Welfare State

This paper begins by establishing what is meant by "welfare state" by comparing and contrasting the concept with "welfare society" and "welfare system." It then examines the philosophical foundation of welfare states, and gives a brief history of the welfare state from its beginning during the Great Depression up to the most recent legislation, not yet passed, through the U.S. Congress. The paper makes a survey of some studies on the relationship between the welfare state and the nation's economy, and finishes with observations on the current crossroads of the U.S. government in maintaining its welfare policies and programs.

Keywords Aid to Families with Dependent Children (AFDC); Earned Income Tax Credit (EITC); Government Accountability Office (GAO); Gross Domestic Product (GDP); Pay As You Go (PAYG); Temporary Assistance for Needy Families (TANF); Unemployment Insurance (UI); Unemployment Insurance Modernization Act (UIMA); Workfare; Workforce Investment Act (WIA)

Sociology of Politics & Government: The Welfare State

Overview

Philosophy of the Welfare State

In discussing issues and research around the concept of "the welfare state", we should first establish the boundaries of what constitutes a welfare state. "State" refers to government, and this creates the primary distinction between the terms "welfare state" and "welfare society". In a welfare society, private companies and corporations or various nonprofit organizations and charities may provide money, goods and/or services to citizens in need; in a "welfare state", national or local governments provide these citizens with money, goods or services. The term "welfare system" is often used to include both, the welfare state and the welfare society. Most often in a welfare state, the financing of welfare programs is done through wealth redistribution, meaning a government places a tax on the income of citizens and then uses this tax money to provide for those citizens who cannot purchase basic needs such as food and shelter. As Hamlin (2008) observes, redistribution involves "the imposition of minimum constraints on the level of welfare of any individual — which may be thought of as building an aversion to poverty into the general commitment to welfare" (Hamlin, 2008, p. 122). Thus, "welfare state" generally means that a government creates a "safety net" to supply the minimum standards through various goods and services.

Social security programs such as retirement pension systems are also part of the welfare state, as are many other programs that, at some point, may distribute benefits to citizens who are not necessarily poor. When a welfare state begins to provide benefits to all citizens, such as universal healthcare, then it heads toward the definition of a "socialist state" — though this is often confused with a "totalitarian state" wherein there is only one political party controlling a nation. Socialist tendencies within a democracy blur the line on what constitutes a welfare state, and it is difficult to offer definitive lines between a socialist state and a welfare state. It is fair to say that all socialist states are also welfare states, but not all welfare states are also socialist states.

Hamlin (2008) writes that the first step in developing a welfare concept is to decide what should be "the lowest level of individual welfare which will be tolerated," and then to assist those citizens whom live below that lowest level (Hamlin, 2008, p. 123). For example, in the United States a poverty threshold, or "poverty line," is set by the federal government, and one of the requirements for citizens to receive welfare benefits is that their income is below that poverty line. We should also consider a government's reasons and philosophy when defining a welfare state; Hamlin points out that the underlying reasons and philosophy may cause difficulties in defining what constitutes a welfare state:

We are left, then, with a problem regarding the best way to define a welfare state. Do we categorize states according to the arguments that are taken as valid in considering policies, or do we categorize states according to the policies that are enacted regardless of their origins? Both approaches have their merits, but they should not be confused. Claims of welfare do not necessarily give rise to what are normally regarded as welfare policies, and policies that might seem to be welfare policies may be derived from other starting points (Hamlin, 2008, p. 127).

The birth of the welfare state in Europe is a good case in point. The European beginnings of the welfare state can be traced back to the late 1800s and the Bismarck government in Germany. In the 1880s, Bismarck introduced many of the modern components of the welfare state — social insurance, laws regarding health insurance, accident insurance and insurance to support the disabled and the aged. According to Zika (2007), the Bismarck reforms were intended "primarily for workers and employees, who paid a portion of their wages in order to protect them and their family if they lost their jobs" (p. 32). It seems unlikely that conservative politicians would introduce such welfare state reforms, yet Zika writes that "the intellectuals behind Bismarck's concept of social reforms were not socialists, but conservatives" (Zika, 2008, p. 32). Strong political reasons — reasons not at all related to a welfare philosophy — lay behind Bismarck's welfare reforms. This historical case demonstrates Hamlin's point that defining a welfare state according to its philosophy may not be the same as defining it according to its enacted programs and policies. However, the inception of the welfare state in the United States did have a strong welfare philosophy at its foundation.

