Welfare and Work Requirements: Lessons from the American Reform

The welfare reform undertaken in the U.S. in 1996 required many welfare recipients work, engage in training, perform community service, or undertake a supervised search for employment. This reform showed that a “work requirement” of this sort can cause a sharp and immediate drop in the number of persons receiving welfare and a surge in employment. In the U.S., the number of recipients in the reformed program dropped by 50 percent within five years. The U.S. welfare reform provides much useful information on the role of work requirements in welfare. These lessons can be summarized as follows. 1.“Work” requirements in welfare programs create fairness between taxpayers and recipients. Taxpayers resent working hard to pay benefits to able-bodied recipients who choose not to work. By requiring recipients to work or take actions leading to work, requirements create fairness between taxpayers and recipients. 2. In practical terms, it is impossible to require a recipient to take a real job in the private sector because employers will be reluctant to hire someone who appears unenthusiastic about work and jobs may be temporarily unavailable. However, it is easy to require recipients to undertake other activities such as supervised job search, training, or community service in exchange for welfare benefits. Participating in these required activities reduces the incentive to remain on welfare and make recipients eager to find real jobs. 3. The key to a successful work program is to require recipients to engage in supervised activity for a large number of hours each week. The exact type of activity is not important; the important point is to reduce the opportunity for the recipient to receive a welfare income while idle. By removing the opportunity to receive “something for nothing”, the incentives to be on welfare are greatly reduced. The number of new enrollments will drop substantially and those receiving benefits will leave welfare much more quickly. 4. Requiring individuals to engage in constructive activities at the time they first enroll in welfare is particularly effective in reducing dependence. For example, an individual who has just applied for benefits could be required to immediately undertake six weeks of closely supervised job search (in which he has to appear at the welfare office each day). This will cause a sharp drop in the number of persons applying for welfare. 5. In the American experience, it was more important to change incentives and to alter recipient attitudes and work habits than to provide specific vocational skills. 6. Prior to reform, it was generally claimed that work requirements were impractical because there were not enough jobs available for recipients to take. This idea was inaccurate. In reality, a lack of jobs was never a significant problem for reform.