Moving people off welfare and into work builds self-esteem and independence while improving the productive capacity of the economy. New Zealand can learn much from nations that have successfully reduced welfare rolls. The United States is a stand-out case in the last decade.

By the early 1990s the number of Americans on welfare had reached an all-time high. There was growing concern about increased welfare and the consequences for children of welfare dependency and poverty. Existing financial incentives were having a limited effect on people's decisions to work. The competencies, attitudes and confidence of many of those on welfare were regarded as inadequate.

Policy makers sought alternative measures. The 1996 welfare reforms created an obligation for work and emphasised measures that directly promoted and supported working.

Under Bill Clinton's presidency, the 1996 Personal Responsibility and Work Opportunity Reconciliation Act created the Temporary Assistance for Needy Families (TANF) programme. The Domestic Purposes Benefit is the New Zealand equivalent.

States were provided financial incentives to run mandatory, work-focused welfare programmes. Major and rapid changes were made to their welfare systems. They focused on work-first programmes which emphasised rapid attachment to the labour force, with less emphasis on skills training and education. More stringent work requirements were introduced with narrower exemptions, and work-related activities such as job searching were required. The financial rewards from work were increased. Welfare recipients could keep more of their welfare payments when employed, subsidies for child-care and transportation were increased, and tax credits and tax rates were changed. Tougher sanctions were imposed on those who didn't follow programme rules and maximum time periods for receiving welfare were set. Welfare administration was improved. Job search facilities were provided, strict performance measures were imposed on administrators and the temporary nature of assistance was strongly communicated to applicants.

The result was great progress. The welfare caseload in the TANF programme has been cut in half. Among disadvantaged single mothers who had the greatest tendency to become long-term welfare dependents, the employment rate has soared by between 50 and 100 percent. Today, 2.9 million fewer children live in poverty than in 1995.

The reforms were less successful in moving long-term unemployed off welfare and failed to make all former beneficiaries fully self-sufficient (for example, some still received child-care subsidies). Individuals who were still on welfare rolls after four years were found to have less education, fewer basic skills, less previous job experience, and a longer history of welfare receipt than people who had left welfare in the first year or two.

Critics have suggested the strong economy is the real reason behind welfare roll declines. However, former Director of the Congressional Budget Office Dr June O'Neill concluded that from 1996 to 1999, policy changes accounted for approximately three-quarters of the increase in employment, with economic conditions accounting for the rest.

Another criticism is that many mothers leave welfare but do not work regularly. Welfare reforms inevitably involve difficult trade-offs, and one of the most challenging is that greater hardship for some could well be a cost of reducing the likelihood that many others will become dependent on welfare.

The reforms did not reduce the direct cost of welfare. Despite the massive drop in welfare rolls the federal government is spending $1 billion a year more than was spent by state and federal governments before the reforms. Saving money, at least in the short term, was not seen as the main goal.

The US experience shows reforms need to be consistent. Work requirements should be present across all major welfare programmes to discourage people switching programmes to avoid work requirements. Minimum wage policies may limit the number of jobs available to people trying to move off welfare and should be considered in the broader context of welfare reform. New Zealand's system of family tax credits should avoid excessive disincentives to work. Education policy should focus on accessible and flexible training for those who move into work and avoid providing an avenue to avoid work testing, while job subsidies should be kept on a small scale, with limited time frames and a focus on job-related activities.

A strong economy helps reduce welfare rolls by providing more job opportunities. A time of steady economic growth provides an ideal opportunity to strengthen incentives to seek and accept work.

It is important to note that although welfare reform is central to addressing the problem of the large number of New Zealanders dependent on benefits, it is only the third leg of a three-part strategy. The first leg must be to raise income levels and create new jobs through ensuring steady economic growth. The second leg is addressing the problems of marriage break-up, which substantially reduces income and other resources available to the custodial parent and his or her children. A new Business Roundtable book examines family issues.

After eight years, the evidence shows that the 1996 welfare reforms in the United States worked. There is now bipartisan support for them. New Zealand would do well to emulate the success of the Clinton administration in this area.

For more information, contact:

Roger Kerr
Executive Director
Ph: 04 499 0790
Email: rkerr@nzbr.org.nz

David Young
Communications Advisor
Ph: 04 494 9701
Email: dyoung@nzbr.org.nz

Web: www.nzbr.org.nz