OK, so this is a problem. According to a study by the Cato Institute,
The current welfare system provides such a high level of benefits that it acts as a disincentive for work. Welfare currently pays more than a minimum-wage job in 35 states, even after accounting for the Earned Income Tax Credit, and in 13 states it pays more than $15 per hour.
The math is somewhat complex, because you have to take into account taxes and tax credits for people who work, and you have to look at all the benefits that welfare recipients are eligible to receive, but when you do all that number crunching, what you discover is that welfare benefits in North Carolina are worth an annual salary of almost $26,000. That’s equivalent to an hourly wage of $12.38. Minimum wage is $7.25.
So why would someone work? In particular, why would someone take an entry level job and move off of welfare? He’d likely be less well off by doing so. And as the study says,
This is unfortunate for taxpayers who must foot the bill for such programs, but even more so for the recipients themselves. By making a rational short-term choice, recipients who forgo work for welfare may trap themselves and their families in long-term dependence.
And that is a tragedy.
Short-term, welfare may make financial sense, but it’s not good for people over the longer term. Again, from the Cato study,
There is little doubt that one of the most important long-term steps toward avoiding or getting out of poverty is taking a job. Only 2.6 percent of full-time workers are poor, as defined by the Federal Poverty Level (FPL) standard, compared with 23.9 percent of adults who do not work. Even part-time work makes a significant difference; only 15 percent of part-time workers are poor. And while many anti-poverty activists decry low- wage jobs, a minimum-wage job can be a springboard out of poverty.
We should be looking at policies – both welfare and tax – that encourage work, rather than disincentivizing it. If our policies are right, then we should see people moving to places of independence, where they’re able to support themselves and their families, rather than being trapped in long-term dependence that is good for no one. A generous welfare state coupled with high taxes that reduce the rewards of work, is likely to do just the opposite.