How the Economy Affects the Welfare System

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Table of Contents

Introduction
Labor Force Participations
Relationship Between Poverty and Income
TANF Preparation for Handling Recession
Policies Strategies
Improving Temporary Assistance for Needy Families
Matching State Flexibility With Federal Time Limits
Empowerment as an Option
Conclusion
References

Introduction

Despite having the largest economy in the world, the United States has the highest rates of poverty compared to other wealthy nations. The government uses a specific measure of poverty based on a minimum yearly income to categorize people as poor or not to decide who is eligible for social assistance programs. A household is suitable for a government welfare program when its income falls below the necessary level. Poverty is linked to several social services inequalities, including education, healthcare access, and general prejudice. In addition, families in poverty are more likely to experience other disparities, such as high rates of sickness and crime (Dettlaff & Boyd, 2020). The government has put in place measures to ensure equality among the people by minimizing perceived inequities connected with poverty since particular population sectors are linked with high poverty levels. However, despite the governments commitment to implement these equity measures, the nations economic situation might determine whether or not these welfare programs are successful.

Simple demand and supply, as employed in the utility theory, may be utilized to describe welfare economics. Each individual tries to maximize the perceived worth of each thing or service they consume to maximize utility, which is the value associated with using a good or service. Economic welfare aims to achieve the best possible happiness for all customers by maximizing consumer and producer surplus. The goal is to guarantee that all customers in a straightforward market system are as satisfied as possible by assuring their well-being at the best possible level. Employment and inflation are two metrics that may be used to assess a nations economic health. Low employment rates cause high economic inequalities and increased levels of poverty among the population. The government must take the necessary steps to guarantee equality in income distribution since high unemployment rates lead to inequalities in income distribution and welfare (Fleurbaey, 2018). High employment rates, which result in decreased income gaps across all demographic groups, signify that the economy is doing well.

The labor market circumstances improve when the economy is doing exemplarily well, leading to better employment throughout the different demographic groups. As a result, many people who would have needed the social security program now have a stable source of income. Low-income families are no longer as dependent on handouts, with significantly evolving economic regulations like the minimum wage and the earned income tax credit. Due to this, welfare policies must be modified to serve better families that are jobless. Most governments, particularly in the US, have started initiatives to generate jobs and cut back on monetary support to the poor. Compared to providing financial aid to the populace without corresponding economic gains, this is thought to be more long-term sustainable (Fleurbaey, 2018). In order to absorb new market entrants and provide people looking for work with strong labor markets, employment-oriented welfare programs are more successful and long-lasting.

Government initiatives that boost the economy are better suited since they have caused behavioral and mental shifts. Most people prefer to work than receive government support through the welfare system. As a result, fewer individuals require government help, increasing labor force participation rates for both educated and illiterate groups. By ensuring that aid programs are in place to address any economic slowdowns, the government can be ready to handle both economic booms and recessions (Baujard, 2021). Accordingly, the study shows that fewer people rely on government assistance programs during solid economic success than during weak economic performance. The government might spend more on initiatives that create new jobs to enhance employment rates and lessen the need for social programs.

However, there are many other ways that economic performance, such as in a recession, might impact a welfare system. When the economy is doing well, the populace benefits from more employment, a diverse income base, and a decreased reliance on government social services. However, a recession or an economic downturn affects the governments social programs (Giuppon et al., 2022). In particular, during recessions, when specific segments of the population may be in danger of job losses and decreased earnings (Giuppon et al., 2022), the government should have a plan that anticipates economic trends to make educated predictions that increase the degree of readiness.

It is still being determined which economic growth or policy improvements will have the most influence on reducing the number of people on assistance. Even if welfare use has decreased over time, it is crucial to understand how economic expansion and changes in economic policy have contributed to this trend. There may be varying degrees of change in well-being due to the economy, policies, and both. However, policy influences how economic decisions are made; thus, it is challenging to analyze one without considering the other. While governments are trying too hard to change peoples perspectives from a welfare viewpoint to a work program, comparable efforts are not recognized in helping governments raise the degree of knowledge about these occupations so that those reliant on assistance may find them (Neild, 2018). As a result, it is not easy to distinguish between economic and policy functions in this situation.

