targeting
incentives to long-term welfare recipients can minimize
entry and windfall effects and maximize work effects.
Without targeting, some individuals may be encouraged
to enter the program in order to receive the incentives,
and some benefits will go to individuals who would have
worked even without the incentives. SSP required at least
one year of prior welfare receipt, and MFIP mandated participation
in employment-related services for those with two years
or more of welfare receipt. These rules were intended
to concentrate resources on the recipients least likely
to work on their own. The targeting appears to have paid
off: in MFIP, long-term recipients who were subject to
the participation requirement experienced the largest
employment, earnings, and income gains; SSP achieved even
larger effects by postponing eligibility until applicants
had been on welfare for a year.
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Clearly
explain and aggressively market the incentives. |
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For
incentives to make a difference, targeted recipients must
know about and understand how the incentives will effect
their total income. Without marketing, only people who
would have gone to work anyway would receive incentive
payments, reducing poverty but resulting in higher costs
and not increasing employment. Staff worked hard at marketing
and explaining the incentives, and their efforts likely
played a central role in the three programs' success.
For example, more than 95 percent of those eligible for
SSP participated in a two-hour-plus orientation session.
New Hope's project representatives met frequently with
participants and took as much time as needed to explain
the program's benefits.
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Don't
rely on financial incentives alone. |
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Despite
the advantages of financial incentives, they are only
one component of welfare-to-work efforts. Many welfare
recipients in these programs did not go to work in response
to the incentives, and many remained on welfare or in
poverty at the end of the follow-up period. In SSP, only
about one-third of those eligible for the program took
advantage of the earnings supplement. In MFIP, only about
half of those eligible were working for the program's
benefits in a given quarter.
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Some
Key Decisions |
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State
and local policymakers interested in adopting financial
incentives to encourage employment and make work pay should
consider the following questions:
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Will
incentives be offered within or outside the welfare system? |
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Incentive
programs can be implemented effectively either inside
or outside the welfare system. MFIP was administered by
the welfare department, while SSP and New Hope were administered
by private social service agencies. Both approaches have
advantages and disadvantages. Incentives within the welfare
system may be easier to administer, and communication
with recipients may be facilitated by their existing relationships
with caseworkers. Programs outside the welfare system
can avoid the stigma of public assistance and can be presented
as an alternative to welfare.
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Will
participation be mandatory or voluntary? |
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Work
incentive programs appear to be equally effective whether
they have a mandatory participation requirement or condition
the incentive on voluntary full-time work. SSP and New
Hope both offered a carrot: they were voluntary programs
that made work pay, but only if recipients worked at least
30 hours a week. MFIP used something of a stick: anyone
not working at least 30 hours a week had to participate
in employment-related services; failure to participate
reduced welfare benefits by 10 percent.
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Will
incentives be temporary or permanent? |
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Both
SSP and New Hope were temporary programs designed to make
work pay during the transitional years, when recipients
first took jobs.[4]
Longer-term follow-up will show the extent to which participants
retained employment after the supplement ended. If they
continued to work and also experienced earnings growth,
then a case could be made for time-limiting work incentives.
But if earnings did not grow, then the case for more permanent
subsidies could be considered.
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How
will time limits affect individuals who take advantage
of incentives? |
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Many states have implemented make-work-pay policies in
conjunction with time-limited welfare—two policies
that can send contradictory messages. By allowing people
to more easily combine work and welfare, incentives within
the welfare system actually encourage recipients to remain
on assistance. Yet time limits are intended to push people
off the rolls. Recognizing this contradiction, Illinois
treats working and nonworking welfare recipients differently;
the welfare time-limit clock does not tick for those who
work at least 25 hours a week. The state accomplishes
this by using segregated Temporary Assistance for Needy
Families (TANF) funds to provide assistance to working
families. These working families are still part of the
state's TANF program, but their months of assistance do
not count against the 60-month federal life-time limit
on welfare benefits.
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More
information on this topic |
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Notes |
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QFF#3
Answer 
