Policy Analysis No. 240

The Work Versus Welfare Trade-Off: An Analysis of the Total Level of Welfare Benefits by State

Executive Summary

The value of the full package of welfare benefits for a typical recipient in each of the 50 states and the District of Columbia exceeds the poverty level. Because welfare benefits are tax-free, their dollar value is often greater than the amount of take-home income a worker would have left after paying taxes on an equivalent pretax income.

  • In 40 states welfare pays more than an $8.00 an hour job. In 17 states the welfare package is more generous than a $10.00 an hour job.
  • In Hawaii, Alaska, Massachusetts, Connecticut, the District of Columbia, New York, and Rhode Island welfare pays more than a $12.00 an hour job—or two and a half times the minimum wage.
  • In nine states welfare pays more than the average first-year salary for a teacher. In 29 states it pays more than the average starting salary for a secretary. And in the six most generous states it pays more than the entry-level salary for a computer programmer.
  • Welfare benefits are especially generous in large cities. Welfare provides the equivalent of an hourly pretax wage of $14.75 in New York City, $12.45 in Philadelphia, $11.35 in Baltimore, and $10.90 in Detroit. For the hard-core welfare recipient, the value of the full range of welfare benefits substantially exceeds the amount the recipient could earn in an entry-level job. As a result, recipients are likely to choose welfare over work, thus increasing long-term dependence.

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Michael Tanner is director of health and welfare studies and Stephen Moore is director of fiscal policy studies at the Cato Institute. David Hartman is CEO of Hartland Bank, N.A., in Austin, Texas.