6. DEPARTMENT OF LABOR

Ms Leslie Loble[37]

Senior Adviser to the Secretary of Labor on Employment, Training and Welfare to Work Initiatives

  The Department of Health and Human Services would be more directly connected with welfare reform than the Department of Labor. The fall in numbers on welfare rolls had been very dramatic, from 14 million at its peak in 1994 down to 10.5 million currently. Two million people had come off welfare since the Welfare Reconciliation Act. It was an open question as how much of that drop was because of the strength of the economy and how much was because of the structural reforms. The big fall in the number of welfare cases was challenging to those, including herself, who had been sceptical about the effects of changing incentives. It challenged their assumptions. Various efforts had been made over the past thirty years to reform welfare, but the current reforms had set about changing the fundamental idea of entitlement.

  The structural reforms were accompanied by a de-centralisation of government, in which States were given more money and lots of flexibility, in return for which they were expected to get people into self-sufficiency. To take Wisconsin as an example, spending more money had met with such phenomenal success that in some areas there was absolutely no-one on welfare. Jobs had been found and thus far they were being retained. The incentive to States was that they could keep their share of Federal monies as long as the basic criteria were met, such as two years' maximum duration of any benefit claim and a five years maximum of benefit for any person. Three quarters of all two parent families - who represented only a small slice of the welfare population - should have a parent in work. This was a high standard which was not being met. One quarter of a State's welfare population had to move into work, rising over time to 30 per cent. The national expenditure of $16 billion on welfare reform would appear as a bell curve, as expenditure would increase initially as new requirements and new systems were brought in, and then taper off.

  The median monthly payment to a family of three (one adult two children) under the old system was $400, ranging from $900 in Alaska to $130 in Mississippi. Food stamps and housing subsidies were also available. The cash benefits, which could be quite low, was based on eligibility.

  The Federal budget reflected the fluctuations in the numbers entitled to benefit and the levels of benefit provided. The share of the Federal budget devoted to welfare had gone down not up. The work requirements under the new regime were that 25 per cent of the welfare population had to be in work for at least 20 hours a week, rising over 5 years to 50 percent of the baseline welfare population being in work for at least 30 hours. Overall this represented a massive change. President Clinton had recognised that some people would have difficulty in finding work. It was said that the welfare population fell into three segments of roughly equivalent size: those who had some skills and needed minimal intervention, those who needed more intervention to give them some job experience to be ready for work, and those with long-term dependency on welfare benefits. This threefold division was a widely accepted analysis, based on national research, which was admittedly somewhat simplistic and ignored local variations. It remained a reasonable assessment.

   The proportion of the welfare population actually fell into each category was not far off thirds in each case, although relative proportions could vary from region to region. New York City and Chicago might display high proportion of long-term dependence. Moreover, the welfare population was concentrated in a handful of States (California, New York, Illinois, Florida, Ohio). Overall numbers could mask specific variations.

  Reformers had declared their intention to move to a "work first" philosophy. President Clinton's Budget had targeted $3 billion on the hardest to serve segment of the population - those lacking a high school qualification and the basic skills needed to get work, and people with long-term welfare dependence and/or history of substance abuse. The States had an incentive to rack up numbers by placing people in work as quickly as possible, but if one really wanted to "end welfare as we know it" it was necessary to target those hardest to serve. Even the Republican- led Congress had agreed to appropriate $3 billion over three years for States to spend on programmes which were highly targeted on the hardest to serve, which were temporary and transitional and which were work-oriented rather than being heavy on training.

  There was a continuing public debate among the Administration, the Congress and others on the value of training versus work. Short-term training could be given for job readiness, including resumé skills for example, but any longer-term skills enhancement had to be achieved in the context of work, either on the job or in part-time courses, under the new welfare to work progress rules. It was not possible for States to use Federal monies for longer-term training programmes outside a work context.

