Welfare

B

Other Early Programs in Europe

In the late 19th century several European countries instituted social insurance programs. These programs alleviated some of the risks of living and working in rapidly industrializing societies. Governments typically financed social insurance programs with tax funds and direct levies on the wages of potential recipients. Social insurance replaced part of incomes lost when workers became disabled, were laid off, or had reached an age that forced them out of the labor market.

Later, governments of Germany, France, Belgium, Sweden, and other countries developed forms of social insurance that provided population-wide, or universal, coverage. Such forms included children’s allowances, universal health coverage, broadly available childcare, generous aid to those seeking post-secondary education, and other programs that provided income and other essential supports to all citizens. In much of Europe, social insurance programs came to be seen as desirable alternatives to forms of welfare associated with the Poor Laws.

C

Early Welfare Programs in the United States

The American colonists essentially imported the framework of the British Poor Laws. By the early 19th century, states required that counties or municipalities provide for the poor and needy. The local governments carried out this responsibility in one of four ways: by auctioning off the poor to bidders who could use them as workers; by contracting with wealthier families to take care of them, either as charitable acts or for pay or free labor; by placing the poor and needy in public institutions (workhouses); or by providing them with assistance in cash or goods.

Citizens and politicians publicly expressed their concerns about welfare from the country’s beginnings. In the 1820s and 1830s, a reform movement swept many states. Local communities tried to replace all outdoor relief—the giving of cash and goods to the poor—with workhouses. These reforms were intended to rehabilitate the poor and replace frivolous welfare use with a work ethic.

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In the 1880s and 1890s, a second wave of reform efforts designed to curb the use of outdoor relief emerged. The scientific charity reform movement emphasized counseling the poor to improve their social functioning. Reformers also encouraged independence through social casework. In this approach, caseworkers visited poor people regularly and instructed them in morality and a work ethic. Supporters of scientific charity opposed the idea of unconditional relief. In some parts of the country these reformers were able to temporarily halt distributions of cash relief almost entirely.

Welfare did not disappear, however. From the mid-1800s to the early 1900s, the Congress of the United States sponsored various programs that expanded public provision for the poor. In 1862 Congress passed legislation for a Civil War Pension Program, which eventually made economic, disability, and old-age benefits available to all Civil War veterans and their families. Between 1911 and 1921, 40 states established mothers’ pensions. In these programs, states offered income support to poor mothers, mostly widows, upholding the notion that motherhood was appropriate as a sole occupation. In the early 20th century, a handful of states experimented with workers’ compensation programs to insure workers against industrial accidents and with unemployment compensation programs to insure workers against labor market uncertainties.

D

Development of the Modern U.S. Welfare System

The modern U.S. welfare system dates to the Great Depression of the 1930s. During the worst parts of the depression, about one-fourth of the labor force was without work. More than two-thirds of all households would have been considered poor by today’s standards (adjusted for inflationary changes in the value of the U.S. dollar). With a majority of the able-bodied adult population experiencing severe financial distress firsthand, Americans no longer could view poverty simply as a personal failing.

U.S. president Franklin D. Roosevelt led a social and economic reform movement as a response to the depression. Part of his New Deal program was the Social Security Act, enacted by Congress in 1935. This act and its 1939 amendments established a number of social welfare programs, each designed to provide support for different segments of the population. Programs included Old-Age and Survivors’ Insurance (OASI) for retired people and their families (to which disability insurance was added in 1954, forming OASDI); Unemployment Compensation for those who lost work temporarily; Aid to Dependent Children (ADC), later known as Aid to Families with Dependent Children (AFDC); and grants to states to provide medical care. In 1946 the government created the Social Security Administration (SSA) to oversee the provisions of the act.

A succession of federal agencies have administered social security programs since the act’s inception. The Federal Security Agency was established in 1939; the Department of Health, Education, and Welfare in 1953; and the Department of Health and Human Services (HHS) in 1980, when the SSA became a separate organization. The government created the Department of Housing and Urban Development (HUD) in 1965. It replaced the former Housing and Home Finance Agency, and provides public housing support for low-income families. The U.S. Department of Labor—created in 1913, predating the Social Security Act—and its Pension and Welfare Benefits Administration manages workers’ benefits programs. Its Employment and Training Administration manages some welfare-to-work programs, as well as job training and placement programs. Other federal government agencies, including the Department of Education, the Department of Agriculture, and the Department of the Treasury, also administer welfare programs.

Funding for welfare programs has significantly increased in recent decades, particularly for working families who remain poor. In 1999, for example, the U.S. government spent $52 billion on a range of supports for low-income working families through tax credits, help with childcare, and other assistance. By contrast, the government spent only $6 billion on comparable programs in 1984, even after accounting for inflation.

