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Businessweek Archives

The System Doesn't Work. This Might

Social Issues


After three decades of bitter debate, the political system now seems on the verge of a remarkable consensus: Welfare as we know it must end. Changing a system so obviously flawed is a worthy goal, but the challenges are enormous. How can the typical welfare family--an unwed mother with two kids, little education, and few job skills--become self-sufficient? "Never in history," says Douglas J. Besharov of the American Enterprise Institute, "have poorly educated single mothers with children been an economically viable family."

But it is not hopeless. Emerging alternatives to welfare, although still small-scale and local, show promise. BUSINESS WEEK endorses a set of proposals that would slash welfare rolls by at least half--moving 2.5 million moms and nearly 5 million kids into mainstream society within two years. These proposals are based on a simple concept: Work is better than welfare. They would focus on getting welfare moms--and 90% of adults on welfare are mothers--into the private sector. Public-service jobs would be available but only as a limited, last resort. Fathers would have to provide financial support to their children.

Any reform plan must help those on welfare without sending the wrong signals to those already working. BUSINESS WEEK would continue benefits for the disabled and those with very young or ill children. Those able to work, who choose not to, would receive no cash benefits, but food stamps and medical care would still be available to kids. Working mothers would receive child and medical care, though only until they could support themselves.

Welfare reform would work best combined with a health-reform plan that gives equal access to medical benefits. Added child care may give welfare mothers an advantage over the working poor, but that may be a necessary price to pay to move moms into the workforce.

NEW HOPE. BUSINESS WEEK'S proposals are not punitive. Instead, they seek to provide the poor with the same incentives as the rest of society: Those with intelligence and ambition will use their newfound jobs as stepping stones to more rewarding work. A majority may never get beyond low-paying jobs. But life will change because they--not government--would be responsible for their lives and those of their children. "We need to be saying it's good to work," says top Clinton welfare adviser David T. Ellwood.

Fixing welfare in this way could cost upwards of $4 billion a year--at least double what Clinton says his plan will cost. That figures a $4,000 annual tab for a child's day care, vs. Clinton's estimate of $1,700, plus $5,000 a year for each public-service job. Make no mistake; it would be cheaper to keep sending welfare checks. But consider the social costs: White women, for example, are six times more likely to go on welfare as adults if they come from a welfare family. Young black men who grow up on welfare are three times more likely to go to jail than those who do not.

Many newly working mothers will pay taxes, and that will help offset the cost--perhaps $1 billion. The rest would come from spending cuts. Eliminating operating subsidies for Amtrak and setting user fees for the air-traffic-control system would save more than $2 billion annually. Trimming agriculture subsidies could save $2 billion more. Paying the bill will be tough, but the real challenge will be getting people working, restoring families, and giving kids some hope. Here's how BUSINESS WEEK would do it:

-- JOBS, JOBS, JOBS. There is widespread agreement among experts that up to two-thirds of the adults on welfare are employable. And most say they want to work. To help them, the system must be retooled to focus on skill training, job search help, and developing close ties to local businesses that can provide the jobs. These positions will be mostly entry-level and won't pay much to start. But with child care and medical benefits, they'll be a start on the road to economic independence.

That's what's happening at The New Hope Project in Milwaukee. Begun in 1990, it provides a wage subsidy, child care, and health benefits, but only for those who are working. Participants must look for private-sector jobs, though some take temporary community-service jobs. Early results: 60% of the 52 volunteers work in local companies.

One success story is 36-year-old Dora Young. A high-school dropout, the Milwaukee mother of five had been on and off welfare for 12 years. But a year ago she landed a full-time job with Marriott Contract Services Inc., cooking lunches for students at Marquette University. Young makes $6.17 an hour, so she's still getting an income supplement, plus food stamps and Medicaid. Her goal: "To get experience to get a better-paying job."

