STUDY RELEASE

September 19, 1995

Welfare pays better than work, study says

Welfare benefits are far more generous than commonly portrayed and substantially exceed the amount a recipient could earn in an entry-level job, according to a new study from the Cato Institute. As a result, recipients are likely to choose welfare over work, increasing long-term dependency.

The study examined the combined value of benefits--including AFDC, food stamps, Medicaid, and others--for a typical welfare recipient in each of the 50 states. The study compared the value of those tax-free benefits with the amount of pretax income that a worker would have to earn to receive an equivalent income.

Among the study's findings:

To match the value of welfare benefits, a mother with two children would have to earn as much as $36,400 in Hawaii or as little as $11,500 in Mississippi.
In New York, Massachusetts, Connecticut, the District of Columbia, Hawaii, Alaska, and Rhode Island, welfare pays more than a $12.00 an hour job--or more than two- and-a-half times the minimum wage.
In 40 states welfare pays more than an $8.00 an hour job. In 17 states the welfare package is more generous than a $10.00 an hour job.
Welfare benefits are especially generous in large urban cities. Welfare offers the pre-tax income equivalent of a $14.75 an hour job in New York City, $12.45 in Philadelphia, $11.35 in Baltimore, and $10.90 in Detroit.
In 9 states, welfare pays more than the average first year salary for a teacher. In 29 states, welfare pays more than the average starting salary for a secretary. In 47 states welfare pays more than a janitor. Indeed, in the 6 most generous states, benefits exceed the entry level salary for a computer programmer.

The study's authors -- Michael Tanner, Cato's director of health and welfare studies; Stephen Moore, Cato's director of fiscal policy studies; and David Hartman, CEO of Hartland Bank in Austin, Texas -- conclude that if Congress or state governments are serious about reducing welfare dependency and rewarding work, the most promising reform is to cut benefit levels substantially.