Welfare Reform in Maryland: A Promising Start, More Must Follow

“You get what you pay for” is a saying no truer than when applied to welfare programs. A study by my Cato Institute colleagues Michael Tanner and Stephen Moore, with David Hartman of Austin’s Hartland Bank, examined the amount of assistance from major federal and federal/state programs that a typical welfare family – a mother with two children – would be eligible for in the 50 states and the District of Columbia.1

In 1995, Maryland welfare recipients on average could receive a pretax wage equivalent of up to $22,800 in various income-maintenance benefits (or $19,489 after taxes). This pretax amount works out at $10.96 per hour, ranking Maryland 11th among the states. The breakdown is shown on the accompanying table. In these circumstances, why take an minimum-wage job at $4.25 an hour?

It need hardly be pointed out that the money to pay for these benefits comes out of the pockets of Maryland taxpayers, among others. It first goes to Washington. There, federal bureaucrats soak up part of it as a sort of “handling fee” before redistributing it back to the Free State laden with regulations. Further, welfare recipients paid not to work do not produce goods and services that would give them the pride of earning their keep as well as contributing to Maryland’s economy.

Some argue that the right approach is not to lower benefits payments but, rather, to raise the minimum wage. This is wrongheaded. Making it more costly for businesses to hire workers always slows job creation, leads to layoffs and hikes consumer prices. A recent example: In 1990, New Jersey raised its minimum wage to $5.05 an hour. The results are instructive. Two years previously, in 1988, the proportion of employed teenagers in both New Jersey and neighboring Pennsylvania had been about 40.5 percent. By 1992, a year after the phase-in took effect, the teenage employment rate in New Jersey had fallen to 29.1 percent, while Pennsylvania had maintained a rate of 36.8 percent.2 Fighting one bad program with another does not work.

As Governor Glendening considers welfare reform – and it is laudable that he has shown such an interest in this area – he should observe that a major part of the problem originates in Washington. If Maryland policy makers wish to break some recipients’ addiction to the dole, the state must break free of federal programs and joint federal/state programs (such as Aid to Families with Dependent Children and Medicaid), while resisting the temptation to raise the costs of employing recipients. Maryland must be free to develop creative ways to wean its citizens off their debilitating dependence – one created and maintained by Washington.

Dr. Hudgins is the director of regulatory studies at the Cato Institute and a member of the Calvert Institute’s advisory board.

End Notes

[Top] 1. Michael Tanner, Stephen Moore and David Hartman, “The Work vs. Welfare Trade-Off: An Analysis of the Total Level of Welfare Benefits by State,” Cato Institute Policy Analysis, No. 240, September 19, 1995.

[Top] 2. Donald Deere, Kevin M. Murphy and Finis Welsh, “Sense and Nonsense on the Minimum Wage,” Cato Institute Regulation magazine, 1995, No. 1, pp. 47-56, at 55, chart.

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