A slight change in economic conditions can have significant effects since there is no difference between economic and policy change effects on the welfare system. Although this is anticipated to occur over a specific period, it has been stated that if unemployment rose by only one percent, there would be a commensurate increase in welfare demand of up to five percent. However, implementing policy measures to boost labor force participation would sharply reduce welfare needs (Neild, 2018). As a result, unemployment and the welfare system frequently follow cyclical patterns. For example, while the economy thrives, there is substantial employment and minimal demand for welfare. However, when unemployment occurs, families lose their jobs and must seek government assistance for maintenance.

On the other side, it has been noted that during prosperous economic times, individuals tend to withdraw from government help programs because they are secure in their finances and can afford the six necessities of life. When the economy is struggling, unemployment rates rise, and the number of people seeking social welfare help rises because they lack job stability. The most significant rise is reportedly seen in couples who turn to welfare support programs after losing their jobs (Neild, 2018). The demand for social services is thought to rise by up to 17% for every percentage point that the number of jobless individuals or couples rises. Because of this, if there is significant unemployment during a recession, it may have a significant impact on welfare demand. The government must have the proper procedures to make forecasts and be well-prepared to prevent disaster. However, the government may establish regulations limiting the number of eligible people for welfare, such as sanctions, time limits, or any other measures that may prevent the deserving population from receiving such aid (Neild, 2018). Further study should be done to comprehend the effects of such policies on social welfare.

However, poverty is a significant concern for all assistance systems. Although welfare regimes may seek more significant and ambitious aims, eradicating poverty is their primary objective. This was initially considered an absolute level beyond which an individual presence becomes impossible. Poverty suggests a lack of necessities such as adequate fuel, food, and clothes to maintain bodily effectiveness. This perspective holds that poverty is uncommon in industrialized; the United States, Canada, the United Kingdom, and Australia are examples of developed countries, and even the poor there have better lives than most people worldwide (Traylor et al., 2020). However, describing someone as poor solely because they are hungry misses the reality that being poor can also entail not having access to the same standards, circumstances, and pleasures as the bulk of society. Peter Townsend refers to relative poverty, which he defines as lacking the living conditions and amenities that would be considered normal, or at the very least generally supported and acceptable, in the community to which they belong. The poor are, in this sense, not the needy but the less well-off.

On the other hand, current welfare arguments frequently center on social exclusion as opposed to the traditional topic of poverty. According to this theory, poverty has two fundamental consequences. Financial issues related to disadvantage include material deprivation, whether it be absolute or relative. Second, being poor suggests that disadvantage is a structural problem (Heidenreich, 2022), making those who are poor victims of some form of social injustice. On the contrary, social exclusion refers to a broader notion that includes all actions and circumstances that exclude people and groups from society. Thus, socially excluded people suffer from various ills, including financial poverty, academic failure, criminal activity, antisocial conduct, a dysfunctional home environment, and a lack of work ethic.

In other words, cultural aspects may explain social disadvantage in the same way that material factors do. The rhetoric of social exclusion has had a tremendous impact on welfare policy. For instance, whereas concern about poverty often ties welfare support to achieving social equality via the redistribution of wealth, social exclusion is typically related to the pursuit of opportunity equality and the distribution of life opportunities rather than wealth (Heidenreich, 2022). Due to this, social inclusion is utilized rather than equality. Deprivation must also be considered a cultural, social, and even moral issue rather than merely an economic one, which requires a radical rethinking of existing welfare systems.

The idea that the government should meet societal responsibility for promoting social well-being is known as welfare. After that, most Western liberal democracies developed a welfare consensus, having parties on the left, right, and center competing to establish their welfare qualities while mainly arguing over minor issues like funding, structure, and organization. Electoral factors likely facilitated this accord since many voters understood that the welfare state offered social assurances that free market capitalism could never match. On the other hand, welfare is not a coherent philosophy (Heidenreich, 2022). Although socialists, liberals, and conservatives have all acknowledged its advantages, they have frequently been drawn to welfare for different reasons and have accepted alternate welfare systems.

