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Does collecting welfare beat working? Cato Institute thinks so

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The authors have an intriguing way of acknowledging in passing the existence of an objective reality " and then simply ignoring it and pressing ahead unfazed.   In their minds, it seems, their pre-conceived theory is always sound because objective reality is never allowed to strike more than a glancing blow.

Some examples:

"Contrary to stereotypes, there is no evidence that people on welfare are lazy or do not wish to work.   Indeed, surveys of welfare recipients consistently show their desire for a job."   (p. 2)

True enough.   But what does recognition of that point do to the authors' theory that welfare benefits are so exceedingly generous that they provide a disincentive to work?   Either the benefits are not so generous after all or some other factor provides an offsetting and greater incentive to work.   Which is it?

"Attempts to mandate wage increases, such as increases in the minimum wage, primarily result in increased unemployment for the lowest-skilled workers." (p. 3)

This statement is simply factually incorrect.   In the words of the great Yogi Berra, "In theory, there is no difference between theory and practice.   In practice, there is."   Although the theory seems so simple that it must be true, in practice, there are too many other ways to respond to a mandated wage increase to begin by cutting jobs.   If a firm's response to a mandated wage increase is to cut jobs, they the firm wanted to cut jobs anyway.   The wage increase is the excuse, not the reason.

On the FICA payroll tax: "The employer also must pay a payroll tax to these (FICA) programs equal to 7.65 percent of pay, and most economists believe that this employer's "share" is actually borne by the worker in the form of reduced wages." (p. 34)

Then "most economists" do not know what they were talking about.   It's true that employers must match their employees' FICA contributions.   But those employers do not think about their contributions as "worker-earned money," as though the workers' pay would increase if the employer's contribution ever were discontinued.   If the employer's match were discontinued, employers would simply keep the money.   Corporate profits would go up, not workers' pay.   That's reality.

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From the Conclusion: "Many welfare recipients, even those receiving the highest level of benefits, are doing everything they can to find employment and leave the welfare system."

Again I ask: so what does this fact do to your theory that welfare benefits are so generous that they provide a disincentive to work?   Where's the disincentive?   Are working people so blind or stupid as to not recognize a better deal when they see it?

"Still it is undeniable that for many recipients -- especially long-term dependents -- welfare pays more than the type of entry-level job that a typical welfare recipient can expect to find.   As long as this is true, many recipients are likely to choose welfare over work." (p. 42)

But they are not choosing welfare over work.   That is the reality the authors choose to ignore.

What's more, if that were true, then welfare rolls would grow even as the number of unfilled entry-level jobs grows.   Thanks to the Great Recession, the number of people on welfare rolls has indeed grown.   But the availability of vacant entry-level jobs that could be filled by those recipients has not grown.

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And in any case, if entry-level jobs remained unfilled, then the free market should offer the ideal and most economically efficient solution: raise the pay for those entry-level jobs to the point where the incentives favor work, not welfare.   That would reduce welfare rolls, boost the economy (because entry-level workers tend to spend all their money), and improve tax receipts.   How could the august Cato Institute fail to acknowledge this fundamental principle of free markets?

Here's a suggestion for Messrs. Tanner and Hughes: knock off the number noodling and model muddling, and get out of the ivory tower for a couple weeks.   Go meet some real, live people living on TANF, SNAP, etc.   In fact, get to know a single mom with two active preschoolers.   Try living like they do for just a week.   Then come back and tell us all about how very good welfare recipients have it.

In fact, if you're nice to her, she may even give you a lift back to the office in her Cadillac.

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Rick Wise is an industrial psychologist and retired management consultant. For 15 years, he was managing director of ValueNet International, Inc. Before starting ValueNet, Rick was director, corporate training and, later, director, corporate (more...)

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