Bloomberg News

Santorum Plan to Spur Workers by Cutting Aid Seen as Wrong Cure

February 27, 2012

Job applicants at the CUNY Big Apple Job Fair in New York. Photographer: Mark Lennihan/AP

Job applicants at the CUNY Big Apple Job Fair in New York. Photographer: Mark Lennihan/AP

Rick Santorum has a remedy for the U.S. jobs crisis: Make it harder to be unemployed.

Generous government benefits, including as many as 99 weeks of unemployment insurance, explain why some companies are having trouble finding workers even with an 8.3 percent jobless rate, according to the Republican presidential contender.

“When you have 99 weeks of unemployment benefits and you have a variety of other social safety net programs, people can make choices that they otherwise wouldn’t make,” the former U.S. senator from Pennsylvania said on Feb. 16 in Detroit.

Economists say that while extended benefits may reduce incentives to work, Santorum is overstating the impact on the unemployment rate. And his proposed fix -- capping federal social spending and turning programs over to the states -- isn’t appropriate in such a weak economy, they say.

“My research does not offer any support for” Santorum’s argument, said Jesse Rothstein, of the University of California at Berkeley, who wrote the most recent study on the effect of extended benefits for the unemployed.

Santorum cites a historical precedent: To rein in federal spending and spur economic growth, benefits for the jobless, poor and hungry should be overhauled along the lines of the 1996 welfare-reform act. That bipartisan effort replaced a New Deal social program, which even many Democrats regarded as flawed, with less-costly benefits that were limited in duration and required applicants to work.

Going After Programs

“We will go after all of the means-tested entitlement programs -- Medicaid (USBOMDCA), food stamps, all of those programs -- and do what we did with welfare,” Santorum said during a Feb. 22 Republican presidential debate.

Rothstein’s study, released in October 2011, concluded that the average national jobless rate of 9 percent in early 2011 would have been just 0.1 to 0.5 percentage point lower if benefits hadn’t been extended.

Much of that effect reflects decisions by long-term unemployed workers to continue searching for jobs to retain their eligibility for benefits, Rothstein, a former chief economist for the U.S. Department of Labor, says.

It’s the Economy

Some analysts also question the wisdom of applying the welfare-overhaul model to other social programs in today’s economy. The initial success of the 1996 welfare reform act in boosting employment and reducing poverty, especially among single mothers, came when the economy was growing more than 4 percent a year on average. It has expanded at less than half that pace since the recession ended in June 2009.

Among families headed by single mothers, 31.6 percent were poor in 2010, the same percentage as in 1997, according to the Census Bureau. And, in July 1997, the month welfare reform took effect, the unemployment rate was 4.9 percent.

“It really is about the economy and about having very few jobs available,” said LaDonna Pavetti, vice president for family income support policy at the nonpartisan Center for Budget and Policy Priorities in Washington.

Hogan Gidley and Alice Stewart, representatives of the Santorum campaign, didn’t respond to e-mails seeking comment.

The Republican presidential spotlight tomorrow reaches Michigan, where the near collapse of the automobile industry after the 2008 credit crunch drove unemployment to a peak of 14.1 percent in 2009, compared with a low of 3.3 percent in 2000. The state’s 9.3 percent rate in December is still a percentage point above the national figure.

Jobs Aren’t There

John Bierbusse, executive director of Michigan Works!, a nonprofit workforce-development agency, disputes the idea that ample benefits are allowing the unemployed to be overly choosy. Michigan (BEESMI)’s average weekly benefit was $296 in 2010, an amount that on an annual basis would provide a family of four an income equal to two-thirds of the federal poverty standard.

“If the jobs were there, people would flood back into the labor market,” said Bierbusse.

Nationally, a 2010 study by two economists at the Federal Reserve Bank of San Francisco concluded that extended benefits were responsible for 0.4 percentage points of the 5.5- percentage-point increase in the jobless rate over the three years ending in the fall of 2009.

The almost 10 percent jobless rate at the end of 2009 would have been 9.6 percent if benefits had been capped at 26 weeks, the study found. And the typical spell of joblessness would have been about 10 days shorter.

Timing the Benefits

“Extended unemployment insurance benefits have not been important factors in the increase in the duration of unemployment or in the elevated unemployment rate,” wrote economists Rob Valletta and Katherine Kuang.

Earlier studies, extrapolating from recessions in the 1970s and 1980s, found larger effects. Factories then often timed temporary layoffs so workers were recalled as their unemployment benefits ran out. That made it appear that the workers had intensified their job searches because their weekly payments were running out.

During recessions, lawmakers typically provide federal benefits for workers who exhaust their 26 weeks of state aid. With 5.5 million workers having been unemployed for more than six months, Congress agreed on Feb. 17 to extend benefits through the end of this year. The current 99-week maximum is the longest that unemployment benefits have lasted.

The latest $30 billion extension gradually reduces eligibility periods. By year’s end, most states would cap benefits at 63 weeks while some high-unemployment states would provide an additional 10 weeks of help.

Shortage of Jobs

The nation’s 12.8 million unemployed outnumber available job openings by almost 4-to-1, according to the Labor Department.

Still, James Sherk, an analyst at the Heritage Foundation, said lengthy aid programs only encourage the long-term unemployed to delay confronting the reality that they need to relocate or change industries to find work.

“GM’s got about 40,000 hourly unionized workers; they’re never going back to 100,000,” he said. “The jobs don’t exist to re-employ all the workers that lost them.”

Santorum says that with the baby boom generation beginning to retire, the country can’t afford “this explosion of benefits.” Enabling people to remain unemployed for an extended period only erodes their skills, he says, so extended aid should be coupled with required job training.

Block Grants

He and other Republicans want to turn food stamps, Medicaid (USBOMDCA) and other benefits into block grants. That means the aid would no longer be granted as entitlements to the poor. Instead, the federal government would set time limits and work requirements while providing states a flat amount and flexibility over spending.

The welfare overhaul also aimed to reduce poverty and promote work by replacing the Aid to Families with Dependent Children entitlement with block grants to states. Individual benefits were capped, usually with a maximum of five years, and recipients were required to work after an initial period.

Santorum has likened the mid-1990s challenge of cutting welfare rolls to the current situation with the Supplemental Nutrition Assistance Program. More than 46 million Americans receive benefits under the so-called food-stamp program, up from 27 million before the recession began in December 2007. The average monthly benefit per person is $134.

“We cut the welfare rolls by 50 percent,” Santorum said in his speech to the Detroit Economic Club. “We did that at a time when welfare rolls were the highest level ever, just like food stamps are at the highest level ever.”

Inevitable Reductions

Reductions in federal social programs are inevitable amid trillion-dollar annual budget deficits, said Ron Haskins, a former Republican congressional aide who worked on the welfare overhaul. Requiring food-stamp recipients to show they are looking for work, which welfare reform mandated, would reduce the number of recipients, he said.

After welfare was revamped, the poverty rate fell from 13.7 percent in 1996 to 11.3 percent in 2000. Amid the recession, the economy in recent years surrendered many of those gains.

“When it was a very strong economy in the late-’90s, welfare reform worked very well,” said Pamela Loprest, director of the Urban Institute’s Income and Benefits Policy Center. “Individuals found jobs. Employment for single mothers went up. Now, these people aren’t able to work. They’re just poorer.”

To contact the reporter on this story: David J. Lynch in Washington at dlynch27@bloomberg.net;

To contact the editor responsible for this story: Jeanne Cummings at jcummings21@bloomberg.net.


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