  In general, research had demonstrated that experiential learning was the best way to learn for those who had failed in traditional learning settings. For vocational education for young people or apprenticeships, there was a broad concern that on the job learning worked better. There was an element of bi-partisan sentiment in the workfare philosophy. The experience under CET and GAIN had been with adult populations. There was a need to keep a focus on things that put people into work.

  Not all work-based training was necessarily "on the job". If one was focussing on the hardest to serve, those people would have poor reading and math skills and would therefore need education classes. Goodwill Industries [which runs an organisation not unlike the British Remploy] had used its experience in working with disabled people with quite some success in applying those training techniques to the wider population. Money had to be used to set up services on an ongoing basis. Funds were authorised for job creation in public service employment, but the Comprehensive Employment and Training Act of twenty years before had been used by some localities to set up make-work jobs and to subsidise existing public employee salaries. There was some concern that the situation should be avoided, and available funds should be used to target areas where the private sector could not provide jobs.

  There were some guidelines on technical assistance to States and localities on programme development. Work experience in community service work could be valuable as part of a career ladder. The test was how much it would lead to a permanent non-subsidised job.

  The Department of Labor was developing performance criteria. There was a need to go beyond point-of-time evaluation. They had taken to heart the experience of people who had worked with the welfare population, many of whom found it hard to retain jobs. There was a need to evaluate more carefully whether a part-time job was turning into full time, or a person had entered a programme to obtain a high school equivalency diploma, and how wage rates compared to the minimum wage.

  Evaluation of the welfare population faced a number of obstacles. It was not possible to set up a laboratory with human beings to control for all the factors such as crime, skills, childcare, transportation costs. There was a wide variety of factors which affected the chances of people in the welfare population becoming self-sufficient through work, making it difficult to isolate any single intervention. The Department had the experience to carry out high quality random assignment research and comparing results with a control group. It was difficult to carry out such research well and it was also very expensive. There was a question of how much money should be reserved for high level research, as there was competition for funds in the political process. Private foundations did fund a number of evaluations.

  Performance Bonus criteria were still in development. States were required to submit quarterly reports on pain of not receiving Federal grants. The system was now highly de-centralised because of a degree of confidence in the States' ability to deliver better performance. Maturing funds were released quarterly, but Congress was not currently all that interested in the Department of Labor pursuing individual States. There were other legal avenues to pursue cases of gross mis-performance.

  Welfare advocates were concerned that States such as Mississippi might meet their targets by simply stopping the payment of benefit. In parts of rural Mississippi there were few jobs and a low level of education and skills because the area was based on a subsistence level of agriculture with a high share of the population depending on welfare payments. Federal funds were intended to be used for skills development to get people into a position of self-sufficiency, but there was a wide discretion for the States.

  There was a variety of incentives for employers faced with a shrinking labour supply. For example, the expanding hospitality industry looked to this population for workers, as did smaller sized businesses. That meant that initiatives should be established at local levels to help smaller businesses, which had lacked human resources personnel, by using intermediaries. Tax incentives were less important to such businesses than having some assurance that someone would help the company deal with any problems - that was a great incentive.

  Tax credit was available for large or small companies hiring people. Extending the time period to qualify for such credits reduced the amount of churning for company tax purposes. Research showed that it was not at all clear that tax credits worked. Displacement was not the issue, so much as the lack of a clear link between the tax credit and hiring decisions, i.e. deadweight.

  Empowerment zones were targeted on the poorest of communities. Childcare and transportation could be difficult issues for people living in the inner city who wanted jobs where the work was, in the suburbs. There was a need to revitalise communities. There were no waivers for basic labour standards, including safety and health laws, despite a few complaints from local governments. The Department of Labor had ruled that people working for welfare benefits should be paid the minimum wage and by subject to the usual employment laws.

  Three-quarters of the money was distributed to the States according to a formula, so that $190 million went to California, for example. There was a sub-State formula for disbursements to local level of $1.billion, mostly to the larger cites. Nearly 25 per cent was reserved for competitive grants directly from the Department of Labor and the bias in the statute towards localisation could allow for funding of institutions such as the Marshall Heights Community Development Organisation, for example.

