IDS should proceed with caution when looking to emulate US welfare reforms

This week we’ve learnt that Number 10 welcomed American welfare gurus for tea to advise on the forthcoming White Paper. Given the all-time high of 43.6 million Americans living in poverty, and a US unemployment rate that is almost double what was considered the norm in better times, what should work and pensions secretary Iain Duncan Smith take as the real lessons of the American welfare reform story?

This week we’ve learnt that Number 10 welcomed American welfare gurus for tea to advise on the forthcoming White Paper. Given the all-time high of 43.6 million Americans living in poverty, and a US unemployment rate that is almost double what was considered the norm in better times, what should work and pensions secretary Iain Duncan Smith take as the real lessons of the American welfare reform story?

First, he should look into the fate of those who have fallen between the cracks. Sure, the reforms saw the number of people on the rolls tumble from 5.1 million in 1994 to just 1.7 million in 2005, but if IDS means it when he says that he wants to help people into to work, and on in life, he should not be dazzled by these statistics. Leaving the rolls is not the same as getting a job, let alone getting on and ahead.

A 2004 study estimated that at any given time, a third of former welfare recipients in the US are neither working nor have any means of visible support. More recently, the Economic Policy Institute’s analysis of the October Employment Report found that there are 3.9 million “missing workers” who are neither in employment nor on the rolls.

Little is known about how these people are coping, but the massive increase in demand for food stamps (up 17 per cent between 2008 and 2009) and the decline in adults with health insurance coverage (to just more than 50 million people) suggests that the historically low welfare rolls are hiding the true picture of suffering in modern America. It also suggests that any savings from falling rolls need to be considered against the increased long term costs associated with families living in poverty.

Second, IDS should focus on the present situation, rather than on past successes of the American welfare story. The 1996 reforms created a pro-cyclical safety net – in other words, one that works when the jobs are there. It is certainly true that at the end of the 1990s, employment and wages both went up at the lower end of the labour market.

But the system was never designed to cope with a recession so sudden and so deep as the one that hangs over us. In fact, in 2008 Congress had to act to increase the tough time limits on unemployment benefits as part of the stimulus package. It has been estimated more than half of those receiving benefits in May were only covered thanks to these extensions, which are due to expire at the end of this month.

The National Employment Law Project here in the US warns that without further legislation, an additional two million families will fall into the no man’s land between work and welfare. Given that long term unemployment is currently at around 40 per cent of the total unemployment, America’s work-based safety net looks ill-equipped to meet contemporary economic realities.

Third, IDS should look at what kind of work people are moving into when they come off welfare. It wouldn’t take him long to find the dark side of the flexible labour market: from contracting out to temping, from zero hours’ contracts to multiple part-time commitments, old blue collar jobs are being replaced by new, more fluid forms of employment.

Holding down multiple jobs, juggling erratic hours, and facing deep economic insecurity reduces aspiration and economic resilience, and it undermines the kind of stable family life that IDS says he is so passionate about.

Twenty nine per cent of American jobs today pay below the median wage, and do not provide health or pension benefits. These kinds of ‘lousy jobs’ are concentrated in low paid, low skill sectors, and are part of an increasingly polarised labour market which leaves large portions of the population working hard, playing by the rules, and yet failing to get ahead.

America learnt something really important from Clinton’s reforms: that policy interventions can make a difference to poverty. That is a crucial lesson to have learnt and one Britain should hold on to as well – but policy interventions need to reflect the reality of today’s economy, rather than imagining that what has worked before will automatically work again now.

We must hope that tomorrow’s welfare reform paper looks beyond 1990s America for inspiration.

17 Responses to “IDS should proceed with caution when looking to emulate US welfare reforms”

  1. Ma

    RT @leftfootfwd: IDS should proceed with caution when looking to emulate US welfare reforms: //bit.ly/d8wTuZ says @SophiaParker

  2. sophiaparker

    RT @leftfootfwd: IDS should proceed with caution when looking to emulate US welfare reforms: //bit.ly/d8wTuZ says @SophiaParker

  3. Chris

    This is exactly what IDS has in mind when in says he wants to help people into work, his incentive to work will be a big stick with which to beat people into McJobs. He’ll make work pay not by increasing tax credits or raising the minimum wage, he’ll cut unemployment benefit. The libcons entire deficit reduction strategy is to focus endlessly on the undeserving poor, to whip up a moral panic about “scroungers” and then tell the masses they’re dealing with them.

