Good Politics, Bad Policy: Tapping Big Business To Fix Welfare

Welfare is "no longer a political issue," President Clinton declares. But that's not how he's acting. To mollify liberal anger over his signing of welfare reform, he's launching a $400 million tax-credit plan to induce employers to hire former welfare recipients. And to cover his right flank, he's enlisting CEOs in the welfare-to-work effort.

Good politics--but weak policy, claim welfare experts. Tax credits for new jobs have a checkered history of lining the pockets mf low-wage businesses without doing much to boost job prospects of disadvantaged workers. And while business participation is vital to welfare-to-work plans, Clinton's vehicle--a high-profile White House conference with corporate CEOs--will probably create more headlines than new jobs.

"HALF FULL." Under Clinton's proposed Welfare-to-Work Tax Credit, employers hiring a long-term welfare recipient can save up to $10,000 in taxes over two years by claiming a credit for 50% of the worker's wage and training costs. It's a richer version of the Carter Administration's Targeted Jobs Tax Credit for the chronically unemployed.

But that troubled program didn't create many new jobs. "At least 9 times out of 10, the subsidy went to a job that the business would have filled anyway," says Anthony P. Carnevale, who studied the TJTC as head of the National Commission for Employment Policy. Nor did the credit create opportunities: Studies showed that more than half of subsidized workers would have gotten the same jobs without the break. And unscrupulous employers could "churn" the credit by replacing workers when credits ran out.

A disappointed Labor Secretary Robert B. Reich asked Congress to kill the TJTC in 1994. Now, he says it was a partial success: "When you're dealing with this group, half-full is good." And the Administration's reforms, Reich adds, will make the new plan "three-quarters full, or better." For example, employers will be required to make a longer commitment to workers, keeping them on the payroll for 400 hours before they can collect the credit, up from 120 in the old plan.

But the changes may backfire. Businesses may be unwilling to gamble on an applicant with little work history if the payoff is delayed. And the new plan requires job seekers to identify themselves as welfare recipients before they get hired--raising what labor economists call the "stigma effect." It "says to an employer, `The problems this guy brings may cost you more than the subsidy you'll get,"' says Brookings Institution economist Gary T. Burtless. In similar state programs that Burtless studied, the stigma actually reduced hiring within the targeted groups.

One solution is to encourage businesses to seek out welfare recipients. Robert B. Shapiro, Monsanto CEO, wants to do just that. That's why the White House asked Shapiro and Sprint CEO William T. Esrey to organize a CEO conference with the President this fall. "We don't need hundreds of companies, but we certainly need more than a handful," Shapiro says.

Big companies, however, offer few unskilled jobs suitable for people on welfare. And the best programs--like Industrial Exchange Inc. in Tulsa--tend to be local partnerships between smaller companies and state agencies. "Business' role in welfare reform is at the grass roots," says Roberts T. Jones, president of the National Alliance of Business.

But grassroots efforts reap few campaign-season headlines. And Clinton, navigating between voters who want to end welfare and activists who cling to it, wants to appeal to both sides. His latest moves are evidence that welfare hasn't moved beyond politics just yet.

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