7. WORKING LUNCH AT LA COLLINE RESTAURANT (HOSTED BY THE SELECT COMMITTEE)

Ms Evelyn Ganzglass	Director of Policy Studies, National Governors Association
Ms Kimberley Barnes-O'Connor	Policy Director (Children and Families), Senate Labor and Human Resources Committee
Dr Jared Bernstein	Senior Labor Economist, Economic Policy Institute
Dr Diane Zukerman	Director of Research, Institute for Women's Policy Research
Ms Laura Kay	Research Fellow, The Hudson Institute

  Informal discussion over lunch concentrated on access to appropriate and affordable childcare.

8. THE BROOKINGS INSTITUTION

Mr Gary Burtless

Senior Fellow

  The 1996 Welfare Reconciliation Act had changed a number of different parts of the social security system:

-    the Federal government had conditioned its contributions to States on the basis of getting people into jobs;


-    Federal entitlement (in place since Franklin D Roosevelt put entitlement - mainly for widows - into law) had been ended;


-    time limits had been introduced: up to 2 years continuous entitlement for adults who do not work and 5 years in a lifetime (including benefits received when the adult works); States are free to impose even shorter limits (and some had done so);


-    States now had to pay for any extra expenditure due to a jump in unemployment rather than claim back extra from the Federal government;


-    non-citizen legal immigrants were denied some benefits.

  Graphs provided by Mr Burtless are at Appendix 6.

9. CENTER FOR LAW AND SOCIAL POLICY

Mr Steve Savner

Senior Attorney

  The Center for Law and Social Policy worked with advocates who dealt with new flexibility in the former AFDC system. States could experiment under the new welfare law with welfare-to-work activities. Incentives and sanctions were the two sides to the strategy. There had been a debate over welfare for the past twenty years, with a consensus emerging over the past ten years or so that a single mother ought to be in the unsubsidised labour market. Presumably it had been felt that mothers should stay at home with their children, which perhaps had been one way of ensuring jobs were available for men. There was still some disagreement about the most appropriate forms of childcare. The question was what mixture of strategies could force single mothers into employment.

  Reducing access to benefits addressed the supposed lack of motivation. Some people needed more support in terms of education, training or counselling. Domestic violence was an increasingly recognised problem. A range of services had to be available to allow people to move on to entry level jobs at low wages.

  Government help was needed to pay for health care and child care. Every State would have some form of health insurance subsidy as well as income supplements, although benefit levels remained low in relation to the official poverty level. The chief approach of the new Welfare Reconciliation Act policies was sanctions, and the principal new feature on that assistance was to be time limited. There were some troublesome aspects to these changes.

  Previously the typical sanctions that could be applied were a 15 to 20 per cent reduction in benefit for a mother with two children, but the new form of sanction was termination of the grant. CLASP had expressed concerns about people who were not unwilling to take work but who had barriers which had not been identified or addressed by their case managers. In Oregon and Michigan, for example, people with mental health or substance abuse issues might be referred for participation in counselling or treatment programmes. There was a need for more sophisticated case management. Another concern was that there did not appear to be a good system in place to follow up after sanctions. The Federal rules did not require States to have a systematic follow up to find out how former welfare recipients were doing or to double check on any barriers they might still have to becoming self sufficient through work. Some families had been sanctioned for non-compliance because the did not wish to comply with the work requirements and had other sources of support. There had been very little experience so fare of time limits.

  Connecticut operated a strict State-wide limit which had resulted in benefit to 600 families being terminated in November. There was a need to address issues sooner, but some people at the end of the time period would be doing their best to get work. If there were problems preventing them from taking jobs they should have been addressed sooner, before the time limit expired.

  Of the 600 families terminated in Connecticut, about half of them was already working part-time. There would be some sort of tracking to see whether the effect of losing their income supplement would force them to increase their earnings, or to lose their jobs. He found it disturbing that someone who was actually working should have their benefit terminated. There was a limited extent to which people could control their hours of work. Some discipline should be imposed on the system.

