The Workfare State. Eva Bertram
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relationship between welfare and work. What were the implications of making poor families on welfare work, and of providing welfare to those who were working but still poor?
The New Deal welfarist model of assistance provided no guidance here, because New Dealers had drawn a line in federal policy between work and welfare, creating social insurance programs for employable Americans and public assistance programs for needy “unemployables.” Yet AFDC was now providing assistance to recipients who were employable (through AFDC-UP), and states were required to refer eligible recipients to work programs (through WIN). The latter policy change concerned many liberals, just as the former worried conservatives. The FAP plan proposed a further breach of the New Deal distinction, by providing public assistance not only for the employable poor (including some AFDC parents)—but for the already employed poor.
Political leaders confronted a major juncture in U.S. public assistance. Recent initiatives threatened to violate age-old poor law principles governing the relationship between assistance and labor markets, posing new dilemmas for policy. The passage of WIN, combined with increases in in-kind assistance in the 1960s, created one dilemma. Various social welfare programs now offered recipients more economic security than many jobs in the low-wage labor market, even as WIN sought to move them into that labor force. This undermined the long-standing “less eligibility” principle, which held that welfare assistance should never exceed the gains from the lowest-paid form of wage labor.24 Now, policymakers wondered how to restore this balance: by requiring work and cutting benefits to the welfare poor? By providing aid to the working poor?
The prospect of aiding the poorest workers posed its own dilemma. It violated another poor law imperative, against the provision of “relief in aid of wages,” aimed at preserving the principle of non-interference in the market system.25 The concern was that providing public aid to the lowest-paid workers would lead them to work less—or not at all. It would distort the market’s ability to set the price of labor, by supplementing market wages. Nixon’s advisers now debated whether assisting these workers would be an effective way to reduce their poverty—or whether it would only draw them out of the workforce and onto the welfare rolls, undermining market mechanisms.26 FAP took a bold stance on these thorny issues, by simultaneously strengthening the entitlement to aid at standardized levels, adding work requirements for the welfare poor, and extending assistance to the working poor. Within the administration, both supporters and opponents of FAP recognized that the stakes were high.
An opening salvo in the internal administration battle over FAP arrived on the president’s desk in mid-April 1969. It was a memo from Burns’s deputy Martin Anderson about the consequences of aiding the working poor, and it began with an ominous quote from Santayana: “Those who cannot remember the past are condemned to repeat it.” The remainder of the memo consisted solely of lengthy excerpted passages from Karl Polanyi’s discussion in The Great Transformation of the controversial Speenhamland public assistance system, in effect in England from 1795 to 1834.27 “The justices of Berkshire,” the excerpt began, meeting in Speenhamland in May 1795, “in a time of great distress, decided that subsidies in aid of wages should be granted … so that a minimum income should be assured to the poor regardless of their earnings.” Anderson underscored Polanyi’s contrast between the previous Elizabethan poor law system and the Speenhamland arrangement:
Under Elizabethan Law the poor were forced to work at whatever wages they could get and only those who could obtain no work were entitled to relief; relief in aid of wages was neither intended nor given. Under the Speenhamland Law a man was relieved even if he was in employment, as long as his wages amounted to less than the family income granted to him by the scale. Hence, no laborer had any material interest in satisfying his employer … [and] the employer could obtain labor at almost any wages, however little he paid; the subsidy from the rates brought the workers’ income up to scale.28
Anderson was drawing a parallel between Speenhamland and FAP’s (and later the EITC’s) provisions to aid the working poor. The memo drove home what he saw as the flaws within the Speenhamland system. Among other problems, it contained disincentives for employees to devote adequate work hours and for employers to pay adequate wages—and thereby “prevented the establishment of a competitive labor market” until it was abolished in 1834.29
Anderson’s conclusion was clear: nothing less than the existence of a functioning capitalist order was at stake in the battle over FAP and its proposal to aid the working poor. The implications were troubling enough that the president requested responses from several of his aides, and a flurry of memos followed. Moynihan expressed annoyance: “It seems absurd to trouble you with controversies concerning the post-Napoleonic economic history of Britain, but if you like….” He argued (with supporting evidence) that economic historians had rejected several of Polanyi’s conclusions about Speenhamland.30 More to the point, Moynihan and other FAP advocates acknowledged the issue of adequate work incentives for lowwage workers and assured the president that FAP addressed it.31 Any program that reduced cash assistance by a dollar for each dollar earned in wages—as Speenhamland did—would indeed reduce the incentive to work by imposing too high a “tax” on earnings. FAP, however, would reduce benefits by only 50 percent of earned income, rather than by 66⅔ percent (as under AFDC) or 100 percent (as under the old AFDC or the Speenhamland system).32
Labor secretary George Shultz, a FAP supporter, echoed the point about the tax on earnings. He then sought to widen the debate, pointing out that the Anderson memo productively exposed “the deficiencies in welfare proposals that entirely overlook labor market forces.”33 Shultz wanted to shift the focus from workers—and the potential disincentives to earn—to FAP’s potential impact on the actions of employers. Drawing another point from the Polanyi excerpt, Shultz warned that a wage subsidy, such as that under Speenhamland (or FAP), could distort the labor market in a way that encouraged employers to keep wages low. If wage subsidies induced workers to remain in jobs that paid too little, employers would not face appropriate market pressures to raise wages or restructure jobs. Speenhamland, Schulz wrote, “made it unnecessary for employers to maintain wages in order to compete for manpower.”34
Shultz added presciently that this problem could be exacerbated by a plan that combined work requirements for welfare recipients with wage subsidies for low-wage workers, particularly in the absence of training and other measures to ensure workers’ upward mobility in the job market. He made the case that the combination of compulsory employment and the absence of training programs was a potential trap for poor workers and boon for employers: it meant that the system would generate a steady supply of low-skilled, low-wage labor, with little means of exit through higher skills and job mobility. “Employers who paid substandard wages could be assured that their labor pool would not be depleted through the process of upward skill mobility,” Shultz wrote. He challenged the position of many conservatives by suggesting that to avoid these problems, “welfare programs must maintain a principle of free choice with respect to labor force participation.”35
Other memos exchanged in the internal debate over FAP reflected a different concern: administration officials worried about the negative reactions of low-wage employers to the FAP measures. If the federal government offered too many opportunities (through job training) for workers to move up to better-paying jobs, disrupting the low-wage market for labor, these employers would surely object. A draft report by Moynihan’s Urban Affairs Council said, for example, that training programs must be voluntary, because “employers of these persons paying them low wages would greatly resent the government coming in and luring, to say nothing of forcing, these low-paid employees to training programs…. Thus, required training programs might create serious disruptions in local labor markets.”36
White House officials also debated the likely costs of such a program. Many FAP advocates wanted to lowball the numbers. Others urged a candid and realistic assessment of the potential impact of assisting low-wage workers—pointing precisely to the consequences conservative opponents feared. Some workers, they argued, could indeed be expected to work fewer hours or to quit altogether. “The possible responses of the working poor are not really accounted for,” wrote Shultz in one memo regarding cost estimates. “Those eligible for [FAP]