The Safety Net vs. The Safety Trampoline
The safety net is an essential part of the American social and economic fabric. We must help our fellow citizens who, because of serious disabilities, are unable to work. The safety net is also for children and teenagers with health challenges so large that their parents need extra financial support to care for them.
But for the overwhelming majority of able-bodied Americans who fall through the cracks, we should provide a safety trampoline, not a safety net. After all, it isn’t easy to stand up on even the sturdiest of nets. We want to catch people from falling, but the real goal is to help individuals achieve long term economic well-being. A safety trampoline bounces able-bodied individuals back into the workforce as quickly as possible.
A pay check doesn’t just provide money, it provides psychological benefits and gives life meaning. As Arthur Brooks, author of Gross National Happiness: Why Happiness Matters for America and How We Can Get More Of it, writes, “Unearned money may help alleviate suffering but it carries with it no personal satisfaction….Studies of lottery winners show that, after a brief period of increased happiness, their moods darken as the glow of buying things wears off. The same results emerge with welfare payments. Studies show that welfare recipients are far unhappier than equally poor people who do not receive such government benefits.”
In terms of building the bounciest of trampolines, policy makers should consider enacting a wage subsidy, expanding the earned-income tax credit, or creating a travel subsidy. I’ll start with the idea of a travel allowance.
Americans are moving at the lowest rate since the government started keeping track in 1947. Even immigrants are more likely to stay put where they first settle. The decline in migration applies to all demographic groups — younger and older workers, renters and homeowners, more-educated and less-educated workers,” says Abigail Wozniak, an economist at the Federal Reserve Bank of Minneapolis. This decline matters because of geographic mobility’s relation to economic mobility.
As Eli Lehrer and Lori Sanders of the R Street Institute write in National Affairs, “Geographic mobility and income mobility are intertwined.” Research by Raj Chetty, Nathaniel Hendren, Patrick Kline, and Emmanuel Saez shows that there are significant differences of upward mobility rates right down to the county and city level. Chetty, Hendren, and Lawrence Katz also revisited the subjects of the Moving to Opportunity experiment, which the U.S. Department of Housing and Urban Development conducted between 1994 and 1998. The experiment involved 4,600 families and provided financial assistance to help low-income families move to better neighborhoods. Analyzing more recent data, Chetty and his team concluded that helping poor individuals move to better neighborhoods made a big difference in economic and health outcomes.
In the past, Americans have been offered financial incentives to move to different parts of the country. For instance, the Homestead Act, enacted in 1862, offered aspiring farmers to move out West. I’m not arguing for a similar program in 2022, but I do agree with Lehrer and Sanders that “place-based safety net programs” have had the unintended consequence of encouraging people to stay put. “It isn’t easy to rebuild the places where the poor already live. Perhaps a better solution would be to help them to move to where such opportunities already exist,” write Lehrer and Sanders.
Keep in mind that the federal government funds dozens and dozens of programs that provide food aid, housing assistance, medical help, childcare assistance, and other services for low-income individuals and families. Many of these programs are managed on the local level. While I’m a huge fan of government on the most local level possible, for a person who hopes to move to a new community to find a job, a temporary loss of welfare benefits can be difficult. A well-designed mobility grant would allow an unemployed individual to turn unemployment benefits into a single lump sum, and then use those funds to pay for relocation costs.
Another good idea is to expand the earned income tax credit, as there is agreement from across the political spectrum that expanding the credit would stimulate labor-force participation and reduce poverty. Drawing on data from EITC expansions over the past three decades, economists Jacob Bastian and Maggie Jones find that the EITC encourages people to join the labor force and increases their earned income, it tends to reduce reliance on other forms of public assistance and, over time, increases tax revenue. Because the EITC is administered through the federal tax code, it is portable.
Finally, we should consider replacing the EITC with a wage subsidy. According to Oren Cass, author of The Once and Future Worker: A Vision for the Renewal of Work in America, the difference between the EITC and wage subsidy is subtle, but important: the EITC is paid in a lump sum as part of tax refunds every spring, while wage subsidies would be paid to individual workers through their regular paychecks. As Cass writes, “Both wage subsidies and the EITC phase out as people make more money — but how they phase out differs greatly. Along with most welfare programs, the EITC phases out as the household’s total income rises. With the direct wage subsidy, however, the worker receives the same subsidy for every hour worked at a given wage, no matter how much total income he earns. As a result, the wage subsidy doesn’t just transfer resources into the pockets of low-income households, it connects more workers with employers in permanent jobs.
Whether it’s a wage subsidy, an expanded EITC, or a travel allowance, funding for these programs could come largely from the maze of place-based welfare programs.
I’ll end with a personal anecdote. Ten years ago I was lying on a safety net. I was very ill and unable to hold down a job. I benefited from Social Security Disability Insurance and Maryland’s high risk health insurance pool. The safety net helped me pay for food and medicine. But I only became healthy after finding a job.
We want to incentivize work because work, whether it’s cleaning floors as a janitor or helping to sell groceries at Trader Joe’s, provides meaning. If the choice is between an hourly wage at a menial jobs or a welfare handout of a slightly larger domination, the choice should be clear: earn the paycheck even if the job isn’t the dream job. It is by pushing Americans into the workforce that we truly offer a helping hand.