WELFARE & PENSIONS|
11: On, Wisconsin!
Innovative welfare reforms
The problem: increasing dependency
Most developed countries believe it is right to maintain a 'safety net' welfare system; but often, these programmes become expensive and ineffective. The political pressure of interest groups pushes for support to be expanded; but the larger the support programme, the less is the incentive for people to seek work. How can incentives be maintained, while those who need help still get it?
The idea: work test for beneficiaries
The state of Wisconsin in the United States faced these same problems. Their solution was to require that recipients of welfare support take reasonable action to get back into work or equip themselves to return to work in the future: and to focus action not on dishing out money, but on giving real back-to-work help to welfare families.
Example: learning and working
In 1987, Tommy Thompson became governor of Wisconsin and initiated a series of reforms that cut welfare dependency - at a time when, in other states, it was rising fast.
An early part of the initiative was Learnfare, which required welfare recipients to ensure that their school-age children attended school regularly, and reduced the payments to those with truant children. This was not aimed at cutting welfare numbers, but at sending a clear signal to both dependents and administrators that constructive behaviour would be demanded in return for cash support.
The main focus of reform, however, was the requirement that welfare recipients should, where reasonable, undertake training, supervised job-search, and other activities designed to help them back into work. In some counties, recipients who did not find work within a few weeks were required to do community-service work until they found a real job - a principle dubbed 'workfare'.
By 1994, reform had become more sophisticated. Mindful that it was school that had de-motivated many unemployed people in the first place, Thompson's team began to focus less on classroom training and education, and more on activities that would move people more quickly into a workplace environment. Counties would no longer be allocated block grants, but would have to earn funds by increasing the number of welfare recipients they got back into work.
Simultaneously the Work First programme gave new welfare applicants counselling on the negative effects of welfare dependency, provided short-term aid (such as car repairs) that might enable applicants to seek work more effectively, and required most new applicants to find a job or begin community-service work almost immediately.
Another initiative trialled in some counties was to place a two-year limit on welfare payments, sending applicants a strong signal that welfare was to be viewed as a strictly temporary form of assistance.
In 1995, the governor introduced stronger incentives on county welfare offices. The management of the welfare programme would be subject to competitive tendering if the welfare caseload was not reduced by 15%-25% over the following year. Some 63 counties won the right to administer the new Wisconsin Works programme, but private agencies now handle most of the state's caseload, 80% of which is concentrated in Milwaukee, and now administered by five private groups. Additionally, contractors can earn greater profits by cutting costs and raising their effectiveness.
For recipients, the 'workfare' rules were tightened up for those required to do community-service work. Previously, counties could do little if someone refused to turn up for the training or community-service work demanded of them. From now on, their welfare support would be paid only in proportion to their attendance, and anyone doing nothing would receive nothing.
The results: falling caseloads
As a result of the reforms, in particular the strict work test required of welfare applicants, Wisconsin's welfare caseload fell from over 95,000 families in 1987 to under 45,000 by 1997. The drop was not due to rising economic prospects: the caseload in the US generally increased considerably during the same period.
Having cut its welfare caseload in half, Wisconsin found itself grappling with the more difficult core of less employable people. But the reduced caseload, and the greater administrative efficiencies that resulted from competition, allowed case workers to focus more time and attention on those groups. Instead of spending long bureaucratic hours processing applications, they could be directly involved in the training and education of dependents, and in coming up with solutions that were more tailored to solving the particular problems of the individual.
Assessment: northern promise
Other US states have also contracted out parts of their welfare-services administration, or are contemplating doing so. Texas, for example, proposed to outsource the entire administration of its $500 million state welfare system, covering nearly 700,000 beneficiaries. Contractors are used in support services such as record-keeping in California and elsewhere. San Francisco uses a private contractor to run screening, training and placement programmes, which have proved 20% better than the city itself at placing welfare beneficiaries in work.
The first lesson of Wisconsin is to focus on the right goal - the clear goal of reducing the total size of the welfare caseload.
It also pays to focus on getting people back into a working environment quickly - training and education programmes seem to have little or no effect on helping people back to work. The 'workfare' test ensures that those receiving welfare are genuinely willing to work and to accept that help, but to be effective, the degree of welfare help provided must reflect the effort that the recipient is prepared to put in.
Lastly, it is clear that competition and incentives on the welfare authorities can achieve fast and effective improvements in administrative efficiency and programme effectiveness.
For further information:
- See Rector, Robert (1997) 'Wisconsin's Welfare Miracle', Policy Review, March/April: Heritage Foundation (Washington DC) www.heritage.org.
- For an elaboration of the 'workfare' idea, see Howell, Ralph (1991) Why Not Work? A Radical Solution to Unemployment: Adam Smith Institute (London) www.adamsmith.org.
Copyright 2002: Adam Smith Institute
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