IV

Forms of Welfare in the United States

The U.S. government provides welfare in a number of basic ways. Some programs distribute direct cash assistance that recipients may spend as they choose. Other programs provide specific goods, such as public housing; or the means to obtain them, such as subsidized rents, vouchers to offset private housing costs, or coupons to purchase food. Still others provide services or the means to obtain services. Welfare services include health care, childcare, and help coping with drug or alcohol dependency. Goods and services, as opposed to direct cash assistance, are known as in-kind benefits. Other welfare programs create or subsidize jobs for the unemployed. In addition, the government also provides a tax discount to the poor, known as an Earned Income Tax Credit (EITC), which some people consider a welfare program. If calculated as an expenditure—although it is in part actually money the government does not collect—EITC is one of the more costly U.S. welfare programs, with expenditures exceeding $30 billion annually.

In the United States, as in many other nations, the government decides how much welfare support to provide, and to whom, based on measures of economic well-being. These measures are themselves based on national mean income figures. Mean income is an estimate of how much a typical person earns over a given period of time, usually a year. People whose incomes are less than a determined amount below the national mean are considered to be living in poverty. Welfare programs targeted to people with relatively little income and few assets are called means-tested welfare programs. Other forms of income support are referred to simply as non-means-tested.

In virtually all cash welfare programs and many in-kind programs, benefits rapidly fall as a recipient’s income increases. These programs are said to be targeted, or restricted, to people with little or no income and few assets. Some programs further restrict benefits to those meeting additional, nonincome requirements, known as categorical targets. For example, benefits might depend on a recipient being a single parent with dependent children or a juvenile in foster care.

Eligibility for certain forms of welfare is based on membership in specific groups. The elderly and people with mental or physical disabilities, for example, receive several types of support that the government provides specifically to them. Eligibility for social insurance programs, meanwhile, depends upon individuals having made prior financial contributions to a fund, which can be drawn on later. The most prominent examples of this form of welfare in the United States are social security programs. These programs provide support to workers and their families when they lose employment, retire, or become disabled.

In theory, welfare targets make sense, since they direct support to those most in need. Targeting, however, creates problematic incentives. For example, if welfare recipients begin to earn money, or more money than they had been earning, their benefits may fall and their taxes rise. This can be a powerful incentive for recipients to remain on welfare and not seek work. In effect, this situation creates a penalty for welfare recipients who take work, especially in any of the many low-wage jobs typically available to them. Working at a minimal wage, minus taxes, often cannot offset the loss of welfare benefits. Targeting welfare benefits to certain groups also creates incentives for people to change their behavior in order to become eligible for benefits. A young parent may be less inclined to marry or stay married if single parenthood makes it easier to claim welfare benefits. The dilemma of balancing compassion for the poor with a desire to promote socially approved behaviors—work and marriage, for example—has defined public policy debates over welfare for several centuries.

A

Cash Assistance Programs

In the decades following the passage of the Social Security Act, the scope of the United States’s social welfare safety net grew, modestly at first and then more rapidly beginning in the 1960s. By the beginning of the 1990s, there were about 75 means-tested welfare programs. This collection of programs came to be symbolized, however, by the one known as Aid to Families with Dependent Children (AFDC), which provided cash assistance to parents and children in need of economic support due to the death, continued absence, or incapacity of the family’s primary wage earner (typically the father).

For a quarter-century AFDC remained a relatively small, obscure program. In 1960 fewer than 4 percent of children received AFDC benefits in a typical month, even though about 25 percent would have been considered poor by today’s standards. In 1996, 7.9 million children, almost 13 percent of all children, and about 3.9 million adults received help from AFDC in any given month. As the program grew, it became increasingly unpopular. Critics argued that AFDC discouraged work, encouraged births outside of marriage, and failed to take low-income families with children out of poverty.

In 1996 AFDC cost about $22 billion per year, about 55 percent of that cost covered by the federal government and the rest by state and local governments. This expenditure was a minor part of the U.S. annual budget. Remarkably, although AFDC caseloads rose, the overall costs of the program remained the same from the early 1970s, even after considering inflation. This was possible only because typical benefits fell in value, by about half, after 1970. The average monthly benefit in 1995 was $377, about 60 percent below poverty-level income for most families. Moreover, the size of the typical AFDC family fell from about four members in the late 1960s to less than three in 1994. Larger families received higher benefits than smaller ones, but only marginally so. Some critics of AFDC claimed, however, that this could have been an incentive for parents on welfare to have more children.

In the first half of the 1990s, a national debate raged about how to reform welfare, and particularly AFDC. Finally, in August 1996, President Bill Clinton signed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), which replaced AFDC with the Temporary Assistance to Needy Families (TANF) program. Among other things, TANF ended the guarantee of cash benefits to eligible families, established a fixed federal contribution to the program, imposed time limits and strict work requirements, and transferred most program decisions to the states. (For more information on these reforms, see the Welfare Reform section of this article.)

Low-income families with children are not the only group eligible for cash assistance. Adults who are not able to work because of age, blindness, or disability, as well as some disabled children, can receive cash assistance through Supplemental Security Income (SSI). SSI provides more generous assistance than TANF. In 2003 individuals received $552 monthly, roughly 25 percent below poverty-level income, and couples received $829 monthly, or about 18 percent below poverty level. The number of people receiving SSI payments had grown to about 6.5 million by 1995; participation has since remained stable. The federal government spent $33.3 billion on the program in 2001.

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