History of the U.S. Welfare State

The welfare state in the U.S. began as a means to cope with the Great Depression. The American welfare state has always used what is known as a pay-as-you-go system. This means that the young workers who pay taxes today are not actually paying for their own retirement pensions; rather, they are supplying the government with the funds for today's senior citizen pensions. When today's working generation reaches retirement age, a younger generation of workers will be taxed to pay for those retirement pensions. First introduced in 1935 under President Franklin D. Roosevelt, the most basic pay-as-you-go feature of the American old-age pension system, Social Security, has remained largely unchanged to this day. According to Jensen, the Roosevelt administration pushed through a special Social Security tax in order to help prevent the system from being changed in the future. Roosevelt reasoned that a Social Security tax would give the program "high visibility and support from a public, who inevitably would feel that by paying the tax they had won the right to receive benefits from the system in old age" (Jensen, 2007, p. 148).

Zika points out that the work of British economist John Maynard Keynes was highly influential in forming the modern welfare state. Keynes argued that high unemployment was being caused by technological advances that replace manual labor, and also that the weak purchasing power of the population chronically lowered demand and consumption. Further, Keynes argued that poor fiscal politics of the government was the main factor behind high unemployment. Zika comments that Keynes's theories "lead to the blossoming of the modern social state after the Second World War" (Zika, 2007, p. 32). One of the pillars of the welfare state is unemployment insurance (UI), and the peak for U.S. citizens' receiving UI occurred about a decade after World War II in the 1950s. At that time, nearly 50 percent of people were receiving UI (Peterson, 2008, p. 455).

According to Zika, the 1960s and 1970s were the best years for states with extensive welfare policies and programs. In those years, unemployment was extremely low in Western countries, the standard of living improved greatly for citizens, and the percentage of public expenditures as a part of the gross domestic product (GDP) went up. In the mid 1970s, the oil crisis created economic problems and caused the growth of unemployment to a degree that the postwar generation did not experience. Public expenditures grew at a rate of about 5 percent, while productivity fell. This is when the modern welfare state began facing funding problems. Zika (2007) writes:

"The average growth rate between 1974 and 1984 was lower than two percent. Government spending continued to rise due to growing unemployment and expenditures, while an aging population demanded more social services. At the same time, new revenues were getting harder and harder to find. This was the start of the modern crisis of the so-called welfare states. Since then, problems have grown worse." (Zika, 2007, p. 32)

Further Insights

Criticism & Reforms

In the 1970s and 1980s the United States had a program known as Aid to Families with Dependent Children (AFDC). But in the early 1980s, the program began to receive heavy criticism. An increasing number of citizens began to believe that the welfare system was being abused, and many critics believed that the welfare state inherently taught a poor work ethic and a self-perpetuating "culture of poverty," so that welfare dependency was perpetuated across family generations. Still, even while the state faced problems finding the funds to sponsor welfare programs, many citizens were also quite averse to making any significant changes to the U.S. Social Security programs. In the early 1980s, the first administration of President Ronald Reagan was forced to "deal with the fact that, despite tax increases in 1977, too much money was paid out as benefits compared to the money paid into the system" (Jensen, 2007, p. 148). Some economists and Reagan advisors warned that the Social Security system was quickly approaching the point of collapse. Reagan decided to cut welfare benefits, but Jensen observes that Reagan's first proposal "was dead on arrival in 1981." The Reagan administration managed to create a compromise by 1983; the legislation that passed mainly increased the retirement age from 65 to 67 years between 2000 and 2022, but did little to deal with reforms for UI. Jensen notes that Reagan's success in securing the financial basis of the system "at the same time made more fundamental changes highly difficult to justify politically" (Jensen, 2007, p. 149). Still, the deficit continued to grow, was obviously set to continue its growth, and the need to address the deficit grew with that deficit. Reagan had addressed old age pensions, but many argued that the unemployment insurance programs and policies needed reform as well.

