Welfare Benefits, The New Minimum Wage?

Federal minimum wage is set at $7.25 per hour, with several American and policymakers advocating for an increase. Many believe this is not enough to support a household, and put families below the poverty line. However, looking at welfare recipients in some states, Michael Turner of the Cato Institute claims that average welfare benefits are roughly equal to $20 per hour. So, why work when the government can provide enough?

There are roughly 138,391,000 Americans receiving welfare benefits from the government (including Medicaid), yet only 870,000 workers making exactly the minimum wage and an additional 1.7 million that are considered in poverty. From looking at the numbers, welfare recipients account for roughly 40% of the population (when including Medicaid), and includes those who do not have jobs and do have jobs. These numbers do not indicate that all welfare recipients make more than minimum wage, and equaling over $20 an hour occurs in extreme cases in states that have higher standards of living.

Tanner states in his Cato study: “Nationwide, our study found that the wage-equivalent value of benefits for a mother and two children ranged from a high of $60,590 in Hawaii to a low of $11,150 in Idaho. In 33 states and the District of Columbia, welfare pays more than an $8-an-hour job. In 12 states and DC, the welfare package is more generous than a $15-an-hour job”. This data was received from a hypothetical family (a single mother of two), that got welfare benefits from 6 programs, “temporary Assistance for Needy Families, Medicaid, food stamps, WIC, public housing, utility assistance and free commodities (like milk and cheese)”. However, as mentioned before these happen in extreme cases due to not every household receiving each of these at one time. In the U.S., there are 126 welfare programs, and 72 providing cash benefits, all which are funded by the government. Tanner finds that a single household with children can earn, on average, $28,500 per year, and note that this is not taxed money so recipients will get the full amount specified in their deal.

Compared to data collected from the University of California, Davis found that, “The annual earnings for a full-time minimum-wage worker is $15,080 at the current federal minimum wage of $7.25. Full-time work means working 2,080 hours each year, which is 40 hours each week. However, many states have their own minimum wages, including 29 that are currently higher than the federal rate”. With that many hours needed to be worked to earn more than $10,000 less on average, working minimum wage does not seem too enticing. By no means do I think sitting at home receiving welfare should be a substitution for low skilled labor, but factoring in the leisure time people have by cutting that 40 hour a work week for next to nothing on income, why not sit back and reap the benefits? Welfare seems good in the short run; however, several rules, requirements, and restrictions are placed on these programs that do not lead to a long run solution for household wealth.

For now, and for families in need, these welfare programs are necessary no matter the cost. Data from the Federal Safety Net found that, “Total welfare costs have risen from $421 per person in poverty in 1960 to $16,497 per person in 2015.  That totals $65,497 for a family of four even though the Poverty Threshold for such a family is $24,257”.

This does not mean an average family of four pockets that amount of money each year, it is just the overall average value of the benefits that a family can receive, on average. This does come to a cost, both to the government and taxpayers. Robert Rector in a study claimed: “In the U.S. today, total spending on means-tested welfare programs amounts to $956 billion per year. This figure represents an increase of 32% over the level of welfare spending that was in place at the beginning of the Obama presidency. On average, each federal income taxpayer in America spends $8,776 annually to keep federal welfare programs afloat.” Data gathered by the Department of Commerce, depicted in the graph below, shows how government spending has changed over the years since it nearly began (again Medicaid is excluded in graph).

With taxpayers paying roughly $9,000 annually, then welfare should be cut, and let workers keep that money. However, this does not provide an efficient solution to unemployment problems that millions of Americans receiving welfare are currently in. Also, simply raising the minimum wage would create further unemployment, and possibly a more competitive workplace with producers less willing to higher, which would only make problems worse for struggling families facing poverty. So, with the numbers presented, it seems as if the U.S. is shifting towards an economy where welfare benefits do in fact exceed most minimum wage and some entry level positions in the workplace. Although I cannot say this is for certain, due to the large number of workers that make minimum wage do receive a form of welfare benefit. For now, welfare programs seem to provide families with the adequate amount of assistance needed to sustain a family, and livelihood.