America's new work ethic?July 30, 2012: 12:23 PM ET
New welfare rules and booming disability insurance rolls reveal a bias toward aid checks over paychecks.
By Nina Easton, senior editor-at-large
FORTUNE -- Welfare reform was enacted on a bipartisan recognition that work is healthier than a government check -- for poor adults, and for their children. In the 1996 signing ceremony, President Clinton didn't dwell on dollars spent; instead, he talked of humans "trapped" in decades of dependency. Then he quoted Robert F. Kennedy: "We need [work] as individuals. We need to sense it in our fellow citizens, and we need it as a society and as a people."
That we, as a nation, are losing that thread can be seen in a host of troubling numbers: The rise in households on government assistance and the decline in wages as a share of national income, to name just two. But recently, and most vividly, it showed up in little-noticed news surrounding two aid programs: federal disability insurance and welfare.
The first is buried in the pages of a new Congressional Budget Office study warning that Social Security Disability Insurance -- facing a six-fold explosion in recipients since its 1970 inception -- will go bankrupt unless taxes are raised or benefits cut.
A program meant to support people who can't work because of a chronic illness or disability now sends checks to 4.5% of working-age adults, up from an initial 1.3%, and is on its way to climbing past 5%.
Are we, as a nation, sicker or more disabled? Neither, but jobs are harder to find, and disability insurance is easier to get. A historic high of 2.9 million people applied in 2010 (8.3 million are on the rolls, along with 2 million dependents), prompting even the cautious CBO economists, who highlight demographic reasons behind rising rolls, to acknowledge that "when jobs are plentiful people choose to work" and "when they're scarce, disability insurance looks more appealing."
But tough economic times are (hopefully) temporary. Disability insurance is not. As the CBO notes, "Only a very small percent [of recipients] … permanently leave the program to return to the work force."
There never was much work incentive built into the program; if you take a decent-paying job, you lose your benefits. But collecting a permanent government check became a more viable alternative to work when the pool of eligible people was expanded to include those with mental illness and chronic pain -- a change Congress made in the wake of the 1980s recession. Neither condition requires a "clear cut medical diagnosis," as the CBO notes, and the change has brought younger people onto the rolls, where they survive on government aid for decades -- until Social Security kicks in at 65.
MIT economist David Autor calls disability insurance "ineffective in assisting the vast majority of workers with less severe disabilities to reach their employment potential or earn their own way." Instead, he writes, the program provides strong disincentives to work -- and dissuades employers from making cost-effective accommodations for disabled employees. The result? "Large number of work-capable individuals voluntarily exit the labor force, apply for, and ultimately receive" benefits.
Work requirements were at the heart of President Clinton's 1996 welfare reform. The reconstituted program, called Temporary Assistance to Needy Families, or TANF, embodied Clinton's "personal responsibility" mantra; in return for a government check, able-bodied welfare recipients were required to work, or at least train or look for a job.
But just days before the CBO's warning on disability insurance, President Obama -- by administrative fiat, and with little fanfare -- threw that out. There was a shocking lack of media attention to this move by his Department of Health and Human Services to gut the heart of Clinton's 1996 reforms. Leading Republicans mostly cried legal foul, since Obama bypassed Congress with an executive action.
President Obama's move was the capper to years-long efforts by Democrats to turn the clock back on welfare reform. As commentator Mickey Kaus has noted, the Democrat 2009 stimulus bill reversed reform incentives by once again rewarding states that had expanded their welfare rolls. And even before that, work requirements had been watered down in some states, so that activities like anti-smoking and diet programs satisfied that obligation.
Still, federal work requirements at least set a standard: Government help should be a temporary safety net on the way to finding a job. Only jobs can help people move up the income ladder; the pittance paid by government checks will not.
But who wants to look like a Scrooge when 12.7 million people are out of work and economic growth is just over 1.5 percentage points short of recession? After four years of economic pain, it's risky to mount political pushback on the expansion of disability insurance, on the dropping of welfare's work requirements, on extending unemployment insurance (which studies show prompts many recipients to postpone serious job searching).
But when economic historians look back, they are likely to find that these kinds of passive extensions of government aid -- and the insidious dependency they can spawn and chronic poverty they sustain -- displaced vigorous efforts to help people find their way back into a challenging and ever-changing work force.
If work is, as RFK said, "the meaning of what this country is all about," that will be an unwelcome and long-term legacy of today's harsh economic times.