Sunday, July 30, 2006

The Economist's Revival & Lessons of US Welfare Reform

The Economist has become steadily and markedly better ever since Bill Emmot stepped down as Editor-in-Chief earlier this spring. The difference is really remarkable: the ideas and analyses are sharper and more equitable; the observations and editorial selections are fresher, more provocative, and thus ultimately, productive. Former US editor John Micklethwait who got the top position has really done a superb job so far.

One good example is this week's edition's article on the outcome of the 1990s American welfare reform:
After peaking in 1994—when many states began experimenting ahead of the federal law—America's welfare caseload fell by 60% over the next decade, from 5m to 2m families. Instead, welfare mothers found work, and the biggest increase by far was among those who had never been married. Their employment rate leapt from 44% in 1993 to 66% in 2000 (see chart) and the poverty rate, instead of rising sharply, dropped from 15.1% to 11.3%.
A decade ago, much of the political left believed that such a rapid transition from welfare to work was impossible, and the reforms cruel. Why did they turn out so much better than the doomsayers predicted? A booming economy surely deserves some credit. (...) Wage subsidies also helped a great deal. (...) The 1996 welfare reforms themselves, however, clearly explain much of the success. Jason Turner—a visiting fellow at the Heritage Foundation, a conservative think-tank—argues that “the political left believed in a hospital model of the poor: caretaking and compassion with low expectations.” America's conservatives expected more. And as it became clear to welfare recipients that the rules had changed, many of them began meeting those expectations.
The results and conclusions will probably surprise or even dismay many Europeans but they should be a source of inspiration (to the degree that they haven't already been, as is the case in e.g. the Danish labor market). On the other hand, the article's fairly daring conclusions call for further improvements:

The good news is that, having largely won the battle against idleness and dependency, America is now in a much better position to attack poverty head on. But it will not succeed by simply ratcheting up the states' work requirements, as Congress did earlier this year. Instead, America must build on the past decade's accomplishments by tackling three important challenges.

The first is to find new ways to help the children of those who are mildly disabled, emotionally disturbed, mentally slow or addicted to drugs or alcohol. With everyone else working, people with these traits comprise a growing share of those who now turn up at welfare offices. That they tend to make lousy workers is not the biggest worry; their limited ability to raise children is far more troubling. (...)

America's second challenge, now that so many former welfare mothers have ended up in low-paying jobs, is to raise the incomes of the working poor. That means giving them skills. (...) America needs to treat welfare reform as a part of workforce development, says Jennifer Noyes, at the University of Wisconsin-Madison's Institute for Research on Poverty. (...) If America really wants to make a lasting dent in poverty, however, its third challenge is to change the odds that young women will end up on welfare. Mr Grogger points out that only half of America's reduction in welfare caseloads stemmed from women leaving the rolls; the other half occurred because fewer women entered the welfare system. The incentives that are now in place should help to keep that entry rate down. But anything that can cajole or entice more young women into staying in school and delaying pregnancy improves their chances of never going on welfare (and, of course, of earning much more than the current generation of working single mums). (...)

To meet these challenges, America will need to rediscover some of the bipartisan pragmatism that prompted Mr Clinton to buck his left-wing critics and sign a controversial Republican law ten years ago. Conservatives now seem too preoccupied with tougher work rules and promoting marriage to think seriously about the next round of anti-poverty reforms. And many on the left are resisting good ideas about school vouchers and job-training with the same sort of scare tactics that they used against welfare reform a decade ago.

More thoughts in tendencies in Western labor markets here: Income Gap Might Shrink: White Collar, OECD Coping Strategies.

LATER UPDATE: See also Mark E. Courtney's column in the Washington Post: "Welfare Reform's Shortcoming", which points in the direction of a more personalized guidance system, incidentally akin to some of the reforms undertaken in Denmark.

No comments: