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Does collecting welfare beat working? Cato Institute thinks so

By       Message Richard Wise     Permalink
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The family also qualifies for commodities assistance under TEFAP.   The amount this family would receive is $25 a month.

Messrs. Tanner and Hughes add up their numbers (column B) to produce a total monthly welfare benefit of $3,230, or $38,762 a year.   That's too much money for doing next to nothing, they argue, and the welfare benefit amount should be drastically reduced.

But not so fast, gentlemen.   After applying the discounts in column C (which is the proper way to handle hypothetical figures like these when not everyone receives each benefit), the monthly amount reduces to $2,353, or $28,236 a year (column D).

And on a strictly cash basis, that profile family would be expected to receive about $1,588 a month - $19,056 a year -- plus the ability to see a doctor when a family member is sick (column E).   That assumes the family actually receives some amount of housing subsidy, which most families do not.

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Of course, out of that $1,588 a month the family must pay rent -- at least $800 a month for a two-bedroom apartment in Connecticut.   That would leave, at most, $741 after state sales taxes, or $185 a week.   And out of that amount the family must pay for all its food, heat and electric utilities (expensive in New England), clothing (kids do grow, y'know), transportation costs, various personal and household consumables, the costs associated with job search or job training and, yes, even a telephone, a television, and a computer (which is how you apply for jobs these days).

Messrs. Tanner and Hughes may believe that such benefits are excessive.   They may argue that the richest country in the history of the world cannot afford to support such lavish lifestyles, such arrant profligacy by people who are for the moment making essentially no economic contribution to society (as if working at the Cato Institute " oh, never mind).  

On that point they and I vigorously disagree.   As a society, we can and we should support these needy families.   By the authors' own admission, "surveys of welfare recipients consistently show their desire for a job." (p. 2) People receiving public assistance are not, as a rule, slackers and deadbeats; the vast majority want to work and will take almost any job offered that they can afford to take.     And in any case, none of them will be on public assistance forever (that's why it's called Temporary Assistance for Needy Families).

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Comparison to Median Incomes

To compare their (improperly computed) figures to the monetary value of holding a job in each of the states, the authors compared the total value of the welfare benefits received to "median work-related income" by state.

This is where the study suffers a fatal breakdown.   Table 4 (p. 10) shows the profile family's "pre-tax wage equivalent" and compares it to the state's "median salary."

The authors gross-up their bogus figures for the total value of welfare recipients' benefits to show that on a hypothetical pre-tax basis, the profile family's pre-tax income would be $44,370 (in Connecticut).   They then compare that to a "median work-related income" of $41,330 and conclude that welfare pays 7.4% more than the median incomes of people who work.

Q.E.D., collecting welfare beats working for a living and any rational person should abandon the rat race and climb aboard the government gravy train as soon as possible.

But once again, not so fast, gentlemen.   Unfortunately, the authors fail to report whose "median work-related income" they are taking about.   Is it the whole state's?   Is it the median per capita income?   The median household income?   The median income for a family of three?   The median incomes for working single moms with two pre-school age kids?   It's important to know because the whole comparative study hinges on the credibility of this table and, in its present form, the information is simply not credible.

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The authors also fail to report whether their "median work-related income" figures include the cost of workers' employer-provided health care benefits.   They should include those figures because they include the imputed value of Medicaid in the figures for welfare recipients.   Otherwise, they are not making an "apples-to-apples" comparison.

At this point, it becomes clear that the study is too flawed and biased to have any credibility at all.

Reality?   What Reality?

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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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