Welfare spending

For other uses, see Welfare spending (disambiguation).

Welfare refers to a broad discourse which may hold certain implications regarding the provision of a minimal level of wellbeing and social support for all citizens without the stigma of charity. This is termed "social solidarity". In most developed countries, welfare is largely provided by the government, in addition to charities, informal social groups, religious groups, and inter-governmental organizations. In the end, this term replaces "charity" as it was known for thousands of years, being the act of providing for those who temporarily or permanently could not provide for themselves.

Forms

Welfare can take a variety of forms, such as monetary payments, subsidies and vouchers, health services, or housing. Welfare can be provided by governments, non-governmental organizations, or a combination of the two. Welfare programs may be funded directly by governments, or in social insurance models, by the members of the welfare scheme.

Welfare systems differ from country to country, but welfare is commonly provided to individuals who are unemployed, those with illness or disability, the elderly, those with dependent children, and veterans. A person's eligibility for welfare may also be constrained by means testing or other conditions.

In a more general sense, welfare also means the well-being of individuals or a group - in other words, their health, happiness, safety, prosperity, and fortunes.

Subsidy Subsidizing a good is one way of redistributing wealth to the poor. It is money that is paid usually by a government to keep the price of a product or service low or to help a business or organization to continue to function. In a budget constraint between ‘all other goods’ and a ‘subsidized good’, the maximum amount of ‘all other goods will remain the same but the budget constraint will shift outward for the ‘subsidized good’ because the cost of the ‘subsidized good’ is reduced for the consumer and so they have the ability to consume more of said good. Some people do not want to use subsidies because they want the poor to consume the subsidized good or service in a specific way or because subsidizing goods (such as health care) can lead to an over consumption of the good.

Voucher A voucher is like a subsidy that can only be consumed in a specific way like a school voucher or section 8 housing. For instance, families who receive school vouchers may only use them to send their children to schools to help pay tuition costs. Schools then exchange the voucher for cash. Similarly, in section 8 housing, families with this voucher can only use the voucher to pay a portion of their living costs in specified units or in a private sector. In a budget constraint between ‘all other goods’ and a ‘voucher good’ our budget constraint will shift out parallel to an amount equal to the amount of the voucher but the money we have to spend on ‘all other goods’ remains capped at the same amount we had to spend before the voucher. Voucher programs can make us worse off because of the cap on our ability to spend on ‘all other goods’ our indifference curves could limit us.

Direct Cash This is straight cash with no restrictions on how it can be consumed. Direct cash may cause greater budget constraint because the recipient can spend the cash subsidy on all ‘other goods’ or on a ‘subsidized good’. Direct cash increases the entire budget constraint and shifts the indifference curves outward allowing us to maximize individual utility.

Provision and funding

Welfare may be provided directly by governments or their agencies, by private organizations, or by a combination. The term welfare state is used to describe a state in which the government provides the majority of welfare services; the phrase also describes those services collectively.

Welfare may be funded by governments out of general revenue, typically by way of redistributive taxation. Social insurance-type welfare schemes are funded on a contributory basis by the members of the scheme. Contributions may be pooled to fund the scheme as a whole, or reserved for the benefit of a particular member. Participation in such schemes is either compulsory, or the program is subsidized heavily enough that most eligible individuals choose to participate.

Examples of social insurance programs include the Social Security and Medicare programs in the United States.

Participation in such schemes is either compulsory, or the program is subsidized heavily enough that most eligible individuals choose to participate. Some opponents of welfare argue that it affects work incentives. They also argue that the taxes levied can also affect work incentives. A good example of this would be the reform of the Aid to Families with Dependent Children (AFDC) program. Per AFDC, some amount per recipeint is guaranteed. However, for every dollar the recipient earns the monthly stipend is decreased by an equivalent amount. For most persons, this reduces their incentive to work. This program was replaced by Temporary Aid to Needy Families (TANF). Under TANF, people were required to actively seek employment while receiving aid and they could only receive aid for a limited amount of time. However, states can choose the amount of resources they will devote to the program. Some people believe this is how we should reform Medicaid.

History

In the Roman Empire, social welfare to help the poor was enlarged by the Caesar Trajan. Trajan's program brought acclaim from many, including Pliny the Younger.

In Jewish tradition, the poor are entitled to charity (represented by tzedakah) and justice as a matter of right rather than benevolence. Contemporary charity is regarded as a continuation of the Biblical Maaser Ani, or poor-tithe, as well as Biblical practices, such as permitting the poor to glean the corners of a field and harvest during the Shmita (Sabbatical year). Voluntary charity, along with prayer and repentance, is believed to ameliorate the consequences of bad acts.