Not everyone will find work right away, so new public-service jobs will be needed. But real reform will succeed only if there are enough private-sector jobs to absorb the 2 million or so new workers. Recent studies suggest that work is out there--especially in an expanding economy that is creating about 250,000 positions a month. "It is realistic to think they can find jobs," says Labor Secretary Robert Reich.

Still, many jobs are in the suburbs and would require long commutes. Others just don't pay enough to pull a mother and two kids above the poverty line of $11,000. Says former Commissioner of Labor Statistics Janet L. Norwood: "There are a lot of jobs for unskilled workers willing to accept minimum wage or just slightly above it."

nPROVIDE TRAINING. Welfare recipients can survive on such entry-level jobs, but good job training is critical if they are to do better than that. Most of the government's 50-plus training programs for welfare recipients have been well-intentioned but ineffective. To succeed, training must address the basics--arriving on time and taking orders--as well as job skills. And it must be tailored to the needs of individuals and the local market. Ideally, training ought to be tied to specific jobs. Such training won't necessarily cost much: We can retool existing programs, get rid of failed ones, and focus on what works.

Denver's Family Opportunity Partnership shows the promise of targeted training. The program works closely with a local temporary agency, Sunny Side Inc./Temp Side. It teaches word processing, computer programming, and receptionist skills and provides placement in clerical and secretarial jobs. Of the 20 participants hired by Sunny Side, 13 have either gotten a permanent job or are temping full-time.

-- CHILD CARE. Giving up a welfare check--and the related package of food stamps, child care, and the rest--doesn't make sense if the payoff is a low-wage job with fewer benefits. "Mothers on welfare would love to work," says Massachusetts Governor William F. Weld, "if they had health care and child care." He wants to abolish welfare but use the savings to provide those benefits.

Training and financial support helped Cynthia Hayes, a 31-year-old divorced mother of three who has been on welfare for three years. The Denver program led her through a word-processing and job-search course, then helped her land a $7-an-hour job. But Hayes says she couldn't have done it without adequate--and state-financed--child care. "There was no way," she says. "Child care would have cost me $900 a month."

-- REBUILD THE FAMILY. Nearly 7 million children from one-parent families live in poverty. To help them, the economic and emotional links between fathers and children must be restored. Paternity should be disclosed at birth. Dads who are able should contribute child support. Others should be given training and, if needed, made to perform a public-sector job. Finally, family planning must be taught early to reduce the number of unwanted pregnancies.

-- LET STATES LEAD THE WAY. All too often, federal rules stifle state welfare initiatives. Welfare programs ought to be turned over to the states so

that they are free to experiment, within guidelines set by Congress. The problems leading to welfare dependence are ultimately local, and state officials have been most successful in crafting solutions.

Today, the adults and children on welfare suffer daily from a well-intentioned but misguided system. It will take years to retool welfare into a job-creating machine. But until that is done, too many citizens will be denied a stake in the future. By focusing on jobs, the process can at least begin.


FOCUS ON WORK Make welfare a short-term safety net, as intended. Require healthy adults to work, but offer job-linked training. Continue assistance to the disabled and those with young or chronically ill children.

TARGET PRIVATE EMPLOYMENT Strive for permanent private-sector jobs. Make public service jobs temporary and a last resort. Abandon workfare. People should work for paychecks, not welfare checks.

PROVIDE PROPER INCENTIVES Today welfare, food stamps, and Medicaid are a better deal than a low-wage job. Instead, provide new workers with tax credits and health and child care. Phase out benefits as pay increases.

SUPPORT FAMILIES Now, the welfare system tears families apart. Change tax and support laws to encourage marriage. Provide family planning at an early age. Establish paternity at birth. Force fathers to help support kids.

ALLOW STATE FLEXIBILITY The most creative welfare

solutions increasingly come from state and local governments. Let states run welfare within federal guidelines.

DATA: BUSINESS WEEKHoward Gleckman and Paul Magnusson in Washington

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