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Economics of Welfare

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In the early 1930s, the case for the introduction of the welfare system gained ground due to the Great Depression in the United States, prompting the introduction of several welfare programs that aimed at providing financial help to the elderly and the disabled. In the 1960s, the first reforms were introduced in the welfare sector through the Great Society legislation. This expanded the scope of coverage to entail persons who were otherwise not disabled or elderly but were in dire need of financial assistance. This was provided through monetary handouts, food stamps, Medicaid and special funding for children and financially-unstable single mothers.

In 1994, the Work and Responsibility Act was introduced by President Bill Clinton so as to replace the ineffective Family Support Act. It placed significant emphasis on education and training in addition to ensuring that people in the low-income bracket got employed. States were forced to grant aid to recipients who were in critical need of help. Notably, it limited financial aid to a two-year period beyond which dependants were to either work or loose support. However, in the latter half of 1994, Republicans, who were in opposition to some sections of the Work and Responsibility Act came up with the Personal Responsibility Act (PRA) which was voted for and adopted by the country in 1995. The PRA aimed at providing help to those who were really in need of it. Consequently, 42% of those who were previously eligible for help were no longer provided with help. In addition, benefits were slashed by 30%. This was done by placing blocks on grants primarily focusing on financial assistance, child nutrition and protection. Although this has saved the country much needed income, it has led to a significant reduction of groups who are in dire need of help. Currently, assistance levels have dropped by 58%, which signifies that this strategy has alienated some groups and that the funds provided are not enough to bail out these families from poverty. This essay shall detail the economic impacts of the social welfare system on the United States economy (Blank 16-25).

Social welfare reforms were introduced with three economic goals in mind: reduction of dependence rates among the United State’s citizens, reduction of child poverty and increase in productivity through encouraging persons on welfare programs to seek gainful employment. This essay shall gauge the social welfare programs, especially those put in place after 1996, on these three economic agendas. It shall seek to establish whether these reforms have had a positive or negative impact on the United State’s economy.

The fight against dependence has been instigated on two fronts: the reduction of caseloads and ensuring that able-bodied persons get work. Primarily, two programs have been applied: Temporary Assistance for Needy Families (TANF) and Aid to Families with Dependent Children (AFDC). AFDC programs have been largely replaced by TANF programs, more so after the introduction of welfare reforms in 1996. Between 1994 and 2000, caseloads reduced by 56.5%. This was experienced in all the states and lessened the states’ budgetary allocation on welfare rolls. Therefore, these funds were availed for other projects, which spurred growth in other sectors such as education. Although the 1996 reforms excluded several groups from welfare, they were more stringent and forced dependent groups to find profitable means of earning a livelihood. Therefore, there was a significant shift from the reliance on welfare checks to sustainable employment. Several key strategies were used in order to reduce caseloads and compel dependants towards seeking employment. First, time limits were introduced. They had a two-way effect. First, they compelled an individual to leave welfare as soon as possible in order to ensure eligibility in future (Hein 11-14). Prior to 1996, recipients took welfare grants as a right and felt no urge to work towards self-dependency. This resulted in huge state budgetary allocations. Secondly, time limits, once they expire, cannot be used as back-up to work by ex-recipients. Armed with the knowledge that there is no alternative, they are compelled to work. This not only increased production but also reduced poverty levels. Secondly, states have implemented several policies that grant them the right to impose sanctions on individuals who deliberately fail to meet work requirements. A welfare program beneficiary must attend several job preparatory classes as well as job-seeking sessions. Some individuals may choose to blatantly miss these. Penalizing individuals ensures mandatory attendance. These job training sessions have been vital in stemming rising unemployment rates, more so after the recent global recession.

Secondly, welfare reforms have reduced child poverty levels. Currently, approximately 1.6 million children have benefited from welfare programs. The bulk of these populations entail traditionally marginalized groups such as African Americans, Hispanics and Latin American immigrants. Children born by single mothers who were categorized as in need of welfare grants have reduced from 50.3% in 1995 to 41.9% in 2004 (Rector 1). There are a number of factors that can be attributed to these trends. First, single mothers have been compelled to take up jobs. Between 1995 and 2002, children living with a single-parent increased from 85% to 89%. However, children born and brought up in families who were in dire need of welfare assistance declined significantly. During this period, African American children living with a parent who was employed increased from 67% to 77% whereas Hispanic children living with an employed parent increased from 75% to 85% (Neil & Korenman 18). Welfare reforms compelled these mothers to work. The increase in work effort not only led to an immediate increase in family income but also led to an increase in the United State’s labor force. This eventually forced an increase in wages as these populations garnered experience. Secondly, between 1995 and 2002, there was a significant rise in wages. The United States economy grew rapidly during this period, a fact that has been used to discredit welfare reforms. However, the increase in wages was a direct result of the increase in work effort. As production grew, there was a need for a higher labor supply. This was adequately met by groups who were formerly reliant on welfare. Thirdly, single parents in dire need of welfare assistance have undergone parental education. Welfare reforms embarked on educating single parents on how to seek jobs as well as raise their children. These campaigns have not only led to a more productive workforce, benefits which have been reaped in recent years, but also led to stable, financially dependent families. Finally, the government has advocated for a smaller family size whereas campaigning for nuclear family parenting. Two-parent families, especially among Hispanics, were observed to make rapid and significant steps towards financial independence. By investing in the current human capital as well as the future workforce, the United States has effectively eradicated poverty. Although welfare reform cannot be credited for the entire decline in childhood poverty, half of these developments are a direct result of these reforms (Neil & Korenman 24).

Opponents of the 1996 welfare reforms have fielded various reasons for discrediting these economic achievements. First, some states chose not to implement waivers. States with higher unemployment rates requested for major waivers, which allowed them to strictly evaluate welfare recipients. Hence, it would be illogical to compare the economic achievements between states which received waivers and those which did not. Secondly, during the period 1995-2002, the United States economy grew in leaps and bounds. This eclipsed the benefits achieved via welfare programs. For instance, states were in a position to change their policies from direct financial support to work-oriented programs since during the economic boom, jobs were easily available. Therefore, placing individuals under a job assistance program would be utterly unnecessary due to the large abundance of jobs. The economic boom also triggered a major shift in the workforce, whereby the demand for women in the labor market grew rapidly. Therefore, single families which were previously below the poverty line would have easily found gainful employment. Thirdly, multiple monetary and fiscal policies were being put in place around the same time as welfare reforms. Policies such as Earned Income Tax Credit (EITC) as well as other minimum wage increases were enacted into law in the mid-1990s. Therefore, welfare reforms acted in a reinforcing way rather than as the sole initiator of the stipulated economic achievements. Finally, welfare reforms, more so TANF programs, cut down on support to major groups in need of support. The 1996 reforms chose to cater for the needs of a smaller population unlike welfare states in earlier years. Hence, economic prosperity in these alienated groups cannot be attributed to welfare reforms. Rather, the economic boom must have been instrumental in reducing poverty levels and initiating financial independence among these groups (Moffitt 16-17).

Difficulties arise when determining the extent as to which welfare policy reforms instituted changes in the United States. However, one cannot afford to overlook the basic benefits brought about by these reforms: reduction in child poverty and a shift towards financial independence. Although welfare reforms have not been solely responsible for the great achievements made towards economic prosperity, they have played a very significant role, without which poverty alleviation and other key advancements would not have been made.

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