Furthermore, national efficiency rather than justice and fairness served as one of the earliest motivations for social welfare. When a countrys workforce is malnourished and unwell, it cannot build a prosperous economy, let alone an effective army. Therefore, it is not a coincidence that the foundations of the welfare state were laid in countries like Germany and the United Kingdom during global competition and colonial expansion before the beginning of World War One (Zolberg, 2019). The first modern welfare state, which included healthcare and accident insurance, sick pay, and old age pensions, was formed in Germany in the 1880s under the leadership of Chancellor Bismarck.

Such a system has the advantage of actively addressing the problem of relative poverty while attempting to remove the stigma associated with welfare by ensuring that benefits are as inclusive as possible and are not means-tested. The welfare state aims to humanize capitalism through lowering distributional inequality, not to achieve social equality, as this is impossible entirely. As a result, social democratic welfare is dedicated to promoting greater outcomes, equality, and equal opportunities (Zolberg, 2019). Therefore, governments worldwide confronted the dilemma of how to finance social programs as tax receipts decreased. This boiled down to two options: increase taxes or cut the welfare budget. New Right ideologies emerged in this setting, arguing that welfare was also an insult to individuality and personal responsibility in addition to being the cause of excessively high taxes (Zolberg, 2019). Despite this, many who oppose welfare have had views that are as diverse as welfare itself. The need to reform the welfare state and reconsider welfare provision has frequently been emphasized by new socialist democrats and third-way thinkers.

Finally, social democratic thinkers have also connected welfare to the concept of equality since they see it as a necessary counterbalance to the injustices and inhumanity of market capitalism. Indeed, the core of contemporary socialism is the welfare state. For instance, Anthony Crosland described socialism in the future of socialism as a movement toward equality rather than the fundamentalist goal of shared ownership (Zolberg, 2019). This revisionist socialist perspective holds that the welfare state is a redistributive mechanism that transfers revenue from the rich to the poor through a network of public services and welfare payments supported by progressive taxation.

Labor Force Participations

As said, better economic conditions increase everyones work options, which cuts down on welfare utilization. However, the relationship between economic success and welfare usage is not equal. When economic performance rises by 1%, fewer people join the labor market, decreasing their reliance on welfare, and more people turn to government support. It will be greater if the economy continues to worsen at the same rate. Unskilled people experience a rise in unemployment of more than 1% if the economy worsens (Hiswls et al., 2017), increasing the unemployment rate by 1%. However, this depends on whether the unemployed will keep looking for work to stay in the labor force or if they will stay jobless and apply for government aid.

Relationship Between Poverty and Income

A single-parent household is more affected by an increase in unemployment, mainly when the mother is the lone parent. As the number of low-wage occupations rises, more women will enter the workforce as economic performance improves. As a result, when a recession hits, total unemployment rises, and a disproportionately large percentage of the poor turn to public assistance. However, a modest drop in employment would considerably increase poverty levels if there were a considerable degree of economic inequality. Expanding employment prospects brought about by improving economic performance have reduced reliance on government assistance.

As one may have predicted, poverty declined throughout the 1990s due to the economic boom. Poverty rates among female-headed families with children are at an all-time low. However, as previous studies have demonstrated, fewer people have managed to escape poverty than have quit getting financial assistance. As a result, more working poor or poor actively seek employment (Hiswls et al., 2017). The number of working poor people tends to increase since more low-paying employment is accessible during economic expansions. Consequently, a recession is likely to result in a rise in overall poverty and a decline in the percentage of poor persons who are employed.

Poverty and the general state of the economy have always been closely related. The 1960s and 1970s estimates claimed that poverty would decrease by 1% for every 1% that unemployment rates fell. Although there was a strong job market and lower unemployment in the 1980s (Powell, 2018), poverty did not decline as much during this period as historical statistics had predicted. This effect is related to the pay difference of that decade, as income reductions among lower-skilled workers offset the effects of the active labor market. A more significant correlation between variations in rates of unemployment and poverty reemerged, despite the 1990s reductions in poverty being relatively minor compared to the 1960s rapid fall.

