The issue of poverty has long confronted the United States. Widespread federal support for the poor, however, is an institution that is only about 70 years old, with its roots in Franklin Roosevelt’s New Deal. His New Deal was a massive deficit spending effort to try to get the United States out of the Great Depression which plagued the economy in the late 1920’s and early 1930’s. Even after the wartime economy of World War II lifted the United States fully out of depression and even recession, the social welfare programs set up by the New Deal continued to function. As these programs began to consume a noticeable chunk of the federal budget, the nature of social welfare programs became an issue, and heated policy debates began. These debates have persisted until today, and this is why we, as your advisors, have prepared a position paper advising you on what stance, if any, you should take with regard to the current welfare state. We believe that our suggestions will be both socially beneficial and politically wise.

In order to formulate policies that will effectively help the poor, it is important to first examine the causes of poverty. One of the primary reasons that social welfare policy has been such a contentious issue is because of two contrasting views about whether the cause of poverty is primarily individualistic or structural. Those who hold that poverty is an individualistic issue believe the poverty is caused by "laziness, familial dysfunction, heavy drinking, immorality, and wanderlust." 1 Generally speaking, individualists attribute poverty to poor choices on the part of individuals. The structuralist faction believes that poverty is primarily caused by a lack of accessible jobs and child care, low wages, and racial discrimination. 2 That is, poverty is caused by societal flaws.

Individualism and structuralism, not surprisingly, differ in their moral foundations. For the individualist, a core moral value is that of a strong work ethic. Individualists worry that extensive social welfare might promote laziness because the welfare payments allow the poor to live without working, even if the quality of living is still terrible. The moral basis for structuralism is the American ideals that any adult needing to work full-time deserves a full-time job, and if a job is not paying enough to take someone out of poverty, welfare should be distributed to that person until a better job can be found. When these ideals are not met, the structuralists believe the cause to be social barriers and not a lack of work ethic. 3

Empirical studies have been conducted for decades in attempts to discover whether structural or individualistic factors (or an amalgamation of the two) primarily causes poverty. The main problem faced by the poor is the inability (whether structural or individualistic) of the poor to find steady, consistent work. Among the poor, only 42% of adults report any earnings at all, and only 10% work full-time and full-year. Not all of those who have jobs are self-sufficient and are still in need of outside support. 4 While these statistics reflect nationwide status, it is important to note the significance of differences in the causes of poverty in rural and urban areas, especially with respect to the problem of individualistic vs. structural causation.

One study conducted in 1990 primarily attributed rural poverty to structural causes. The United States’ economic "restructuring" toward a less diverse labor market has limited job opportunities in more rural areas. The rural poor demonstrate a favorable attitude about work, but years of low wages and layoffs in small towns with limited opportunities have demoralized many of these workers. 5 Another example of a structural boundary is the efficiency-wage theory. In this theory, if involuntary unemployment were at zero, that would mean that firms’ wages would be low enough so that each addition of an employee would be profitable (according to the economic principle of marginal utility). However, because wages would be so low, employee quit rates would be extraordinarily high, and therefore the money spent on training these employees would be essentially wasted. Thus, in anticipation of high employee quit rates and wasted training, companies find it profitable simply to raise minimum wages to a level where hiring new workers would violate the law of marginal utility. This theory is an example of the natural unemployment rate as a structural barrier to the poor’s finding a job that can lift them above the poverty line. 6

While these structural problems clearly exist, there are also problems which are clearly more individualistic. One problem is the "culture of poverty" issue. Those who are poor have this fatalistic mindset that they are simply not capable of moving up the socioeconomic ladder because of some external force, which cannot be identified and therefore not overcome. In this non-employment seeking mindset, it is the state giving money to the poor, and "…this stigmatizes the poor in the eyes of the public. The poor come to accept the stigma and view themselves as best suited to a life of welfare-dependency." Additionally, poor women with children will not receive certain benefits if they have an employed spouse, thus discouraging husbands from getting a job. The empirical evidence for this theory is in Murray’s 1986 study which showed that labor force participation among age groups 16-17, 18-19, and 20-24, had gone down for non-whites and up for whites since the 1960’s. The correlation is that since poor blacks tend to live in areas that are segregated by race, they grow up in areas where so many people are on welfare that it almost seems as though welfare dependency is an acceptable, if not common, way of life. 7

UBLIC BELIEFS

The reason that investigating who believes what about causes of poverty is significant is that a strong correlation has been found to exist between belief about cause and support for social welfare programs. 8 Public beliefs about the causes of poverty do not always correlate to what studies have shown. Little can be concerning general American points of view except that they have "mixed feelings" about longtime employment provided to the poor by the government and look favorably upon the government’s offering temporary jobs or training to acquire better jobs. 9 When policies are proposed which may appear to decrease personal initiative, opposition to those policies tend to increase. If the only other alternative to a policy is a cash-handout, which is viewed as the ultimate initiative killer, opposition to a policy subsides. 10 These sentiments seem to reflect the aforementioned moralistic elements to the poverty issue.