The Song dynasty (c.1000AD) government supported multiple forms of social welfare programs, including the establishment of retirement homes, public clinics, and pauper's graveyards

According to Robert Henry Nelson, "The medieval Roman Catholic Church operated a far-reaching and comprehensive welfare system for the poor..."

The concepts of welfare and pension were put into practice in the early Islamic law of the Caliphate as forms of Zakat (charity), one of the Five Pillars of Islam, since the time of the Rashidun caliph Umar in the 7th century. The taxes (including Zakat and Jizya) collected in the treasury of an Islamic government were used to provide income for the needy, including the poor, elderly, orphans, widows, and the disabled. According to the Islamic jurist Al-Ghazali (Algazel, 1058–1111), the government was also expected to store up food supplies in every region in case a disaster or famine occurred. (See Bayt al-mal for further information.)

There is relatively little statistical data on welfare transfer payments before the High Middle Ages. In the medieval period and until the Industrial Revolution, the function of welfare payments in Europe was principally achieved through private giving or charity. In those early times, there was a much broader group considered to be in poverty as compared to the 21st century.

Early welfare programs in Europe included the English Poor Law of 1601, which gave parishes the responsibility for providing welfare payments to the poor. This system was substantially modified by the 19th-century Poor Law Amendment Act, which introduced the system of workhouses.

It was predominantly in the late 19th and early 20th centuries that an organized system of state welfare provision was introduced in many countries. Otto von Bismarck, Chancellor of Germany, introduced one of the first welfare systems for the working classes. In Great Britain the Liberal government of Henry Campbell-Bannerman and David Lloyd George introduced the National Insurance system in 1911, a system later expanded by Clement Attlee. The United States did not have an organized welfare system until the Great Depression, when emergency relief measures were introduced under President Franklin D. Roosevelt. Even then, Roosevelt's New Deal focused predominantly on a program of providing work and stimulating the economy through public spending on projects, rather than on cash payment.

Welfare systems

France

Solidarity is a strong value of the French Social Protection system. The first article of the French Code of Social Security describes the principle of solidarity. Solidarity is commonly comprehended in relations of similar work, shared responsibility and common risks. Existing solidarities in France caused the expansion of health and social security.

Germany

The welfare state has a long tradition in Germany dating back to the industrial revolution. Due to the pressure of the workers' movement in the late 19th century, Reichskanzler Otto von Bismarck introduced the first rudimentary state social insurance scheme. Today, the social protection of all its citizens is considered a central pillar of German national policy. 27.6 percent of Germany's GDP is channeled into an all-embracing system of health, pension, accident, longterm care and unemployment insurance, compared to 16.2 percent in the US. In addition, there are tax-financed services such as child benefits (Kindergeld, beginning at €184 per month for the first and second children, €190 for the third and €215 for each child thereafter, until they attain 25 years or receive their first professional qualification), and basic provisions for those unable to work or anyone with an income below the poverty line.

Since 2005, reception of full unemployment pay (60-67% of the previous net salary) has been restricted to 12 months in general and 18 months for those over 55. This is now followed by (usually much lower) Arbeitslosengeld II (ALG II) or Sozialhilfe, which is independent of previous employment.

Under ALG II, a single person receives €364 per month plus the cost of 'adequate' housing, a pension scheme and health insurance. ALG II can also be paid partially to supplement a low work income.

Canada

Main article: Social programs in Canada

Canada has a welfare state in the European tradition; however, it is not referred to as "welfare", but rather as "social programs". In Canada, "welfare" usually refers specifically to direct payments to poor individuals (as in the American usage) and not to healthcare and education spending (as in the European usage).

The Canadian social safety net covers a broad spectrum of programs, and because Canada is a federation, many are run by the provinces. Canada has a wide range of government transfer payments to individuals, which totaled $145 billion in 2006. Only social programs that direct funds to individuals are included in that cost; programs such as medicare and public education are additional costs.

Generally speaking, before the Great Depression, most social services were provided by religious charities and other private groups. Changing government policy between the 1930s and 1960s saw the emergence of a welfare state, similar to many Western European countries. Most programs from that era are still in use, although many were scaled back during the 1990s as government priorities shifted towards reducing debt and deficit.

Italy

Main article: Italian welfare state

The Italian welfare state's foundations were laid along the lines of the corporatist-conservative model, or of its Mediterranean variant. Later, in the 1960s and 1970s, increases in public spending and a major focus on universality brought it on the same path as social-democratic systems. These policies proved to be financially unsustainable, as public debt and inflation grew alarmingly, preventing the welfare state from developing completely. In the 1990s, efforts moving towards decentralization and privatization were used in an attempt to cope with European pressures for economic stability, which were finally reached by 2001.

