The Difficulty of Aiding the Poor

Although he's writing about the U.K., Paul Vallely's comments on the difficulty of providing aid to the poor seem pretty universal for the developed world:

Here are two propositions most people would find it hard to contradict. First, people who are capable of work should work. Second, a decent society helps those in need and enables those people who are unable to work to nonetheless live with dignity.

So far, so good. The problem comes, as so often with dogmatic moral assertions, in acting on both of them at the same time....

The welfare dilemma is this: by helping those most in need we invariably help people who are perfectly capable of helping themselves. That costs.

Vallely observes that the return to a person on public assistance who gains work at or near the minimum wage is quite modest - they keep as little as 5% of their earnings above what they would receive on assistance. But even when the economy is good you can't overcome that problem by driving up the minimum wage to unrealistic levels, and if you significantly increase the amount of money that a low wage earner can keep while still qualifying for public benefits you'll expand the pool of people eligible for aid to even more of the people who are perfectly capable of helping themselves (and presently are doing exactly that).

Vallely analogizes the deduction of up to 95% of wages from public benefits to a 95% tax on bankers. Even if we ignore the fact that the money we're talking about here is not earned, and while acknowledging the argument (probably more applicable with the poor than with seven figure incomes) that a 95% deduction removes most of the financial incentive to work, the analogy doesn't work for me. In the longer-term, somebody who enters the workforce, gains experience and builds skill should be able to earn more money - it's terribly short-sighted to decline to get a job just because it doesn't provide a significant immediate monetary benefit. I also believe there are social and psychological benefits to carrying your own weight. (Vallely share's my opinion, writing "Work is more than just a right, or even a responsibility, it is a part of human fulfilment.") While I grant that some people who collect public assistance may not be disposed to look beyond the short-term, and some are unlikely to ever earn significantly above minimum wage, over time the majority should do much better for themselves and their families by taking even entry level jobs.

On the other side, you could increase the incentive to work by reducing benefits. Even if most people can be said to favor allowing the poor to live with some degree of dignity, there is room for disagreement as to what constitutes dignity. The problem, particularly with families, is that the financial pressure you place on adults ripples down to the children. Welfare reform in the United States did a lot to limit lifetime benefits, but not so much when minor children are part of the family unit. Limits can also have other negative effects:

[Secretary Ian Duncan Smith] also wants to restore an honesty to the system by addressing the nation's sick note culture which has transferred large numbers of people from unemployment to disability benefit – primarily because they get £25 a week more on the sick than on the dole. We currently have more people classed as invalids (2.65m) than we do as unemployed (2.5m). Almost 7 per cent of the working population is now said to be physically incapable of working.

When you signficantly reduce or eliminate benefits for marginal individuals, you can expect that a number of them will seek disability benefits, and many will get those benefits. Rather than being in a position where they can be pressed to enter the workforce, they're instead pushed in the other direction - they can be expected to take great care not to appear capable of work for fear of losing what can potentially be a lifetime benefit. As Vallely puts it, "If fundamental benefit reform was straightforward, it would have been done by now."