Furthermore, only a few low-wage employees now claim unemployment insurance when they quit or lose their jobs. This terrible outcome is the consequence of several events. First, people dismissed for a legitimate reasonlike a woman whose childcare plans have gone throughfrequently are not eligible for unemployment benefits (Powell, 2018). Second, those who voluntarily quit their jobs are frequently ineligible for unemployment benefits, such as mothers who cannot organize transportation between work and childcare responsibilities. Third, several states do not provide unemployment benefits to people looking for part-time work. Last but not least, many low-wage employees fail to fulfill state rules for the amount of time and continuous labor a person must perform to be eligible for unemployment insurance. Shorter waiting periods for benefits or payments to part-time job searchers are two examples of changes that might enable low-wage employees who do not want to or are unable to return to the poverty rolls to find an alternate source of short-term support.

It is clear from the overall picture that the strong economy has improved work opportunities and decreased caseloads. Furthermore, it has contributed to reducing poverty and raising income in low-income households, primarily through wage increases. The economy probably contributed significantly to the decline in benefit rolls and rise in labor force participation throughout the 1990s (Powell, 2018), even if it was undoubtedly not the main driver. Welfare reform would have been far more gradual and moderate if it had been implemented during a period of slower economic development.

TANF Preparation for Handling Recession

Due to TANF, which changed the financing for public assistance from a matching grant system to a set block grant, the states are now responsible for bearing the remaining financial risk of any changes in the economic need. With fixed finance, there is a severe problem since the demand for public welfare is countercyclical or grows during economic hardship (Powell, 2018). So, during a recession, states frequently need to allocate more substantial funds to public assistance programs. Of course, this poses severe problems for several states, most of which are controlled by balanced budget requirements and usually cut expenditures during recessions.

Three elements in ANF are intended to assist states in preparing for or surviving recessions that impede their capacity to continue providing welfare assistance to all low-income families. First, TANF money may be carried over by states. The TANF block grant gives states a set sum of federal money, the amount of which is based on what was spent on the previous AFDC program. States must comply with a maintenance of effort requirement, forcing them to keep providing state funding at 80% of the level provided to a core group of public assistance programs in the mid-1990s to receive these funds without paying the penalty (Haskins & Weidinger, 2019). TANF expressly permitted states to roll over unutilized block grant funds into subsequent years. One of the main justifications for this provision was allowing states to accumulate rainy day funds they could draw from if faced with increasing economic need.

Several states have taken advantage of this carryover clause. States reported $9 billion in TANF monies that had yet to be spent as of September 2000, or 14.5 percent of the total TANF funding granted since 1996 (Haskins & Weidinger, 2019). While some funds still need to be funded, others have been committed to state programs but have yet to be spent. It is challenging to estimate precisely how much of these monies would be available to cover additional expenditure requirements during an economic downturn. Unfortunately for states, there is significant uncertainty over the future of carryover funding. Congress might pass legislation by reallocating unused state TANF funding to other budgetary needs (Haskins & Weidinger, 2019). Because of the potential loss of this money, several states have specifically avoided carryovers. Due to this danger, states are unlikely to rely on the carryover provisions entirely.

Additionally, cash welfare must be paid for using the carryover money. This limits the utility of TANF carryover finances as a vehicle for funding the recession by indicating that they cannot be used to cover increases in the expenses of state labor programs during a downturn, like increasing child care or providing wage subsidies. The $1.7 billion Federal Loan Fund, which allows states to loan up to 10% of their TANF block grant (Haskins & Weidinger, 2019), is the second mechanism for managing recessions. States must pay interest at the market rate and repay loans within three years. The states still need to utilize this option. It is probably only marginally beneficial given that borrowing by the state for social welfare programs during recessions may not have broad public support.