Sweden

Main articles: Swedish welfare and Social Security (Sweden)

In Sweden Welfare (=Välfärd) means in a broad sense standard of life. Welfare is everything that contributes to a good = well-fare (good journey) in life. It is also a systematic infrastructure to protect a good life, from a minimum up to (today) just about average (like 'one size fits all' or 'black T-ford').

Sweden has been categorised by some observers as a middle way between a capitalist economy and a socialist economy. Supporters of this system assert that Sweden has found a way of achieving high levels of social equality, without stifling entrepreneurialism. The perspective has been questioned by supporters of economic liberalization in Sweden.

Government pension payments are financed through an 18.5% pension tax on all taxed incomes in the country, which comes partly from a tax category called a public pension fee (7% on gross income), and 30% of a tax category called employer fees on salaries (which is 33% on a netted income). Since January 2001 the 18.5% is divided in two parts: 16% goes to current payments, and 2.5% goes into individual retirement accounts, which were introduced in 2001. Money saved and invested in government funds, and IRAs for future pension costs, are roughly 5 times annual government pension expenses (725/150).

Japan

Main article: Social welfare in Japan

In Japan, the Oita district ruled on October 18, 2010, that foreigners with permanent residency have no rights to welfare benefits.

United States

Main article: Social programs in the United States

Overall decline in welfare monthly benefits (in 2006 dollars)

The welfare system in the United States began in the 1930s, during the Great Depression. After the Great Society legislation of the 1960s, for the first time a person who was not elderly or disabled could receive aid from the American government. Aid could include general welfare payments, health care through Medicaid, food stamps, special payments for pregnant women and young mothers, and federal and state housing benefits. In 1968, 4.1% of families were headed by a woman on welfare; by 1980, the percentage increased to 10%. In the 1970s, California was the U.S. state with the most generous welfare system. Virtually all food stamp costs are paid by the federal government. In 2008, 28.7 percent of the households headed by single women were considered poor.

Before the Welfare Reform Act of 1996, welfare was "once considered an open-ended right," but welfare reform converted it "into a finite program built to provide short-term cash assistance and steer people quickly into jobs." Prior to reform, states were given "limitless" money by the federal government, increasing per family on welfare, under the 60-year-old Aid to Families with Dependent Children (AFDC) program. This gave states no incentive to direct welfare funds to the neediest recipients or to encourage individuals to go off welfare (the state lost federal money when someone left the system). Nationwide, one child in seven received AFDC funds, which mostly went to single mothers.

In 1996, under the Bill Clinton administration, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act, which gave control of the welfare system back to the states. Because welfare is no longer under the control of the federal government, there are basic requirements the states need to meet with regards to welfare services. Still, most states offer basic assistance, such as health care, food stamps, child care assistance, unemployment, cash aid, and housing assistance. After reforms, which President Clinton said would "end welfare as we know it," amounts from the federal government were given out in a flat rate per state based on population. Each state must meet certain criteria to ensure recipients are being encouraged to work themselves out of welfare. The new program is called Temporary Assistance for Needy Families (TANF). It encourages states to require some sort of employment search in exchange for providing funds to individuals, and imposes a five-year lifetime limit on cash assistance. The bill restricts welfare from most legal immigrants and increased financial assistance for child care. The federal government also maintains an emergency $2 billion TANF fund to assist states that may have rising unemployment.

Following these changes, millions of people left the welfare rolls (a 60% drop overall), employment rose, and the child poverty rate was reduced. A 2007 Congressional Budget Office study found that incomes in affected families rose by 35%. The reforms were "widely applauded" after "bitter protest." The Times called the reform "one of the few undisputed triumphs of American government in the past 20 years." However, critics of the reforms sometimes point out that the massive decrease of people on the welfare rolls during the 1990s wasn't due to a rise in actual gainful employment in this population, but rather, was due almost exclusively to their offloading into workfare, giving them a different classification than classic welfare recipient. The late 1990s were also considered an unusually strong economic time, and critics voiced their concern about what would happen in an economic downturn.

Aspects of the program vary in different states. Michigan, for example, requires recipients to spend a month in a job search program before benefits can begin. Saying that it is “unfair for Florida taxpayers to subsidize drug addiction”, Florida Governor Rick Scott signed the Welfare Drug-Screen Measure which requires welfare applicants to undergo drug screening. The law went into effect on July 1, 2011.

