Welfare Pays Better Than Work, Study Finds: $36,000 a Year in Hawaii

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Welfare benefits are far more generous than commonly thought and substantially exceed the amount a recipient could earn in an entry-level job. As a result, recipients are likely to choose welfare over work, increasing long-term dependence.

Those are the principal findings in “The Work vs. Welfare Trade-Off” (Policy Analysis no. 240) by Michael Tanner, director of health and welfare studies; Stephen Moore, director of fiscal policy studies; and David Hartman, CEO of Hartland Bank in Austin, Texas. The paper was released at the height of the welfare debate in Congress.

The study examines the combined value of benefits–including Aid to Families with Dependent Children, food stamps, Medicaid, and others–for a typical welfare recipient in each of the 50 states. The value of those tax-free benefits is then compared with the amount of take-home income a worker would have left after paying taxes on an equivalent pretax income. The following are among the study’s findings.

* To match the value of welfare benefits, a mother with two children would have to earn as much as $36,400 in Hawaii or as little as $11,500 in Mississippi.

* In New York, Massachusetts, Connecticut, the District of Columbia, Hawaii, Alaska, and Rhode Island, welfare pays more than a $12.00-an-hour job–or more than two and a half times the minimum wage.

* In 40 states welfare pays more than an $8.00-an-hour job. In 17 states the welfare package is more generous than a $10.00-an-hour job.

* Welfare benefits are especially generous in large cities. Welfare provides the equivalent of an hourly pretax wage of $14.75 in New York City, $12.45 in Philadelphia, $11.35 in Baltimore, and $10.90 in Detroit.

* In 9 states welfare pays more than the average first-year salary for a teacher. In 29 states it pays more than the average starting salary for a secretary. In 47 states welfare pays more than a janitor earns. Indeed, in the 6 most generous states, benefits exceed the entry-level salary for a computer programmer.

The authors conclude that if Congress or state governments are serious about reducing welfare dependence and rewarding work, the most promising reform is to cut benefit levels substantially.

The study has been the subject of major news coverage. In a September 28 Wall Street Journal guest column, Tanner and Moore wrote, “The welfare reform proposals just passed by the Senate, and the earlier House version, are designed to reduce ‘hard-core’ welfare dependency and reward work. But we believe the most critical public policy implication of our findings is that ultimately these goals can be accomplished only by cutting benefit levels substantially. Unless and until this is done, Congress will have failed to end welfare as we know it.”

Hourly Wage Equivalent of Welfare

Hawaii $17.50
Alaska 15.48
Massachusetts 14.66
Connecticut 14.23
Washington, D.C. 13.99
New York 13.13
New Jersey 12.74
Rhode Island 12.55
California 11.59
Virginia 11.11
Maryland 10.96
New Hampshire 10.96
Maine 10.38
Delaware 10.34
Colorado 10.05
Vermont 10.05
Minnesota 10.00
Washington 9.95
Nevada 9.71
Utah 9.57
Michigan 9.47
Pennsylvania 9.47
Illinois 9.33
Wisconsin 9.33
Oregon 9.23
Wyoming 9.18
Indiana 9.13
Iowa 9.13
New Mexico 8.94
Florida 8.75
Idaho 8.65
Oklahoma 8.51
Kansas 8.46
North Dakota 8.46
Georgia 8.37
Ohio 8.37
South Dakata 8.32
Louisana 8.17
Kentucky 8.08
North Carolina 8.08
Montana 7.84
South Carolina 7.79
Nebraska 7.64
Texas 7.31
West Virginia 7.31
Missouri 7.16
Arizona 6.78
Tennessee 6.59
Arkansas 6.35
Alabama 6.25
Mississippi 5.53

This article originally appeared in the November/December 1995 edition of Cato Policy Report.

Comments

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8 COMMENTS

  1. Thursday, February 3rd, 2011 | Posted by Guest Contributor

    It is with much interest I read this report provided by “Guest Contributor”. I also note that at the end of the article that it references: This article originally appeared in the November/December 1995 edition of Cato Policy Report.

    Please be so kind as to clarify is the information presented is current, as in from 2010 or 2011, or is it actually 15 years old? The age of this report would make a difference to me, as a reader. Frankly, I suspect an answer to the question of source/author and age may be of great interest to any reader.

  6. "… the most critical public policy implication of our findings is that ultimately these goals can be accomplished only by cutting [welfare] benefit levels substantially." Interesting conclusion but no discussion on the impact this would have on homelessness, crime rates, etc. Even more interesting that there is no discussion on the possibility of increasing the minimum wage to make it higher than welfare. Current interest rates on the same rates as 1965 adjusted rates. Since 1978 adjusted wages have fallen 3.5% while the top 5% of wage earner have grown over 400%. Is it only a coincidence that wages over $200,000 annually were taxed at high of 91% is now taxed at 18% with added tax benefits & shelters? At the current rates of inequality, the percentage of the extreme rich over increasing poverty will lead to widespread crime and eventually produce riots similar to other countries around the world.

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