Safety Net

By | Updated Sep 16, 2015 11:58 AM UTC

Take your pick: a) Government support for the poor encourages sloth and attracts immigrants looking for a handout; b) Government support for the poor helps balance inequality and keep people out of poverty. The lingering effects of the financial crisis have fueled both arguments. Developed nations worry that technological change and globalization have made it more difficult to attain a comfortable standard of living. Their ability to make it easier, without busting budgets or making matters worse, is increasingly being questioned.

The Situation

In parts of Europe, big deficits and high unemployment have made it harder to afford generous pensions and jobless benefits, while the continent has absorbed a growing number of immigrants who are more likely to be unemployed than citizens. Conservatives in the U.K. won a majority in the May 2015 election, after a campaign that included proposals of about 12 billion pounds ($18 billion) in welfare cuts. They also want to require out-of-work teenagers to do community service or start an apprenticeship to qualify for benefits. In France, where social spending consumes 32 percent of GDP, the Socialist government cut family benefits by 700 million euros ($770 million) to move toward EU budget deficit goals. In the U.S., the number of safety-net recipients has jumped since the recession, along with Republican efforts to scale back those programs on the grounds that they discourage people from working. The 2016 Republican candidates for president want to rein in the number of people on food stamps and disability insurance. A few liberal Democrats support expanding Social Security.

The Background

Much of the modern safety net, which includes both social insurance and means-tested programs, can be traced to 1911. That was when the U.K. introduced national health care and unemployment insurance; Germany created its social security system and survivors’ pensions for widows; and Illinois became the first state to introduce payments for low-income single mothers. The U.S. built its safety net over many decades: Congress created Social Security and unemployment insurance in 1935, the school lunch program in 1946, public disability insurance in 1956, food stamps in 1964, Medicare and Medicaid in 1965, and then Obamacare in 2010. These programs worked to reduce the percentage of Americans living in poverty from 26 percent in 1967 to 16 percent in 2012. Yet swelling costs and public belief that welfare breeds dependency prompted Bill Clinton, as a candidate for U.S. president in 1992, to promise to “end welfare as we know it.” He signed a welfare reform bill in 1996 that imposed a five-year lifetime limit on payments and allowed states to require work in exchange for benefits. A dozen years later, the 2008 financial crisis led the U.S. and other countries to increase social spending.

The Argument

“The safety net should never become a hammock, lulling able-bodied citizens into lives of complacency and dependency,” U.S. Congressman Paul Ryan wrote in his 2012 budget proposal. That concern isn’t baseless: Some programs, especially subsidized housing and unemployment insurance, make recipients marginally less likely to work, research shows. But studies also show that other types of programs, such as tax credits for low-income workers, have the opposite effect. Meanwhile, Organization for Economic Cooperation and Development data shows there is no apparent link between the level of social spending and unemployment. Others argue that welfare spending is the price of economic and social stability, softening inequality’s edge and allowing society’s winners to safeguard their gains. The willingness of Western democracies to keep paying that price is another question. Solid majorities of people in France, Spain and Italy favor less government spending.

The Reference Shelf

  • Researchers at the American Economic Association and National Bureau of Economic Research quantified how much various U.S. social programs discourage work.
  • Academics calculated that taken together, U.S. safety-net programs have “almost no effect” on the likelihood of working for the population as a whole.
  • The University of Virginia has a slide show on the history of the U.S. social safety net.
  • The Organization for Economic Cooperation and Development has country data on social spending and employment.
  • The Center on Budget and Policy Priorities found that the 1996 U.S. welfare reform act helped the working poor, but left more children in deep poverty.

First published May 7, 2015

To contact the writer of this QuickTake:
Christopher Flavelle in Washington at cflavelle@bloomberg.net

To contact the editor responsible for this QuickTake:
Anne Cronin at acronin14@bloomberg.net