  The core of the AFDC/TANF programme was a concern for children who had lost a parent. Assistance for the children was paid to the remaining parent. The focus had shifted from welfare to the children. Many people would say that at some level it was right to say that it was better for children to have a working parent. There were no Federal mandates for children's welfare. States had their own child welfare laws and if a child was neglected or abused it might be placed by the State in the foster family in return for payment. Poverty was not in itself considered neglect in most States.

  In the worst situation, account would be taken of the position of children who could wind up in a homeless shelter. Most States would still not remove children from a parent's care unless the parent was on drugs. A simple lack of funds would not be regarded as sufficient grounds for taking a child into care. Since the new law had been passed, States had moved to increase the penalties for non-cooperation in seeking work. There were emergency benefits supplied by locally funded programmes to protect children.

  Care management could be made to work for adults with difficulties ranging from domestic violence to substance abuse provided, first, there were low caseloads. Second, better training was needed for the workers in the welfare system. In the past, they had been trained to make assessments of financial resources, and then to determine eligibility. That ended the transaction. Different skills were needed to assess the barriers which prevented a person from becoming self-sufficient through work, and to develop a plan of action to deal with them. Third, better coordination was needed with other services, through inter-agency relationships with specialised workers.

  Whether case workers should be located out of an office setting was a controversial issue. Usually disparate players were brought together in typically a government-run place, so that an employment service might be able to give access on site to a childcare network. Privatisation of services was controversial. County welfare agencies had been put out to tender in some localities. Non-profit organisations competed with the previous State-run body (and occasionally privately owned companies) to introduce an element of competition into the delivery of welfare services.

  The Center for Law and Social Policy was troubled by these developments. Experience in Massachusetts had demonstrated that good management could make a public agency effective. The debate went well beyond welfare into questioning the whole role of government. Some supporters of the changes in Congress had been motivated by a desire to let the States sort out the welfare problem. Most people were sympathetic to the view that there was too much Federal government. If the American public saw in the mass media that a lot of children were being harmed they could demand action at both a State and a Federal level. Federal funding was now supposed to be frozen at existing levels, and States could enjoy the surplus funding for a dramatically decreased caseload. It could be argued that much of that decrease was due to improving economic conditions, but when the next recession came caseloads would inevitably increase. In the context of the labour market it was easier to have success in reducing welfare caseloads when levels of unemployment were low.

  If the public could be persuaded of a link between economic recession and the plight of the three and a half million or so children living families with no means of support, they would be supportive of increasing support for those children, but it depended very much on the public perception of the issue.

  The EITC provided cash support to low income working families and was a wonderful programme that provided substantial amounts of money. Possible reasons for not taking up the advance payment option included a lack of awareness that the option was available and a probably ill-founded concern that by taking too much as an advance people would be faced with a substantial bill when they came to file their tax returns. States had different welfare rules to taper assistance. Illinois for example operated an earnings disregard so that 33 cents of benefit was lost for every dollar earned.

  Employers were not supportive about using the W-5 forms to apply for an advance tax credit. They had to fill out forms for Federal withholding tax and they should advise employees of the EITC option at that stage. The forms were perceived as burdensome. Some agencies attempted to educate recipients. An employer did not need to know about an employee's personal circumstances. It was a big issue for low income workers, for whom it would be better to get $300 a month than a large lump sum well into the next tax year. Part of the EITC issue was the presentational advantage of tax forgone which shared up differently from expenditure in the national accounts.

  The Tax Relief Act included $500 tax credits to each family with children with a tax obligation. The credit was phased out at higher incomes, and was only a credit against tax owed. It was not a refundable credit on the lines of the EITC. Child tax credits would help higher income families in the bracket from $30,000 to $70,000 annual income, but would be no help to a family on welfare. The child tax credit was introduced at $400 rising in 1999 to $500 for families with children aged 17 or under. There was also an education tax credit of $1,500 for children aged 18 and over for the first two years of college and $1,000 for the final two years of college, which is set to rise by 2002 to $2,000 per child. It was very much a tax cut for the middle class.