American’s beliefs are rarely based upon empirical knowledge about the subject, but rather correlate to combination of factors like sex, age, race, education, religion, and political values, though there are certain factors which seem to weigh in more significantly. The most important determinants of causal beliefs about poverty, according to the study, are education and political orientation. "The inclination to explain homelessness in terms of personal deficiencies decrease with school years completed and liberalism." 11 Liberals tend to be more progressive with respect to social welfare. They want to help the poor by creating new social programs, as they believe that the causes of poverty are structural and can be remedied by changes social programs designed to eliminate societal barriers. Conservatives, on the other hand, believe that any assistance given to the poor should come from the private sector as individualism and not societal problems is the cause of poverty.

A 1988 Associated Press survey polled 1084 adults by asking them the question: "Thinking abut why most people are homeless, would you say society is mainly at fault or the homeless personally are mainly at fault?" The results indicated that 58% blamed society and 42% blamed individual choice, with those who were liberal, well-educated, and black being the strongest group holding the structural view. 12 This is consistent with the Lee study which indicated that "white, older, male, and of higher income increase the propensity to favor individualistic over structural beliefs about the roots of poverty." Those who believe that structural causes are the primary reasons for poverty tend to be of lower-income. 13

Racial and ethnic minorities tend to have a more structuralist viewpoint. There are two potential reasons for this. One is that "…beliefs about poverty follow from economic self-interest: Individuals who are in groups that are disproportionately poor—such as racial minorities, women, younger persons—tend to hold structuralist beliefs." By this logic, there is a correlation between one’s socioeconomic status and one’s beliefs about the causes of poverty, representing a self-interest stimulated belief system. However, the empirical evidence for this is weak as Form & Hanson’s 1985 study and Hasenfeld & Rafferty’s 1989 study showed. 14 Also, the "enlightening" effect of education seems to contradict this, as more education tends to create more liberal beliefs—yet, it is the well-educated who tend to be more affluent; based on the self-interest model, the affluent should tend to be more individualistic in their beliefs, but these studies show that among minorities, education is a much stronger correlative factor than socioeconomic status.

The other explanation for racial and ethnic minorities’ structuralist viewpoint is that "…individuals identify with the generalized experiences of the groups to which they belong and respond in line with these group identifications." In other words, regardless of one’s current socioeconomic status, beliefs about causal factors leading to poverty are related to one’s belief’s about the generalized group to which one belongs. The research of Schuman, Steeh, and Bobo have found strong support for this argument when controlling for socioeconomic status. This research indicates that most racial and ethnic minorities believe that those who are in poverty among their respective groups are in poverty for structural reasons. This reasoning produces the overall perspective that poverty is structurally caused, and is not self-contradictory like the self-interest model. 15

POLICY RECOMMENDATIONS

There have been many different social studies that evaluate programs in different states and their effectiveness. In addition, political scientist suggest many different policies ranging from negative income taxes to wage subsidies. In theory these programs may look appealing, it is crucial to rely on the studies previously conducted to elect affective and logical policies that would work in America.

Negative income tax has often been proposed as a possible solution to welfare. First suggested by Milton Friedman, it suggests that one should receive a guaranteed income funded by the rich. This would theoretically replace social welfare systems. Advantages of a negative income tax compared with subsidies includes social assistance to those who are disabled, aged, or unemployed. Also, the whole social security system could be eliminated or greatly diminished. 16 One may perceive that a system of negative income tax would counteract capitalism and much resemble communism but authors like de Jager sponsor a flat tax to people an upper tier. The problem with such an idea is that it is not conditional and only applies to people who are poor enough. This, in contrast to wage subsidies, would not increase the work incentive. A universal wage subsidy would give the poor an incentive to work and would subsidize the working poor to reach an acceptable income above the poverty line . The subsidy would be based on the number of hours the person works up to a certain amount. Although this policy may be open to fraud by employers and people who pretend to be working, it the punishment for fraud is substantial, this problem should be remedied. 17

Advantages of a negative income tax compared with subsidies includes social assistance to those who are disabled, aged, or unemployed. Also, the whole social security system could be eliminated or greatly diminished. 18 One may perceive that a system of negative income tax would counteract capitalism and much resemble communism but authors like de Jager sponsor a flat tax to people an upper tier. This would curb extreme taxes that such individuals would be susceptible to. Such policies are more compatible with countries that have high tax rates and would not be applicable to countries like the United States who have a relatively low tax rate. In a study conducted by Card and Krueger, it was found that lowering the minimum wage in one area (Pennsylvania) and raising it in another (New Jersey) increased the employment in the area with a lower minimum wage. As a result of wage subsidies, the employment would increase as minimum wage decreased to accompany the subsidized wages.

Another possible way to approach wage subsidy is to pay the employer to hire those on long term unemployment, amount based on the length of the person’s unemployment, which is called either Jobstart (Australia) or BTP (England). 19 The voucher would decline over the time of employment gradually thus supporting long term employment. The different benefits of BTP, which was created by Dennis Snower, include giving the government the ability to attack long term unemployment; it would not increase inflation since long term unemployment has little to no affect on inflation; the vouchers would be costless since the money would have been spent on unemployment anyways; and it would automatically stabilize the unemployment issue. 20 A wage subsidy policy would not only help to bring the poor out of poverty, but is also in line with the core American individualistic value of a strong work ethic and addresses the structuralist problem of low wages.

