Work requirements for U.S. public assistance programs don’t work
Work requirements for low-income Americans are back on the table in Congress and within the Trump administration. This is the case despite evidence-based research that shows work requirements are ill-conceived or counterproductive to helping low-income Americans supplement their monthly purchases of food, pay rent and utilities, and cover needed visits to the doctor.
The U.S. House of Representatives is considering taking up a new farm bill soon that includes work requirements for Americans who qualify for the Supplemental Nutrition Assistance Program. Not to be outdone, the Trump administration issued an executive order on April 10 to increase work requirements for those who rely on an array of public assistance to cope with low pay due to prevailing U.S. labor market conditions. This action follows earlier statements by the administration signaling its intent to include work requirements for Medicaid, the joint federal-state program for the poor, the disabled, and those low-income Americans who need public health insurance.
Simply put, the evidence does not back up the arguments for work requirements for these programs and actually may be counterproductive. First and foremost is the false notion that the beneficiaries of these programs are able to work but choose not to. Research from the Kaiser Family Foundation finds that of the 40 percent of nonelderly poor Americans with access to Medicaid who are not working, the reasons are because they are disabled (14 percent), providing childcare or eldercare (12 percent), attending school (6 percent), and for other reasons such as not being able to find work or being retired (7 percent). Yet the rhetoric about these recipients’ disinclination to work remains pervasive among conservatives in Congress and in the Trump administration.
Analysis from the Center on Budget and Policy Priorities finds that imposing work requirements simply doesn’t work. One reason is because increased red tape may lead to eligible recipients losing their benefits even though they are eligible for them. People with volatile work hours or who hold multiple jobs may have a hard time collecting and submitting sufficient documentation to demonstrate they are working regularly. As CBPP points out, completing work-requirement red tape is even harder for self-employed workers, which should be cause for concern as gig-based employment becomes more prevalent.
Going deeper behind these arguments, the idea that work requirements are useful standards for providing assistance to low-income Americans already struggling to make ends meet is rooted in an overly simplistic and faulty understanding of how the U.S. labor market functions, which in turn is reinforced by negative and racialized stereotypes of the beneficiaries of these programs. These misconceptions are partly based on the premise in Econ 101 that work provides no inherent benefit other than remuneration through wages, salary, and benefits, which in turn supports the faulty premise that workers must be incentivized to work above what economists refer to as the “reservation wage” (economics parlance for the lowest wage a worker would accept to take a job). Otherwise, this argument goes, workers would choose to stay home enjoying their leisure time—even though work is often linked with self-worth, providing more than purely monetary benefits. The value of public benefits would theoretically increase the reservation wage, so generous benefits would further disincentivize beneficiaries to find employment at the going wage. But people generally want to work, despite the concept that working is entirely a “bad” in economic theory.
Another simplistic neoclassical economics theory posits that wages offered to workers are “market clearing,” meaning that the going wages for different types of jobs are determined by competitive market forces. If that were true, then supplemental nutrition assistance and other such programs would reduce employment, since those kinds of assistance could theoretically lead to an imbalance between what employers can offer to pay and what workers are able to accept. This line of reasoning leads to the highly questionable assertion that the federal social safety net is an impediment to the free functioning of the U.S. labor market, with negative outcomes for low-income families who would be eligible for these benefits.
This simplistic economic model does not take into account the actual constraints facing many workers in the U.S. labor market. First of all, so-called search frictions make it hard to find a job and empower employers to set wage rates that often underpay their low-wage workers. Search frictions play into increasing evidence of monopsony, where low-wage workers are not able to freely move between jobs and from nonemployment to employment, giving employers wage-setting power in the labor market. An issue brief by Equitable Growth’s Nick Bunker, released today, shows that despite low unemployment rates and a declining vacancy yield (the ratio of hires-to-vacant jobs), there may also be reduced “matching efficiency” of employers and employees, demonstrated by less movement among employed workers to other jobs.
Such evidence of employer monopsony is seen in two common outcomes in today’s labor market. First, employers are unwilling to offer higher wages to recruit already-employed workers. And second, when this happens, other employers can take advantage of these conditions and offer low pay, since their low wages on offer do not cause them to lose all their workers because those workers have few suitable outside options, a key determinant of monopsony.
Matching efficiency may be particularly difficult to achieve for workers facing additional constraints in the labor market. Women, who along with their children are the primary beneficiaries of many social safety net programs, also are likely to have primary care responsibilities for their families. These care responsibilities must be balanced with their job opportunities. This means many women may be constrained in what schedules they are able to work and how far they can commute for work. Low-income people of color face similar scheduling and commuting problems that are compounded by continuing hiring discrimination due to the legacy of racism.
In short, imposing work requirements on low-income Americans does not reflect the structurally imperfect labor market in which workers interact with their current or potential employers and with broader social problems that inhibit finding work with sustainable wages.
Then there’s the question of harming these workers’ own future economic prospects by imposing work requirements. Research by Adriana Kugler and Ammar Farooq at Georgetown University finds that increasing the generosity of Medicaid eligibility standards so that more people were eligible reduced “job lock.” Kugler and Farooq find that states moving from the 10th percentile to the 90th percentile of thresholds for Medicaid qualification experienced increased job mobility, with increased occupational mobility of 7.6 percent and increased industrial mobility of 7.8 percent, with even greater effects on women.
Furthermore, the two researchers find that higher Medicaid benefits also increased the likelihood of recipients moving into occupations with a wider wage spread, meaning a higher likelihood of earning more money, and boosted transitions to jobs with higher median wages. Similarly, research from experts at the Georgetown Center on Health Insurance Reforms and the Urban Institute find that the expansion of health care coverage through the Affordable Care Act improved the incentives for entrepreneurship.
This line of evidence shows that (very often temporary) food, rent, energy, and medical assistance for low-income Americans provides the foundation for these workers to invest in and advance their careers for greater future economic security. This in turn means they may eventually earn enough money on their own to no longer need such assistance and instead contribute to these programs as federal income-tax payers.
In contrast, when work requirements have been imposed in the past, the faulty premise underlying the concept led to worse outcomes for those who have been subjected to this standard in order to receive temporary welfare assistance. Kansas provides a typical example. After Gov. Sam Brownback (R) and the Republican-controlled state legislature enacted strict, difficult-to-implement eligibility requirements for the Temporary Assistance for Needy Families program several years ago, flaws in the program design resulted in worse outcomes for recipients. Analysis by the Center for Budget and Policy Priorities using state-collected data on employment and earnings finds that work was common among temporary welfare recipients but was often unsteady, making adhering to punitive eligibility requirements difficult. This led to families losing their benefits even when they were eligible and needed the temporary assistance.
The Trump administration earlier this week touted the Kansas work requirements as successful because of reduced claims and lower program costs, but this meant worse economic outcomes, not better economic opportunities, for beneficiaries. The Center for Budget and Policy Priorities finds that, “for the parents exiting due to work sanctions, after four years more than one-third of them had no earnings, nearly 7 in 10 had no earnings or earnings below the deep-poverty level, and more than 8 in 10 had no earnings or earnings below the poverty level.”
The premise that low-income people are choosing not to work because of the “generosity” of benefits is not true, as shown by the natural experiment in Kansas and other compelling, evidence-based research. This research challenges the underlying premise behind work requirements and further makes the case that the U.S. labor market does not function as a free market. Extending work requirements through the forthcoming Farm Bill in Congress and through executive action by the Trump administration would have the same punitive and counterproductive effects on a national scale.