Refocusing U.S. welfare policy on economic opportunity
Photo 192036875 © Antwon Mcmullen |

Policy Study

Refocusing U.S. welfare policy on economic opportunity

This study examines how the welfare system and banking, housing, criminal justice, and labor market regulations reduce and undermine opportunities for low-income Americans.

Executive Summary

While the modern U.S. welfare system has been the subject of contentious debate since its inception in the 1960s, all sides broadly share the stated goal of providing poor Americans with opportunities for upward mobility through work. The entitlements and bureaucracy created by the Johnson administration, envisioned as an aid to pave the way for upward mobility, often failed to produce the latter, prompting a conservative backlash that viewed welfare recipients as lazy and unwilling to work. 

By the 1990s, a consensus emerged that unconditional welfare benefits disincentivized upward mobility through work and, for some, created a culture devaluing work itself. Reforms in the 1990s required work in exchange for certain benefits, most notably the five million families receiving cash aid from the American Families with Dependent Children  (AFDC) program, renamed Temporary Assistance for Needy Families (TANF). 

This research finds that while work requirements may have led to some increased participation in the labor force and poverty reduction during the economic growth of the  1990s, the impacts were highly limited in reach, magnitude, and opportunities for robust upward mobility. Work requirements likely contributed to higher employment among single mothers with young children, which has persisted until today, but with small and transitory reductions in poverty. Furthermore, cost savings from the reduction in welfare rolls were offset by the need for greater bureaucracy to enforce work requirements and ultimately give far fewer people aid.

As both urban and rural communities face persistent poverty, the debate between Democrats and Republicans takes a now-familiar shape. Democrats seek more in-kind benefits such as childcare and public housing, burdened by bureaucracy and costs sometimes well in excess of the aid itself. Republicans seek stricter work requirements,  now also with a track record of limited benefits and without cost savings. Few proposed reforms emphasize markets. 

Welfare does not operate in a policy vacuum, and several other government policies in the mid-to-late 20th century are in part to blame for many poor Americans’ continued dependence on government aid. This study examines the impact of policies on banking,  housing, criminal justice, and labor market regulation that in various ways have reduced or undermined opportunities for upward mobility available to poor Americans. 

These include but are not limited to policies explicitly targeting predominantly black urban neighborhoods. New Deal-era “redlining” practices by authorities directly diverted financial capital from these neighborhoods, depriving them of home loans and business investments with negative impacts many believe persist until today. Less business activity in these neighborhoods reduces job opportunities close to people both in proximity and within the dense network of relationships often critical for economically prosperous neighborhoods. 

Further damage came from the consequences of bad urban planning and public housing policy in the mid-20th century, when often the same neighborhoods set back by redlining were designated as “slums,” demolished, and replaced with high-rise public housing projects along with other public works, often of no direct benefit to the people and businesses displaced. By uprooting people and often closing neighborhood businesses,  further damage was done to the social capital essential to foster urban economic mobility. 

The War on Drugs, which officially commenced in the 1980s, led to pronounced increases in incarceration rates, which nationwide remain well over twice those in 1980. The negative impact on urban black neighborhoods was again particularly high, but Americans in poverty of all backgrounds have been and remain disproportionately incarcerated. In poor communities of all types, the absence of young men reduced economic dynamism and strained social support systems based on personal relationships. Former inmates returning to communities faced the hurdle of prior convictions when looking for work, fueling recidivism and further strain. With issues of drug abuse and social unrest seemingly mounting in both urban and rural poor communities, many still-unreformed criminal justice policies directly or indirectly deny economic opportunities for Americans in poverty. 

Increased regulation of labor markets over the same time period carried unintended consequences disproportionately impacting poor Americans. Researchers consistently find dramatic increases in professions requiring expensive and time-consuming licensing are concentrated among low- and middle-income work, clearly burdening those striving for upward mobility. 

These policies’ importance and detrimental impact are often forgotten when speaking abstractly about poor people, cultures of dependency, and the virtues of work. Estimating the size of their impact in poor communities, relative to that of welfare benefits and requirements placed upon them, is all but impossible. But attempts to account for past successes and failures of the modern U.S. welfare system, particularly as it relates to work, that do not consider the question against this wider policy background are fundamentally incomplete. 

While some of the damage to poor communities discussed in this study is not straightforward to undo, understanding persistent poverty in this context opens possible avenues for reform beyond bureaucratically administered in-kind benefits and work requirements. Calls for occupational licensing reform and liberalized zoning and building restrictions are both pro-market and anti-poverty. Efforts at criminal justice reform gain even greater urgency. This more complete picture of poverty and opportunity also strengthens calls for a simplified welfare system focused more on direct aid and less on mandating certain choices for aid recipients. 

These challenges are all part of complicated and ongoing debates, and much work remains to make them part of an actionable anti-poverty agenda. Importantly, the findings and policy implications of this study form the foundations of a message that is empowering and respectful to those in poverty. There is much scope for as-yet-unrealized progress in reducing poverty that is not only consistent with but advances economic freedom and individual liberty.