The 1996 Welfare Reform Act

In the 1990s, the method for reducing the cost of unemployment insurance in the United States was to develop a "workfare" strategy. The most important workfare policy initiative was established during the administration of President Bill Clinton, with the 1996 Welfare Reform Act (formally, the Personal Responsibility and Work Opportunity Act), which created two major changes from past welfare programs. The first was the introduction of Temporary Assistance for Needy Families (TANF), which replaced the Aid to Families with Dependent Children (AFDC) program. TANF established minimum required work hours, definitions for creditable activities to continue receiving aid, and, most significantly, established a five-year lifetime limit on the amount of welfare benefits an individual could collect. The central objective for the 1996 reform was to reduce the number of people receiving welfare assistance, which, according to Jensen, "has been achieved with great success" (Jensen, 2007, p. 149).

The second major change was that the Earned Income Tax Credit (EITC) was expanded. According to Jensen (2007), EITC "provides benefits for low-income working families through a wage subsidy system, which encourages individuals to take on low-wage employment." An interesting parallel to this solution can be seen historically. More than two centuries ago in England, shortly after the Napoleonic Wars, rural citizens faced extreme poverty and rising food prices. The government set up the Speenhamland System (in 1795), whose basic strategy was a wage subsidy system similar to EITC. It allowed employers to pay wages below subsistence level while the government subsidized their wages. Zika observes that the end result was that the workers' low income remained unchanged and the subsidies ultimately made the employers rich, since they paid such low wages and thereby increased their own profits (Zika, 2007, p. 30). In the current system, tax money from citizens is used to subsidize wages, and it might be pondered whether the EITC system is benefiting employers (in this case, corporations rather than British farmers) as much or more than it is actually benefiting the poor.

Workforce Investment Act

In 1998, a Republican Congress under the Clinton administration passed the Workforce Investment Act (WIA). The law was enacted to replace the former Job Training Partnership Act. The act was mainly an attempt to encourage businesses to participate in the local delivery of Workforce Development Services. According to Jensen, little else has actually been changed at the federal level since the 1996 Welfare Reform enactment. As the author notes, even during the George W. Bush administration, with a favorable Congress, "it has proved difficult to pass more than the necessary legislation (due to sunset, or provisional, clauses) for continuing the existing policies" (p. 150). Jensen argues that, as economic prospects deteriorate, it becomes more difficult to "justify further movement towards tough workfare measures, as the need, or at least potential need, among a larger constituency for the benefits provided under TANF and other programmes has risen together with the unemployment rate" (Jensen, 2007, p. 150). In other words, a workfare policy doesn't work very well if there is no work.

As for the unemployed, apparently many are somehow surviving without any welfare assistance whatsoever. Peterson writes that "currently, only about one-third of unemployed workers collect benefits in nonrecessionary years," and the author notes that "the Government Accountability Office (GAO) recently reported that between 1992 and 2003, low-wage workers were at least twice as likely to be unemployed as higher-wage workers, yet they received UI benefits at less than half the rate of higher-wage workers in almost every year" (Peterson, 2008, p. 455).

Developments in the Early Twenty-First Century

In effect, many of the unemployed in the United States are not covered by any welfare assistance programs. This was the motivation for a piece of legislation introduced in 2007, known as the Unemployment Insurance Modernization Act (UIMA). According to Peterson, the UIMA concentrated on the major UI coverage gaps, and focused attention "on key groups of workers that have 'fallen through the cracks' of the UI system, including part-time workers, women with families, and the long-term unemployed" (Peterson, 2008, p. 459). However, the act died in committee in both houses of Congress — in the Senate in 2007 and the House in 2009.

U.S. welfare programs received a one-time boost in 2009, when in response to the onset of the Great Recession, Congress passed and President Barack Obama signed the American Recovery and Reinvestment Act, also known as the 2009 economic stimulus package. The main purpose of this act was to stop job loss and create new jobs by investing in infrastructure, health care, and education. However, it also directed more than $80 billion toward extending the amount of time laid-off workers could receive unemployment benefits, boosting the food stamp program, sending one-time payments to Social Security recipients, and investing in job training programs. However, the act did not make any alterations to the basic structure of the U.S. welfare system.

