Making new welfare policy in the US

To reduce poverty is an expressed political objective in many countries, although methods differ. In New York City one third of the children live in poor families. Mayor Michael Bloomberg wants to do something about it. Inspired by “Opportunidades” in Mexico, he has initiated a conditional cash transfer program, Opportunity NYC, in cooperation with several foundations and MDRC, a New York based research institute which is known for previous experiments that have spurred welfare policy in the US.

“Our results over time have demonstrated that work first strategies can improve employment and earnings, reduce welfare rolls and save welfare dollars“, says Gordon Berlin, president of MDRC. Still it is a field in its toddler stage, he argues.

“We have begun to do experiments, we have begun to learn what works in some areas, but we have a lot more to do.”

It takes time to build a body of knowledge, he says. During the last three decades or so they have done numerous demonstrations from which they have learnt something about what works and what does not work.

Opportunity NYC is, however, the first conditional cash transfer program in the US. It is new and it is meant to alleviate poverty in the short-term by providing additional income to poor families, and to break the intergenerational cycle of poverty in the long-term. The Mexican program worked in its context, but had to be adapted to fit the US situation. Based on what they learnt from previous programs like “welfare to work” and “make work pay”, the US version includes employment as part of the incentive program.

“The US version says that if your kids stay in school we pay you, if they do well on tests we will pay you, and if mom goes to work full time we will supplement her earnings in the way we did with the make work pay program, so we combine these two ideas”, says Gordon Berlin.

“Opportunity NYC” has only been operating for about four months.

“We don't know whether it will work, that is why we are running an experiment”, says Gordon Berlin.

In his vocabulary experimentation means not only trying the idea, but also testing through random assignment research design, the “gold standard”, to see if it works before it is turned into a new policy. This is essentially one of the research methods used in medical research to determine the effectiveness of a new medicine.

 Back in the 80's

“In the work-welfare area over a ten year period or so, we learned that encouraging recipients to go to work, pretty quickly, and providing them with some of the skills and support they needed to do that, would increase employment, would increase earnings and would reduce welfare dependency. Many of those programs paid back to the government more than they cost. That information revolutionised the way we thought about welfare in the United States. And it had a huge effect. Passage of the 1988 family support act was based entirely on our work. Much of the 1996 Act also relied heavily on our work. Today the welfare rolls in the United States are down by 50 %.”

Gordon Berlin is telling the story. What they also learnt, he says, was that the jobs paid so little that even though people went to work their income did not change much.

“For every dollar in earnings they lost a dollar in welfare benefits.”

… and the 90's

  What they had found was that people preferred to earn money from work instead of living off welfare, even though they did not have more money at the end of the month. The next step was therefore to build what they called a safety net around work; the work had to pay better, so they started a series of experiments to test the idea making work pay.

“Essentially making work pay says if you go to work we let you keep more of your welfare benefit or we will create a new program which will supplement the earnings from your work.” What they found was that employment and earnings increased, and this time work also increased income and it reduced poverty. “And to everyone's surprise, it had a positive effect on children; young elementary school aged children did better in school than the kids who had parents who did not have their earning supplemented.

 The earned income tax credit

  That work led to a lot of efforts to expand work supplements, the most prominent being the earned income tax credit in the United States. The earned income tax credit already existed when these experiments were running, but it was being expanded and more and more states had begun to rely on those results to create their own state earned income tax. The earned income tax is now the largest anti poverty program in the United States.

So what had happened? Where they able to reduce the poverty rate? That really depends on how you look at it: “In the United States in the 1950's 22 per cent of the population had an income under the poverty line. Today the poverty rate is about 12 per cent. From 1973 until today the official rate of poverty is much the same, when they don't count the earned income tax credit, or food stamps or other benefits program. So some of the government's benefits that go to reduce poverty are not counted when the official poverty rate is counted.

The two generational progress

  The make work pay program showed that you could increase employment and at the same time children did modestly better at school. So then the next question was what if - at the same time as you make work pay – you intervene with the children directly; with a stronger preschool program, will the gains then cumulate? Will the children gain both because their parents are better off and because of direct intervention, will modest gains then become big gains?

“We are pushing some avenues of research along these lines to look at what will be waste and what will make the gains bigger. This we call the “two generational progress”, because we are working with the parents and the children intervening with them both directly.

“But you know, social progress always will be modest, there are very few quantum leaps or big gains”, Gordon Berlin says. He points to the global economy and the growing competition that puts pressure on wages to keep them down as one explanation:

“Average wages in the Unites States haven't grown appreciably for 30 years. It is very hard to get out of poverty if wages are not rising in real dollars. The average male, full year, full time worker in 1973 was earning about 41 000 dollars a year. Today, adjusted for inflation, the average full year, full time worker, is earning about 41 000 dollars a year. So in that kind of environment where we have had a lot of growth, but that growth is not accruing to those at the bottom or the middle of the earnings distribution, it means that all of the benefits of the economic growth are accruing to the top 1-2 %.

Does that make Gordon Berlin to want to go into politics?

“I think that our job at the MDRC research institute is to provide enough evidence as to what works, so that when politicians are going into debate about these issues they have to debate them on the evidence.”

The challenge now is to provide enough evidence to see whether or not the conditional cash payments can help poor families - mostly single mothers with children - combat the poverty trap.

If so, Mayor Michael Bloomberg will extend the program to apply to not only the selected districts where it is tried out today, but to help all poor families in New York City.