APPENDIX 10
Memorandum prepared by David Riemer, Director of Administration,
City of Milwaukee
Replacing Welfare with Work: Fundamental Principles
I. ASSUMPTIONS
A. Focus: low-income but able-bodied adults
- Ineligible for Unemployment Compensation
- Or UC has expired
B. Children to be helped through their parents or other responsible
adults.
C. Disabled, elderly, and new others to be offered:
- Enough cash to get out of poverty
- Also, opportunity to work if they wish
II. SYSTEM FOR
HELPING LOW-INCOME,
ABLE-BODIED
ADULTS
A. If Unemployed
- Help all of them (with children or not, whether
single or married).
- Help them only through work.
- Strive to get them private-sector jobs.
- If private-sector search fails after 2-6 weeks,
offer them subsidized
Sheltered Workshop Jobs
(costs offset by sales revenue)
Community Service Jobs (no cost offset)
All subsidized jobs should:
- Pay minimum wage;
- Allow unpaid time for education, training,
private-sector search;
- Last no more than
First job, six months;
Second and subsequent jobs, perhaps shorter duration;
- After each subsidized job is completed:
Require renewed private-sector search;
Only if search again fails, offer next subsidized
job;
- Perform useful work.
B. If Low-Income Workers
Help all of them (with children or not, single or married,
any kind of job)
Supplement their earnings so that:
- If you work, you're not poor
(Full time earnings + earnings supplement ‹ poverty line)
- Work always pays
(Higher wages or more work =‹ higher net income)
Offer them child care vouchers
- If children under 13 or 14;
- Sliding scale fee, rising from minimal to full cost;
- Vouchers can be used at wide range of child care
providers.
Make sure they have health care (if not otherwise provided)
- Sliding scale fee;
- Automatic deduction of fee from wages.
C. Shift delivery system:
- From big bureaucracy, no competition, no risk, pay
for process;
- To small bureaucracy, competing vendors, risk, pay
for outcomes.
Replacing Welfare with a Work-Based System: Outline
The following policies should govern the replacement of welfare
(i.e., need-based cash assistance) for low-income but able bodies
adults.
I. WHAT ABOUT
CHILDREN?
A. Low-income children (i.e., below age 18 in the US, perhaps
a different age in the UK) should never receive direct cash assistance,
nor should they be offered employment.
B. Assistance to low-income children should in all cases
be channelled through a responsible adult - ideally, their biological
parents or adoptive parents; failing that, relatives; failing
that, foster parents - by offering the responsible adult:
1. Cash assistance, if the adult is disabled or elderly;
2. Employment in all other cases, plus earnings supplements
as needed to assure that family's income exceeds the poverty line.
3. Child care for any young children of the child, to
ensure the child remains in school until graduation.
II. WHAT ABOUT
DISABLED, ELDERLY,
NEW MOTHERS?
A. Low-income adults who are disabled, elderly, or new mothers
(e.g., gave birth within the last six weeks) should be offered
sufficient cash to get above the poverty line.
B. Individuals in this category who wish to work should also
be given the opportunity to do so.
III. POLICIES FOR
LOW-INCOME,
ABLE-BODIED
ADULTS WHO
ARE UNEMPLOYED
A. Work-based help should be offered to all able-bodied
adults - regardless of whether they're custodial parents or not,
regardless of whether they are parents at all.
B. Abled-bodies adults should be helped only through
work.
C. Strenuous efforts should be taken to help them secure
jobs in the private sector, i.e., jobs with for-profit firms,
not-for-profit organizations, or regular government employment.
D. If such efforts fail after 2-6 weeks, they should be offered
subsidized employment, performing either Sheltered Workshop Jobs
(where costs are offset in whole or in part by sales revenue)
or Community Service Jobs (where no such cost offset occurs).
Such jobs should have all the characteristics of private-sector
jobs (i.e., pay only for actual work performed, work first/pay
later, weekly paychecks, payroll taxes, tax credits) except that:
1. The pay should always be the minimum wage, creating
an incentive to look for private-sector work;
2. Individuals wishing to work no more than 30 hours
per week should be free to do so, so they can obtain education
and training and have time to look for private-sector work;
3. Such jobs should last no more than six months, to
give them further incentive to look for private-sector work.
4. While no time limits should be placed on subsidized
employment, second and third and subsequent slots should be limited
to shorter and shorter durations (e.g., five months, then four
months, etc), and in between participants should be required to
search for several weeks for private-sector work, again to create
an incentive to obtain private-sector employment.
IV. POLICIES FOR
LOW-INCOME,
ABLE-BODIED
ADULTS WHO
ARE WORKING
("WORKING POOR")
A. Help should be offered to all workers - regardless
of whether they're custodial parents or not, regardless of whether
they are parents at all, and regardless of whether they work in
subsidized jobs or private-sector positions.