Viewpoints

Economic Effects of the Welfare State

The most common argument against the welfare state is that the higher taxes to fund welfare programs hurt economic growth. However, it is difficult to find any research that supports this popular argument. As Mares observes, results from empirical studies that examine the relationship between the larger welfare states and economic growth fail to find any negative effect. In fact, research seems to indicate the opposite — that welfare programs actually help economic growth. Mares notes that "one set of studies that focused on the experience of advanced industrialized democracies during the postwar period found a positive relationship between the size of the public sector and economic growth." The author also writes that this positive relationship is statistically significant, and the effects are by no means minor: "An increase in the level of social policy transfers of 5 per cent is expected to increase the level of economic growth by 0.9 per cent." She goes on to discuss the results of other studies, and again these studies uncover a positive relationship rather than a negative relationship (Mares, 2007, p. 69).

In addition, a number of studies have shown that programs that bolster a nation's education and health policies also have positive effects on economic growth. Mares, after researching and examining the various studies designed to uncover any relationship between welfare and national economic activity, concludes, "in short, there is considerable evidence that social programmes provide a wide range of 'positive economic externalities' which outweigh the potential distortionary effects of higher taxes" (Mares, 2007, p. 79).

The National Deficit

However, over the long term, a large national deficit can have negative consequences for a state's economy, and the cost of welfare programs can cause large national deficits. It seems the federal government does not include debts over welfare programs when it releases its annual national deficit. Cauchon (2006) writes that "the federal government keeps two sets of books. The set the government promotes to the public has a healthier bottom line: a $318 billion deficit in 2005." The author then claims, "The set the government doesn't talk about is the audited financial statement produced by the government's accountants following standard accounting rules. It reports a more ominous financial picture: a $760 billion deficit for 2005." And the author observes that this deficit does not include welfare programs: "If Social Security and Medicare were included — as the board that sets accounting rules is considering — the federal deficit would have been $3.5 trillion" (Cauchon, 2006, ¶ 3). Every year this debt increases, and according to Scherer (2008), the total national debt is currently approaching $9.2 trillion, which is equal to around 15 percent of all the assets in the country. As Scherer points out, "The correlation between growing debt and a worsening economy is not direct but, in the long run, debt fuels inflation. The Treasury must print currency to pay interest on money borrowed to finance this escalating debt" (Scherer, 2008, ¶ 4).

Terms & Concepts

Aid to Families with Dependent Children (AFDC): A federal welfare program in effect from 1935 to 1997, which was created under the name Aid to Dependent Children (ADC) by the Social Security Act of 1935 as part of the New Deal. AFDC provided assistance to children from families with low or no income.

Earned Income Tax Credit (EITC): A poverty reduction program which offers a refundable tax credit that can reduce one's tax owed to below zero; thus a net payment to the taxpayer is made in addition to their own payments into the tax system.

Government Accountability Office (GAO): An arm of the United States Congress which audits, evaluates, and investigates government functions.

Gross Domestic Product (GDP): A measure of national income and output for a given country, defined as the total market value of all goods and services produced within the country during a period of time (usually a calendar year).

Pay As You Go (PAYG): An unfunded social insurance system in which current contributors to the system pay the expenses for the current recipients. In a pure pay-as-you-go system, no reserves are accumulated and all contributions are paid out in the same period.

Temporary Assistance for Needy Families (TANF): A federal welfare program created by the Personal Responsibility and Work Opportunity Act enacted by President Bill Clinton and which succeeded the Aid to Families with Dependent Children program beginning on July 1, 1997. TANF provides cash assistance to poor American families with dependent children, has a sixty-month maximum of benefits per lifetime, and recipients are required to actively seek employment.

Unemployment Insurance (UI): Money received by an unemployed worker, and a federal-state program jointly finances payments through federal and state employer payroll taxes (federal/state UI tax). UI compensation is considered as a type of social welfare benefit. The federal Social Security Act of 1935 effectively required individual states to adopt unemployment insurance plans.

Workfare: An alternative to traditional social welfare systems, in which benefits are available providing that the recipient continually search for employment. Under workfare, recipients must meet participation requirements to continue receiving welfare benefits, such as activities intended to improve job prospects like training, rehabilitation and work experience.

Workforce Investment Act (WIA): Law enacted to replace the Job Training Partnership Act and certain other federal job training laws with new workforce investment systems. It was an attempt to encourage businesses to participate in the local delivery of workforce development services.