When states are broken up into clusters consisting of minimal, limited, conservative, generous, and integrated, the results are those that would be expected: minimal (where tax burden was the highest, the amount of money offered through cash direct was the lowest) states had poor policy commitment to their residences, and little participation in other programs like JOBS; where the generous programs (in cash direct assistance) had the highest level of participation in and their participation in other social programs like JOBS and child support were also high. Yet the states that showed the best performance where those that integrated their programs with cash assistance, in-kind programs, progressive tax policy, commitment to employment through child care support and enforcement of private responsibility. 21 Over time (from 1994 to 1998) the trends observed were retained with the integrated extending further into the poor population with increasing support. Yet the overall trend seems to be heading towards less welfare reform.

Policies which involve integration—that is, policies which address poverty from an individualistic and structural perspective have proven to be most effective in helping the poor. Additionally, such policies address both perspectives held by the public, so publicly advocating such policies as wage subsidies and the methods of integration that the states have used would be both socially and politically savvy. From a moralistic perspective, wage subsidies encourage the poor to find employment and keep up their work ethic, while at the same time benefiting employers by eliminating the problem presented by the efficiency-wage theory. We strongly recommend that you stay away from public advocacy of blatant cash handout programs as the public is strongly opposed to the anti-work-ethic effect that these programs are believed to have.

 

 

 

ENDNOTES

1 Lee, Barret, Jones, Sue Hinze, Lewis, David. "Public Beliefs about the Causes of

Homelessness." Social Forces. 69.1 (1990): 253-265

2 Mead, Lawrence M. "Welfare Reform and the Family." Australian Institute of Family

Studies. 54. (1999):12-17

3 Reich, Robert B. "Working Principles: From Ending Welfare to Rewarding Work."

American Prospect.

11.15 (2000) 21-23

4 Snower, Dennis J. "The Future of the Welfare State." The Economic Journal 103.418

(1993): 700-717.

5 Tickamyer, Ann R., Duncan, Cynthia M. "Poverty and Opportunity Structure in Rural

America." Annual Review of Sociology. 16 (1990) 67-86.

6 Phelps, Edmund S. "Low-Wage Employment Subsidies versus the Welfare State." The

American Economic Review 84.2 (1994): 54-58.

7 Sanders, Jimy M. "Public Transfers: Safety Net or Inducement into Poverty?" Social

Forces. 3 (1990): 12-22

8 ibid

9 Lee ibid

10 ibid

11 ibid

12 ibid

13 ibid

14 Snower ibid

15 Lee ibid

16 De Jager, Nicole E.M., et al. "A Negative Income Tax in a Mini-Welfare State: A Simulation Exercise with MIMIC." Journal of Policy Modeling 18.2 (1996): 223-231.

17 Ho, Lok Sang. "Wage Subsidies as a Labour Market Policy Tool." Policy Science 33 (2000): 89-100.

18 de Jager ibid

19 Snower ibid

20 ibid

21 Meyers, Marcia K., Janet C. Gornick, and Laura R. Peck. "Packaging Support for Low-Income Families: Policy Variation across the United States." Journal of Policy Analysis and Management 20.3 (2001): 457-483.

 

WORKS CITED

{all sources are scholarly journals retrieved over the internet that are available in full text}

 

De Jager, Nicole E.M., et al. "A Negative Income Tax in a Mini-Welfare State: A Simulation Exercise with MIMIC." Journal of Policy Modeling 18.2 (1996): 223-231.

 

Ho, Lok Sang. "Wage Subsidies as a Labour Market Policy Tool." Policy Science 33 (2000): 89-100.

Lee, Barret, Jones, Sue Hinze, Lewis, David. "Public Beliefs about the Causes of Homelessness." Social Forces. 69.1 (1990): 253-265

Meyers, Marcia K., Janet C. Gornick, and Laura R. Peck. "Packaging Support for Low-Income Families: Policy Variation across the United States." Journal of Policy Analysis and Management 20.3 (2001): 457-483.

 

Phelps, Edmund S. "Low-Wage Employment Subsidies versus the Welfare State." The American Economic Review 84.2 (1994): 54-58.

Sanders, Jimy M. "Public Transfers: Safety Net or Inducement into Poverty?" Social Forces. 3 (1990): 12-22

Savage, Robert L. "Policy Innovativeness as a Trait of American States." The Journal of Politics 40.1 (1978): 212-224.

Snower, Dennis J. "The Future of the Welfare State." The Economic Journal 103.418 (1993): 700-717.

Snower, Dennis J. "Converting Unemployment Benefits into Employment Subsidies." The American Economic Review 84.2 (1994): 65-70.

Tickamyer, Ann R., Duncan, Cynthia M. "Poverty and Opportunity Structure in Rural

America." Annual Review of Sociology. 16 (1990) 67-86.