National Review editorialized that the Economic Stimulus Act of 2009 will reverse the welfare-to-work provisions that Bill Clinton signed in the 1990s, and will again base federal grants to states on the number of people signed up for welfare rather than at a flat rate. One of the experts who worked on the 1996 bill said that the provisions would lead to the largest one-year increase in welfare spending in American history. The House bill provides $4 billion to pay 80% of states' welfare caseloads. Although each state received $16.5 billion annually from the federal government as welfare rolls dropped, they spent the rest of the block grant on other types of assistance rather than saving it for worse economic times.

Eligibility for welfare depends on a variety of factors, including gross and net income, family size, and other circumstances like pregnancy, homelessness, unemployment, and medical conditions.

Arguments on the Social and Economic Benefits of Welfare

Welfare is a form of social protection, as it is concerned with overcoming adverse situations that affect needy individuals. Although social protection was established to assist the working classes and to address transient poverty, it has come to encompass a greater variety of issues surrounding poverty.

The purpose of welfare is to assist individuals in need. The ultimate goal is to lift welfare recipients out of poverty and make them self-sufficient. Séverine Deneulin and Lila Shahani have considered welfare as a mode of economic development, terming it the human development and capability approach. The capability approach focuses on people and not simply on economic growth. While this approach still considers economic growth and macroeconomic stability, the aim is to “expand what people are able to do and be”. This people-centered focus is “one that enables people to enjoy a healthy life, a good education, a meaningful job, physical safety, democratic debate and so on”.

Amartya Sen argues that enhancing an individual’s capabilities results in the greater likelihood for individual success and society's success. Enhancing freedoms is one means for development. Sen discusses “unfreedoms,” which can include famine, lack of healthcare, and gender discrimination. In this regard, welfare provides individuals with the basic needs necessary to live a healthy life with the capability to enjoy the freedoms that are inherently available to all. Therefore, it is essential to note the importance of welfare for underprivileged individuals who need governmental assistance in the form of welfare.

Welfare Misperceptions

Welfare has come to be associated with poverty. Additionally, blacks have overwhelmingly dominated images of poverty over the last few decades. As Martin Gilens, assistant professor of Political Science at Yale University, states, “white Americans with the most exaggerated misunderstandings of the racial composition of the poor are the most likely to oppose welfare”. This perception possibly perpetuates negative racial stereotypes and could increase Americans’ opposition and racialization of welfare policies.

Since the implementation of TANF, the percentages of black and Hispanic families have increased, while the percentage of white families has decreased. In 1992, blacks represented 37 percent of those on welfare; by 2002, this number increased slightly to 38 percent. In that same time period, the percentage of Hispanics rose from 18 percent to 25 percent. On the other hand, the percentage of whites on welfare decreased from 39 percent to 32 percent in that same time frame.

Additionally, because TANF gave individual states increased flexibility in imposing time-limited welfare policies, the reforms implemented vary by state. Recent policy studies have found a statistically significant relationship between the racial makeup of a state’s welfare population and whether the state adopts tougher welfare policies. Aggressive get-tough reforms include full-family sanctions, short time limits, and family cap policies. Essentially, as the percentage of blacks in the welfare population rises, the probability that the state will adopt full-family sanctions increases from 54 to 97 percent; the probability that the state will adopt a family cap increases from 5 percent to 96 percent; and the probability that the state will adopt a shorter time limit than five years increases from 10 to 88 percent. Moreover, nonwhites are more likely to live in states with tougher policies.

Timeline

1880s-1890s: Attempts were made to move poor people from work yards to poor houses if they were in search of relief funds.

1893-1894: Attempts were made at the first unemployment payments, but were unsuccessful due to the 1893-1894 recession.

1932: The Great Depression had gotten worse and the first attempts to fund relief failed. The “Emergency Relief Act”, which gave local governments $300 million, was passed into law.

1933: In March 1933, President Franklin D. Roosevelt pushed Congress to establish the Civilian Conservation Corps.

1935: The Social Security Act was passed on June 17, 1935. The bill included direct relief (cash, food stamps, etc.) and changes for unemployment insurance.

1940: Aid to Families With Dependent Children (AFDC) was established.

1964: Johnson’s War on Poverty is underway, and the Economic Opportunity Act was passed. Commonly known as “the Great Society”

1996: Passed under Clinton, the “Personal Responsibility and Work Opportunity Reconciliation Act of 1996” becomes law.

Latin America

History

The 1980s marked a change in the structure of Latin American social protection programs. Social protection embraces three major areas: social insurance, financed by workers and employers; social assistance to the population’s poorest, financed by the state; and labor market regulations to protect worker rights. Although diverse, recent Latin American social policy has tended to concentrate on social assistance.

