Government Benefits Have Reduced The Incentive To Be Employed


In the Wall Street Journal, Richard Vedder writes about America’s declining work force:

In recent decades there was a steady rise in the employment-to-population ratio: For every 100 working-age Americans, there were eight more workers in 2000 than in 1960. The increase entirely reflects higher female participation in the labor force. Yet in the years since 2000, more than two-thirds of that increase in working-age population employed was erased.

The decline matters more than you may suppose. If today the country had the same proportion of persons of working age employed as it did in 2000, the U.S. would have almost 14 million more people contributing to the economy. Even assuming that these additional workers would be 25% less productive on average than the existing labor force, U.S. gross domestic product would still be more than 5% higher ($800 billion, or about $2,600 more per person) than it actually is. The annual growth rate of GDP would be 2.2%, not 1.81%. The retreat from working, in short, has had a real impact.

Why are fewer Americans working? Some of it has to do with shifting demographics. The baby boomers are retiring, and the succeeding generations just aren’t as large demographically. But another big part of the problem, as Vedder points out, is government benefits reducing incentives to work:

The sharp rise in food-stamp beneficiaries predated the financial crisis of 2008: From 2000 to 2007, the number of beneficiaries rose from 17.1 million to 26.3 million, according to the Department of Agriculture. That number has leaped to 47.5 million in October 2012. The average benefit per person jumped in 2009 from $102 to $125 per month. …

Barely three million Americans received work-related disability checks from Social Security in 1990, a number that had changed only modestly in the preceding decade or two. Since then, the number of people drawing disability checks has soared, passing five million by 2000, 6.5 million by 2005, and rising to nearly 8.6 million today. In a series of papers, David Autor of MIT has shown that the disability program is ineffective, inefficient, and growing at an unsustainable rate. And news media have reported cases of rampant fraud. …

In 2000, fewer than 3.9 million young men and women received Pell Grant awards to attend college. The number rose one-third, to 5.2 million by 2005, and increased a million more by 2008. In the next three years, however, the number grew over 50%, to an estimated 9.7 million. That is nearly six million more than a decade earlier. The result is fewer people in the work force. Meanwhile the mismatch grows between the number of college graduates and the jobs that require a college education. …

Since the 1930s, the unemployment-insurance system has been designed to lend a short-term, temporary helping hand to folks losing their jobs, allowing them some breathing room to look for new positions. Yet the traditional 26-week benefit has been continuously extended over the past four years—many persons out of work a year or more are still receiving benefits.

True enough, the economy isn’t growing very much. But if you pay people to stay at home, many will do so rather than seek employment or accept jobs where the pay doesn’t meet their expectations.

Last week I wrote about declining fertility rates, and the fact that a lot of it had to do with women and opportunity costs. Having a family, for a woman, means economic sacrifice. Dedicating time to birthing and raising children means time taken away from career advancement. There is an economic cost to that.

The same is true of those on government benefits. For many, working costs access to government benefits. Long-term working might lead to more elevated levels of prosperity, but many can’t look beyond the short-term costs of losing their benefits.

We talk of these benefits as though they were helping society, when in reality they’re hurting.

Rob Port is the editor of In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters.

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  • SigFan

    I heard a report on the radio the other day that used a case study of a young single mother here in PA. She was looking for work and found a job that would pay her approximately $50K/year. She turned it down because when all her state and federal “benefits” were added together she was getting nearer to $66K for staying home and doing nothing. Tough choice to make isn’t it?

    • WOOF

      Back it up Sig.
      “Someone found a letter you wrote me, on the radio
      And they told the world just how you felt
      It must have fallen out of a hole in your old brown overcoat
      They never said your name
      But I knew just who they meant.”

    • mickey_moussaoui

      Can I do that plan while retired…cause I’ll take it

  • Tim Heise!/events/306113689509111/
    UND Law School Debate on the topic of Welfare

  • caeslinger

    In addition to this Rob, the focus needs to be not so much on whether or not they are working or not working, but more on how much and how hard one is working as well.

    Interestingly, I was going to message this morning to talk about the SSI deduction, and that ironically, it could have not provided the typical benefit most people wanted (stimulus) and it coming back may actually provide the desired effect – in this specific case. One can make the argument, that if the 2% is not replaced by government assistance, many will feel the need to somehow supplement their income and in doing so will be productive, even if its by 2% more.

    That is the case that needs to made with government assistance. Its not an ‘all or nothing’ case where if someone receives assistance (and assistance can include TANF, EITC, Pell Grants, or even mortgage tax deduction), they become COMFORTABLE with their level of living and decide against working that one extra hour, or getting that extra job, or pursuing anything outside their comfort level.

    Whereas taxes of wealthy individuals can be argued that they would have the opposite effect because they are comfortable no matter how much is taken, but they then begin to feel the extra effort is not justified if they don’t see the benefit.

    Economics are never black and white, including the major theories. They all have nuggets that are correct at times and not correct at other times. They cannot be universally applied.

  • flamemeister

    Damn! And it took me 60 years to lose my incentive to be employed!

    • mickey_moussaoui

      like they said in animal house: “you phucked up…you trusted us”

  • WOOF

    Government benefits have reduced the incentive
    to loot the Piggly Wiggly and WalMart.

    • mickey_moussaoui

      Because now you slackers loot OUR wallets

      • WOOF

        They’ve got you surrounded

  • matthew_bosch

    A government “safety net” is a necessity for a civilized society.
    A government “safety couch” is the death of civilized society.

  • John_Wayne_American

    Come on Rob, don’t be such a hard ass, can’t we just help out this “poor