U of Ideas of General Interest ó July 1998
University of Illinois at Urbana-Champaign
Contact:
Craig Chamberlain, News Editor
(217) 333-2894; [email protected]
WELFARE REFORM
Study shows welfare-to-work incentives not well understood
CHAMPAIGN, Ill. ó The theory behind much recent welfare reform is that welfare recipients will go to work if government just provides the right incentives.
But what if welfare recipients are unaware of those incentives, or donÃt sufficiently understand them? And how effective can incentives be if even state administrators find them confusing?
Those are questions Steve Anderson, a University of Illinois professor of social work, started asking during 10 years as a budget analyst working for the House of Representatives in Michigan, one of the early state laboratories for welfare reform.
His main responsibility in that position was social-service policy, and legislators consulted him often on welfare-related matters. Yet even as a designated expert, he found the policy and programs difficult to understand, and often had to consult other offices for answers.
ìMy interest in this grew out of my own frustration with how complex policy was,î he said. ìMost people I talked to also found it to be complicated. And yet, at the same time, there was considerable academic discussion suggesting that recipients were ëgamingà the welfare system.î
By ìgaming,î they meant that recipients ìknew all the benefits, and were objectively calculating how much it was worth to be on welfare versus how much it was worth to have a low-wage job,î Anderson said. By this theory of rational economic decision-making, the right incentives could push people toward work just as incentives had kept them on welfare.
But after studying 60 women in Lansing, Mich., who were receiving Aid for Families with Dependent Children, Anderson believes the theory is unworkable ñ and that identifying the right work incentives is only the first step in making welfare reforms operate effectively.
His findings, he said, ìclearly demonstrate that respondents lacked sufficient knowledge about work incentives to be considered calculators in the classical rational economic decision-making sense. Not only did few respondents exhibit even a basic working knowledge of the range of incentives available to those who worked, but knowledge was extremely limited about some of the incentives considered to be of greatest importance in encouraging work.î
A case in point, Anderson said, was the Earned Income Credit, a federal tax credit that can provide a low-income working family with up to several thousand dollars in annual income. Even though 82 percent of his respondents had worked at some point during the previous three years, only 66.7 percent had even heard of the credit, only 35 percent had ever applied for it, and only 30 percent could provide even ìminimally accurate descriptionsî of the criteria for receiving the benefit.
ìThe challenge for welfare reform is not just to create better work incentives, but to simplify policies and make sure welfare caseworkers clearly inform recipients about benefits available from working,î Anderson said. Essentially, itÃs about improving the marketing as much as the product.
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