Fraser Institute says Canadian welfare reform too weak to make significant impact

Contact:

Jason Clemens, Director of Fiscal Studies
The Fraser Institute, (604) 714-4544
Email: jasonc@fraserinstitute.ca

Release date: 16 August 2001

VANCOUVER, BC—Canada must implement more innovative welfare reform in order to significantly decrease the number of welfare beneficiaries says a new study, Surveying US and Canadian Welfare Reform, released today by The Fraser Institute.

"The United States is in the process of successfully transforming its welfare system back into an employment-focused and temporary assistance program for those in need. Canadian provinces should follow their lead and move forward with innovative reforms that would make a positive impact on our welfare system," says Jason Clemens, co-author of the study and the Institute's director of fiscal studies.

Decreasing welfare caseloads in Canada and the U.S.

Both Canada and the United States have experienced declines in the number of welfare cases, both in absolute terms and as a percentage of the population.

The United States has experienced a decline in the number of welfare recipients from a high of 14.2 million in 1994 (5.5 percent of the population) to 5.8 million in June of 2000, representing 2.1 percent of the population. The number of welfare recipients in the United States has declined by 8.4 million, a decrease of 59.4 percent between 1994 and 2000.

Canada has also experienced declines in the number of welfare recipients. The number of welfare beneficiaries in Canada has dropped from a high of 3.1 million in 1994, an astonishing 10.7 percent of the population, to 2.1 million in 2000, representing 6.8 percent of the population. Between 1994 and 2000, the number of welfare beneficiaries dropped by 1,015,000, a decline of 32.7 percent over six years.

However, the current number of welfare beneficiaries in Canada is still 155,000 more than at the beginning of the decade. Furthermore, even after a six year period of decline, the percentage of Canadians receiving welfare (6.8 percent) is still well above the U.S. peak (5.5 percent) prior to reform.

Welfare reform in the US: innovation and experimentation

"The provision of welfare and related services is a sensitive undertaking requiring a delicate balance between the compassionate delivery of services to those in need and the maintenance of fiscal prudence," says Clemens. "Both Canada and the United States have reformed welfare during the late 1990s but reforms in the U.S. went further and were more successful in dealing with the underlying causes of welfare."

In the United States, the 1996 passage of a seminal piece of federal legislation, the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA) began a period of flexibility, experimentation, and innovation in the delivery of welfare and related services at the state level.

Reforms have included ending the entitlement status of welfare through time limits for receipt of benefits, exploring alternate possibilities for support through family, charitable organizations or lump sum payments, and immediate work requirements. Other innovations have included private sector delivery of programs, and provision of services through faith-based organizations.

"By introducing reforms such as time limits, these states effectively ended the right to welfare benefits and changed the tone of welfare provision in their states," notes Clemens. "A significant reason why reforms in the United States have produced positive results is that the presumption of welfare as an entitlement has been eliminated."

Privatization—a successful model

Privatization reforms include contracting out to both for-profit and non-profit organizations of a number of the administrative and delivery functions of welfare programs.

One of the most innovative and successful experiments in welfare delivery has been undertaken by New York City, which entered into a contract with America Works, a for-profit company. America Works aims to assist hard-to-employ individuals to make the transition out of welfare dependency into stable employment.  In 1998, 88 percent of clients placed in jobs through America Works in the previous three years were still off the welfare rolls.

"How much of the American experience is applicable to Canada?" asks Marvin Olasky, Senior Fellow of the Acton Institute and an influential figure in U.S. welfare reform, writing in the foreword to the study. "Analysis of available governmental mechanisms is important but I suspect the larger outcome depends on how much faith Canadians have in government and how much understanding they have of how government-provided welfare generally hurts the very people it is designed to help."

Alberta and Ontario: most aggressive Canadian provinces

Alberta was the first province to make significant reforms to welfare and provided a policy template for other provinces. The province undertook large-scale reform of the welfare bureaucracy, reduced benefits, increased monitoring and fraud investigation.

Alberta also introduced a stronger focus on diversion and employment, and incorporated the limited use of non-profit organizations to aid in the delivery of services.

Alberta has experienced an impressive 66.9 percent decrease in the number of Albertans in receipt of welfare since the peak in 1992/1993. The claim that there was a large migration of Alberta recipients onto BC's welfare rolls has proven to be largely unfounded.

Ontario is the only province to introduce limited workfare—mandatory employment stipulations for the receipt of benefits. Like other Canadian provinces, it also reduced benefits, overhauled its administrative bureaucracy, and focused on diversion and employment. Ontario also experimented with private contractors and the limited use of non-profit charitable organizations.

"The introduction of the Canada Health and Social Transfer (CHST) in 1996 allowed greater flexibility in the delivery of social services by the provinces," says Clemens. "However, none of the Canadian provinces have chosen to undertake some of the most successful reforms that have been implemented in the United States."

Recommendations for Canada and the Provinces

1. Provincial governments should adopt specific time limits, for instance 48 or 60 months, for receipt of welfare benefits. A lifetime assistance limit of 5 years or less would create an effective incentive for recipients to find self-sustaining employment.
2. Divert potential recipients from entering the welfare rolls.
3. Implement immediate work requirements as a condition of receiving assistance.
4. Implement tough sanctions for non-compliance with benefit requirements.
5. Focus on employment, not training and education. Provinces should refocus their efforts and funding on programs and initiatives geared directly to assisting recipients in securing and maintaining employment.
6. Encourage private for-profit welfare providers. Canadian provinces have not experimented with private sector welfare-to-work programs and have instead focused on wage subsidies to employers.
7. Encourage the involvement of faith-based non-profit organizations.

"By undermining the work ethic and expanding the size and scope of the welfare state, the system has worked to entrap recipients while at the same time generating new clientele. Innovative reform is the only way to stop this damaging cycle of dependence," concludes Clemens.

Established in 1974, The Fraser Institute is an independent public policy organization based in Vancouver, with offices in Calgary and Toronto.