  4. Mr. Mxyzptlk

    What we should ‘hope’ for is that Camerons lot are removed from power asap

    , the reforms saw the number of people on the rolls tumble from 5.1 million in 1994 to just 1.7 million in 2005,

    If they believed for one second in there mad delusional state they could achieve a reduction such as this they wouldn’t care if the missing people were thrown in the Norths sea

  5. digby

    RT @leftfootfwd: IDS should proceed with caution when looking to emulate US welfare reforms: //bit.ly/d8wTuZ says @SophiaParker

  6. Natalie Branosky

    RT @leftfootfwd: IDS should proceed with caution when looking to emulate US welfare reforms: //bit.ly/d8wTuZ says @SophiaParker

  7. Teadrinking Mom

    RT @leftfootfwd: IDS should proceed with caution when looking to emulate US welfare reforms: //bit.ly/d8wTuZ says @SophiaParker

  8. John77

    “Twenty nine per cent of American jobs today pay below the median wage”
    That would imply that more than 21% of American jobs pay exactly the median wage (highly implausible) as the definition of median is that at least half of wages are equal to or greater than it and at least half of wages are equal to or less than it.
    What did you mean to say?

  9. Sophia Parker

    John77: I meant that 29 per cent of American jobs lack all 3 things that might act as proxies for ‘good’ jobs in the US:
    – a wage at or above the median wage
    – the offer of employer-sponsored health insurance (where the employer pays at least part of the monthly premium),
    – and the offer of an employer-sponsored retirement plan (either a “defined contribution plan” like a 401(k) or a “defined benefit” like a traditional pension).

    If you’re interested I suggest you look up ‘Movin’ On Up’ on CEPR’s website //www.cepr.net/

    thanks for picking up on unclear syntax…

  10. Nick H.

    RT @leftfootfwd: IDS should proceed with caution when looking to emulate US welfare reforms //bit.ly/cHCeTV – Fail, fail, fail…..

  11. Siobhan McAlister

    RT @leftfootfwd: IDS should proceed with caution when looking to emulate US welfare reforms //bit.ly/cHCeTV

  12. Tim Worstall

    Oh dear. Might be worth actually trying to understand US statistics.

    “Given the all-time high of 43.6 million Americans living in poverty,”

    Untrue. The US poverty number is calculated by market income plus direct cash handouts. It does not include benefits in kind (Section 8 housing vouchers, equivalent to our housing benefit, Medicaid, food stamps or the EITC, equivalent to our tax credits). You would never, ever, try to measure UK poverty by excluding housing benefit, tax credits, so why on earth do you try to measure US poverty so?

    “Little is known about how these people are coping, but the massive increase in demand for food stamps (up 17 per cent between 2008 and 2009)”

    Err, this might have more to do with a widening of the eligibility criteria, you know?

    “and the decline in adults with health insurance coverage (to just more than 50 million people)”

    Most of which is people not taking up their eligibility for Medicaid?

    “We must hope that tomorrow’s welfare reform paper looks beyond 1990s America for inspiration.”

    Indeed it does. It goes back to Richard Layard’s research of the 80s and 90s. You really should read some of what this Labour peer has suggested should happen: including the withdrawal of benefits from those who refuse to take make work jobs.

  13. Sophia Parker

    Tim, thanks, I do understand American statistics. I agree with you that the absolute American measure is both measly and flawed. but that doesn’t negate the fact that by this measure, the figures are at an all-time-high.

    you’re not exactly the first to note the problems with the American measure. next year’s census will add a supplemental measure of poverty, to include the value of benefits (including the ones you list), as well as more accurately reflecting the amount of money families need to cover basic costs such as transport, health insurance etc. will be interesting to see how America looks by this measure.

    meanwhile, Bryan in Republican Texas have been having a go at measuring their poverty rates using a set of social exclusion indicators from the UK. result: their poverty rate is double that of the US average. Other attempts to take a more holistic view estimate that between 1 in 3 and 1 in 5 Americans are living below a basic ‘family income’. So whichever way you look it doesn’t look great.

    On health care, i haven’t come across anyone talking about take up as the prime cause for the increase in uninsured Americans – what’s your source? – what the latest census does tell us is that in 2009, the proportion of people covered either by employer-based or private insurance was at the lowest level since 1987, when comparable data started to be collected.

    on food stamps – you’re right, the stimulus package responded to increased demand and made stamps available for some adults without kids. but the tough income eligibility criteria has not changed, and the overall increase in demand is not only accounted for by the changes in who is eligible. happy to debate stats but it seems to me that it’s hard to argue that there isn’t greater hardship today across the US, which is the point i was making.

  14. Tim Worstall

    “it’s hard to argue that there isn’t greater hardship today across the US,”

    Well of course there is. There’s a recession, you’ve heard about it perhaps?

    “next year’s census will add a supplemental measure of poverty, to include the value of benefits”

    This was done in 2004. Poverty rate fell to 8% (from the then as measured 12%) and child poverty fell to almost nothing.

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