A new study released by the Cato Institute looks at the state‐by‐state value of welfare. Nationwide, our study found that the value of benefits for a typical recipient family ranged from a high of $49,175 in Hawaii to a low of $16,984 in Mississippi.
In New Jersey, a mother with two children participating in seven major welfare programs (Temporary Assistance for Needy Families, Medicaid, food stamps, WIC, housing assistance, utility assistance and free commodities) could receive a package of benefits worth $38,728 a year, the fifth highest in the nation. Only Hawaii, Massachusetts, Connecticut and the District of Columbia provided more generous benefits.
It’s important to remember that welfare benefits are not taxed, while wages are. In fact, in some ways, the highest marginal tax rates anywhere are not for millionaires, but for someone leaving welfare and taking a job.
Don’t forget that there are additional costs associated with going to work, such as child care, transportation and clothing. Not to mention that even if the final income level remains unchanged, an individual moving from welfare to work will perceive some form of loss: a reduction in leisure as opposed to work. By not working, welfare recipients are simply responding rationally to the incentive systems our public policy makers have established for them.
Of course, not every welfare recipient meets the study’s profile, and many who do don’t receive all the benefits listed. (Only about 23 percent of New Jersey TANF recipients also receive public housing, for example.) Still, what is undeniable is that for many recipients — particularly long‐term dependents — welfare pays substantially more than an entry‐level job.
This makes sense for recipients in the short term, but it may hurt them over the long term. One of the most important steps toward avoiding or getting out of poverty is a job. Only 2.6 percent of full‐time workers are poor, compared with 23.9 percent of adults who do not work. Many anti‐poverty activists decry low‐wage jobs, but even starting at a minimum wage job can be a springboard out of poverty.
There should clearly be a public policy preference for work over welfare. And, while it would be nice to raise the wages of entry‐level service workers, government has no ability to do so. (Study after study shows that mandated wage increases result in increased unemployment for the lowest‐skilled workers.)
Increases in the Earned Income Tax Credit and/or adoption of a state Child Tax Credit have shown more success in improving the relative value of work. Such programs may well encourage those on welfare to take lower‐paying jobs than they otherwise would. Still, it should be remembered that to the degree such credits exceed taxes paid, they remain a form of welfare themselves.
Therefore, if Congress and state legislatures are serious about reducing welfare dependence and rewarding work, they should consider strengthening welfare work requirements, removing exemptions and narrowing the definition of work. In particular, legislators in New Jersey should consider ways to shrink the gap between the value of welfare and work by reducing current benefit levels and tightening eligibility requirements.