More intriguingly, the US economy altered how public assistance is funded to a set block grant, exposing the nation to residual financial risk when a recession hit. Since the country must function on a balanced budget to comply with the law, it must cut back on expenditures during specific periods, leading to a significant issue (Haskins & Weidinger, 2019). To ensure a fund at the state and federal levels to continue providing aid to worthy groups, the government establishes rules that enable the state to continue providing social support to vulnerable people when a recession occurs.

The state governments have established an emergency fund to draw from if a response plan is necessary. However, the states continue to run a significant risk concerning emergency carryover funds that may be unused and lost. As a result, governments find it challenging to hold onto carryover money they might need for social assistance in the future (Haskins & Weidinger, 2019). Additionally, there is a limited need for temporary assistance funds since carryover funds set aside for emergencies must be used for cash welfare and cannot defray costs associated with state employment programs.

Policies Strategies

Given the significance of social welfare programs, state and federal governments must develop strategies to protect vulnerable populations from economic downturns. This would make it possible for governments to adopt work-oriented initiatives to create employment during subpar labor market performance, assisting in resolving the countercyclical financial issues states confront during the recession (Haskins & Weidinger, 2019). Therefore, states must redirect accessibility to their contingency funds by promoting accessibility if there is a significant change in the percentage of unemployment. This is crucial to make it simpler for governments to access money during recessions.

Improving Temporary Assistance for Needy Families

In order to ensure that states with more significant economic needs may get more federal monies, it would be vital to strengthen TANF by adding cyclicality to block financing. Guaranteeing that the payments are linked to changing unemployment as one of the indications of need would be made practicable (Haskins & Weidinger, 2019). Contingency fund programs must be permitted to supplement such programs to guarantee that the states unique economic demands are satisfied (Hiswls et al., 2017). Suppose Congress decides to reallocate the extra monies. In that case, the states may be able to establish a rainy-day fund, enabling them to retain a small portion of their block grant funding without suffering repercussions. The states can carry over money but will not accumulate significant balances.

Matching State Flexibility With Federal Time Limits

It can be challenging for those who need social support to obtain work, make enough money, and leave the welfare system during a recession. As a result, the federally mandated time frame has to be extended since it would be unreasonable to deny people access to public assistance because of time restrictions (Hiswls et al., 2017). Therefore, when a recession occurs, governments should have the option to continue providing aid to people unable to support their families financially during such times.

Empowerment as an Option

Because state governments must rely on the private sector, welfare-to-work programs are not long-term viable. For the unemployed portion of the population to continue receiving income while they hunt for alternative jobs in the private sector, the state that wants to continue providing aid must establish an employment pool for them. The state should keep looking for better ways to implement successful employment initiatives.

Conclusion

As seen above, social programs benefit significantly from a healthy economy. The condition of unemployment can be negatively impacted by a mild recession, although state governments have adopted several changes to lessen reliance on social programs. Due to these economic uncertainties, welfare programs must be maintained since the unemployed will keep asking the government for help. As a result, the economy directly affects the welfare system that the government has put in place to protect the most vulnerable citizens. Although these initiatives are unsuccessful, several policy options might be considered to increase preparation for supporting the populations most vulnerable people.

As a result, the strong economy has been predominantly credited with welfare reforms current effectiveness. States efforts in reducing caseloads and increasing employment for less-skilled workers may be materially hampered by a recession, particularly a severe one that raises unemployment rates. It may be advantageous to make specific legislative changes to guarantee that state welfare-to-work programs continue to function when private-sector employment is less prevalent and provide financial assistance to states during escalating economic needs.

References

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Haskins, R., & Weidinger, M. (2019). The temporary assistance for needy families program: Time for improvements. The ANNALS of the American Academy of Political and Social Science, 686(1), 286-309. Web.

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Traylor, A. M., Ng, L. C., Corrington, A., Skorinko, J. L., & Hebl, M. R. (2020). Expanding research on working women more globally: Identifying and remediating current blindspots. Journal of Social Issues, 76(3), 744-772. Web.

Zolberg, A. R. (2019). Bounded states in a global market: The uses of international labor migrations. In Social theory for a Changing Society (pp. 301-335). Routledge.

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