B. Making Work Pay
1. If you work, you're not poor: All workers should receive
an earnings supplement, adjusted for family size and rising with
wages up to a maximum sum, that is sufficient - when full-time
wages and the supplement are combined - to lift the worker's family
well above the poverty line.
2. Work always pays: To ensure that increased earnings and/or
additional work effort (i.e., overtime, second jobs) always result
in significantly higher disposable income - i.e., to ensure that,
as gross earnings rise, policies governing any phasing out of
earnings supplementation, the phasing out of other benefit programs
(e.g., Food Stamps), child care cost-sharing increases, health
care cost-sharing increases, payroll taxation, and income taxation
do not interact so as offset ("eat up") an excessive
portion of the rise in earnings and produce punishing "implicit
marginal tax rates" in excess of 30 per cent - it is essential
that the formulas governing child care, health care, other benefit
programs, and taxation be carefully designed and coordinated so
that improvements in gross earnings always translate into increases
in net income. The following tools can help to solve this problem:
(a) Phase out earnings supplements gradually (or do not
phase them out at all, instead offsetting income tax credits instead
by the normal growth in income tax liability).
(b) Phase out other benefits gradually.
(c) Phase in child care and health care cost-sharing
gradually.
(d) Eliminate taxation of, or reduce tax rates for, low-income
individuals and families.
3. Making marriage pay: One of the side-effects of a system
of earnings supplementation, other benefit programs, and the use
of sliding-scale cost-sharing for child care and health care can
be a marriage penalty. If family income, usually measured as the
income of a married couple, is used to determine the amount of
the earnings supplement or to the benefits or the degree of cost
sharing, two unmarried adults who separately present smaller individual
incomes will often get bigger supplements or other benefits and
pay less in cost sharing than if they got married and presented
a larger combined income. Thus, they have an incentive not to
get married. This problem may be ameliorated, albeit at a price,
by using individual income as the basis for calculating
earnings supplements, other benefits, and cost sharing.
C. Affordable Child Care
All low-income parents of children below at least 13 or 14
years of age should be offered the opportunity to purchase child
care vouchers.
1. Vouchers need not be limited to workers - disabled persons,
elderly persons, new mothers, and other non-working parents (including
unemployed job-seekers) may also need child care for various purposes
- but as a practical matter, most purchasers of vouchers will
be low-income workers.
2. Vouchers should be paid for on a sliding scale, with the
fee rising from minimal to full cost.
3. Vouchers would be used to pay child care providers who
meet appropriate standards.
D. All low-income persons who lack adequate government-provided
or employer-financed health insurance should be enrolled in an
adequate health insurance program.
1. Health insurance should again not be limited to workers,
but as a practical matter most persons covered will be workers
and their families.
2. Health insurance should be paid for on a sliding scale,
with the cost rising from minimal to full cost.
3. Payment of the cost sharing should be handled for the
most part through automatic wage deductions.
V. CREATING AN
EFFICIENT DELIVERY
SYSTEM
A. Former welfare systems, and many of the new work-based
systems, use delivery mechanisms that have the following ineffective
characteristics:
1. Highly bureaucratic, i.e., bureaucrats make large numbers
of decisions about which categories poor people fall into (not
only disabled vs. able-bodied, but job-ready vs. not, needing
education vs. training, needing education/training vs. a community
service job, needing one kind of community service job vs. another
kind etc.) and how "serious" their efforts have been
to find and keep work (how long should a person be expected to
look for private-sector work? have they tried "in good faith"
to find private-sector employment? was it their employer's fault
or theirs that they lost a job? did they miss work for a "good
cause" or not? etc.).
2. No competition, i.e., bureaucracy (or, possibly, a private
vendor) is chosen to administer the system without any alternative
being considered.
3. No risk, i.e., bureaucracy (or, possibly, a private vendor)
neither benefits from any success it achieves nor suffers for
its failures. Regardless of performance, it keeps on getting paid.
4. Pay for process, i.e., bureaucracy (or, possibly, a private
vendor) is paid for existing - for trying to get something
done - rather for actually accomplishing anything.
B. To be effective, a work-based system of helping low-income
adults should:
1. Non-bureaucratic, i.e., dramatically reduce the role of
the bureaucracy by cutting its size and, more importantly, by
cutting the number of decisions it makes.
2. Use competition, i.e., require competition between the
bureaucracy and non-government vendors, as well as among non-government
vendors, to determine who runs the system, eliminating failing
organisations from participating at all and assigning more participants
to successful organisations in proportion to their success.
3. Impose risk, i.e., create ground-rules under which failing
organisations are driven out, ineffective ones lose money, and
effective ones may make money and get more business.
4. Pay for outcomes, i.e., base competition and risk on clear
outcome measures related to the public purpose - which is not
merely caseload reduction but connecting workers to work, lifting
them out of poverty, and increasing their short-term and long-term
earnings (especially private-sector earnings).
5 December 1997
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