The 1980s had a significant effect on social protection policies. Prior to the 1980s, most Latin American countries focused on social insurance policies involving formal sector workers, assuming that the informal sector would disappear with economic development. The economic crisis of the 1980s and the liberalization of the labor market led to a growing informal sector and a rapid increase in poverty and inequality. Latin American countries did not have the institutions and funds to properly handle such a crisis, both due to the structure of the social security system, and to the previously implemented structural adjustment policies (SAPs) that had decreased the size of the state.

New welfare programs have integrated the multidimensional, social risk management, and capabilities approaches into poverty alleviation. They focus on income transfers and service provisions while aiming to alleviate both long- and short-term poverty through, among other things, education, health, security, and housing. Unlike previous programs that targeted the working class, new programs have successfully focused on locating and targeting the very poorest.

The impacts of social assistance programs vary between countries, and many programs have yet to be fully evaluated. According to Barrientos and Santibanez, the programs have been more successful in increasing investment in human capital than in bringing households above the poverty line. Challenges still exist, including the extreme inequality levels and the mass scale of poverty; locating a financial basis for programs; and deciding on exit strategies or on the long-term establishment of programs.

Latin America’s most recent shift in social policies

The economic crisis of the 1980s led to a shift in social policies, as understandings of poverty and social programs evolved (24). New, mostly short-term programs emerged. These include:

• Argentina: Jefes y Jefas de Hogar
• Bolivia: Bonosol
• Brazil: Bolsa Escola and Bolsa Familia
• Chile: Chile Solidario
• Ecuador: Bono de Desarollo Humano
• Honduras: Red Solidaria
• Mexico: Oportunidades (earlier known as Progresa)
• Panama: Red de Oportunidades
• Peru: Juntos

Major aspects of current social assistance programs

• Conditional Cash Transfer (CCT) combined with service provisions. Transfer cash directly to households, most often through the women of the household, if certain conditions are met (e.g. children’s school attendance or doctor visits) (10). Providing free schooling or healthcare is often not sufficient, because there is an opportunity cost for the parents in, for example, sending children to school (lost labor power), or in paying for the transportation costs of getting to a health clinic.
• Household. The household has been the focal point of social assistance programs.
• Target the poorest. Recent programs have been more successful than past ones in targeting the poorest. Previous programs often targeted the working class.
• Multidimensional. Programs have attempted to address many dimensions of poverty at once. Chile Solidario is the best example.

Critiques

Income transfers can be either conditional or unconditional. There is no substantial evidence that conditional transfers are more effective than unconditional ones. Conditionalities are sometimes critiqued for being paternalistic and unnecessary.

Current programs have been built as short-term rather than as permanent institutions, and many of them have rather short time spans (around five years). Some programs have time frames that reflect available funding. One example of this is Bolivia’s Bonosol, which is financed by proceeds from the privatization of utilities—an unsustainable funding source. Some see Latin America’s social assistance programs as a way to patch up high levels of poverty and inequalities, partly brought on by the current economic system.

Others argue that the effectiveness of the programs relies on the ability of mostly free-trade oriented economic systems to address poverty.

See also

• Bet Tzedek Legal Services – The House of Justice
• Cloward–Piven strategy
• Constitutional economics
• Corporate welfare
• Dynamic welfare
• Economic terminology that differs from common usage
• Jobseeker's Allowance
• Selective welfare
• Social Democracy
• Social Liberalism
• Social Market Economy
• Unemployment benefits
• Universal welfare
• Welfare's effect on poverty
• Welfare state
• Welfare trap

References

• R.M. Blank (2001). "Welfare Programs, Economics of," International Encyclopedia of the Social & Behavioral Sciences, pp. 16426–16432, Abstract.
• Sheldon Danziger, Robert Haveman, and Robert Plotnick (1981). "How Income Transfer Programs Affect Work, Savings, and the Income Distribution: A Critical Review," Journal of Economic Literature 19(3), p p. 975-1028.
• R.H. Haveman (2001). "Poverty: Measurement and Analysis," International Encyclopedia of the Social & Behavioral Sciences, pp. 11917–11924. Abstract.
• Steven N. Durlauf et al., ed. (2008) The New Palgrave Dictionary of Economics, 2nd Edition:

"social insurance" by Stefania Albanesi. Abstract.

"social insurance and public policy" by Jonathan Gruber Abstract.

"welfare state" by Assar Lindbeck. Abstract.

• Nadasen, Premilla, Jennifer Mittelstadt, and Marisa Chappell, Welfare in the United States: A History with Documents, 1935–1996. (New York: Routledge, 2009). 241 pp. isbn 978-0-415-98979-4