Bibliography

Bentele, K., & Nicoli, L. (2012). Ending access as we know it: State welfare benefit coverage in the TANF era. Social Service Review, 86, 223–268. Retrieved November 6, 2013 from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=77326900

Cauchon, D. (2006, August 4). What's the real federal deficit? USA Today. Retrieved July 15, 2008 from: http://www.usatoday.com/news/washington/2006-08-02-deficit-usat_x.htm

Folbre, N., & Wolf, D. (2013). The intergenerational welfare state. Population & Development Review, 38, 36–51. Retrieved November 6, 2013 from EBSCO online database SocINDEX with Full Text: http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=85631107

Hamlin, A. (2008). The idea of welfare and the welfare state. Public Finance & Management, 8, 108–140. Retrieved July 11, 2008 from EBSCO online database Business Source Premier: http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=32780358&site=ehost-live

Hertel-Fernandez, A. (2013). Dismantling policy through fiscal constriction: Examining the erosion in state unemployment insurance finances. Social Service Review, 87, 438–476. Retrieved November 6, 2013 from EBSCO online database SocINDEX with Full Text: http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=91589913

Jensen, C. (2007). Fixed or variable needs? Public support and welfare state reform. Government & Opposition, 42, 139–157. Retrieved July 12, 2008 from EBSCO online database Academic Search Premier: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=24350051&site=ehost-live

Mares, I. (2007). The economic consequences of the welfare state. International Social Security Review, 60(2/3), 65–81. Retrieved July 12, 2008 from EBSCO online database Academic Search Premier: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=25489094&site=ehost-live

Peterson, J. (2008). Unemployment insurance reform: Elements of a social provisioning approach. Journal of Economic Issues, 42, 453–460. Retrieved July 14, 2008 from EBSCO online database Business Source Premier: http://search.ebscohost.com/login.aspx?direct=true&db=buh&AN=32534698&site=ehost-live

Scherer, J. (May, 2008). Debt & deficit. USA Today Magazine, 136(2756), 10–12. Retrieved July 12, 2008 from EBSCO online database Academic Search Premier: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=32170116&site=ehost-live

Zika, M. (2007). The rise and fall of the social state. New Presence: The Prague Journal of Central European Affairs, 11, 30–32. Retrieved July 12, 2008 from EBSCO online database Academic Search Premier: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=28755207&site=ehost-live

Suggested Reading

Bennett, P. R., & Cherlin, A. J. (2011). The neighborhood contexts in which low-income families navigate welfare reform: Evidence from the three-city study. Social Science Quarterly (Wiley-Blackwell), 92, 735–760. Retrieved November 6, 2013 from EBSCO Online Database SocINDEX with Full Text. http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=64702581

Browning, E. (2008). The anatomy of social security and medicare. Independent Review, 13, 5–27. Retrieved July 10, 2008 from EBSCO online database Academic Search Premier: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=32630674&site=ehost-live

Fox, J. (2007). Denmark's difference. Time, 170, 68–69. Retrieved July 9, 2008 from EBSCO online database Academic Search Premier: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=27599518&site=ehost-live

Hassett, K. (2008). Cronies against capitalism. National Review, 60, 7. Retrieved July 12, 2008 from EBSCO online database Academic Search Premier: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=31220460&site=ehost-live

Palme, J. (2007). Sustainable social policies in an era of globalisation: Lessons from the Swedish case. Social Policy Journal of New Zealand, 32, 1–16. Retrieved July 9, 2008 from EBSCO SocINDEX with Full Text: http://search.ebscohost.com/login.aspx?direct=true&db=sih&AN=28692299&site=ehost-live

Qingwen, X. (2007). Globalization, immigration and the welfare state: A cross-national comparison. Journal of Sociology & Social Welfare, 34, 87–106. Retrieved July 9, 2008 from EBSCO online database Academic Search Premier: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=25301791&site=ehost-live

Shepard, B. (2007). Sex panic and the welfare state. Journal of Sociology & Social Welfare, 34, 155–171. Retrieved July 10, 2008 from EBSCO online database Academic Search Premier: http://search.ebscohost.com/login.aspx?direct=true&db=aph&AN=24095873&site=ehost-live