May 2001
Innovations Lead to Better Welfare Delivery
by Chris Schafer & Jason Clemens
In 1996, Canada and the United States increased the flexibility with which Canadian provinces and US states could deliver welfare. Canada replaced the Canada Assistance Program (CAP) and Established Program Finance (EPF) with the Canada Health and Social Transfer (CHST). It provides a single block grant to provinces, with less federal conditions attached, to support post-secondary education, health care, and social assistance.
Similarly, in 1996, the US federal government replaced the Aid to Families with Dependent Children (AFDC) program with legislation called the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), effectively ending welfare as an entitlement program.
Both countries have experienced success, to varying degrees, in reducing their numbers of welfare recipients. In Canada, the number of welfare beneficiaries as a percent of the population has declined from a peak of 10.7 percent in 1994 to 6.8 percent as of 2000. This is still nearly 30 percent above the previous low of 5.3 percent achieved in 1974. In other words, we still have a large number of people on welfare compared to our population. Despite the decline of in the number of welfare recipients since 1994, four provinces have higher levels of welfare than they did a decade ago.
Our southern neighbours have experienced a more pronounced decline in welfare. The percent of the US population receiving welfare has declined from a peak of 5.5 percent in 1994 to 2.1 percent in 2000. This is well below their 1974 level of 5.08 percent.
What accounts for the difference in the two countries’ rates? A more robust economy and lower unemployment rates in the US partially explain that country’s better performance. Another explanation is the higher degree to which US states have used the flexibility accorded them in delivering welfare and related services. The Canadian provinces undertook a much more limited and narrow set of reforms, relying largely on simply reducing welfare benefits. Any serious reforms of the welfare system are limited to Ontario and Alberta, although even in these jurisdictions, the type of reforms undertaken are not nearly as broad as in the US.
Many US states have transformed their welfare programs by introducing work requirements, sanctions, service delivery reform, and experimentation with private organizations including both non-profits and for-profits who provide services. Many of these reforms have focused on dealing with the underlying causes of the problems that cause people to rely on welfare in the first place.
One example of the success of US innovation in welfare delivery is America Works. America Works is a for-profit company contracted by New York State to place long-term welfare recipients in jobs. It operates on a pay-for-performance basis, meaning the company only gets paid if welfare recipients are successfully employed.
In order to help welfare recipients get work, America Works has developed an innovative program aimed at removing barriers that prevent employable individuals from finding and keeping jobs. The program consists of 4 stages: orientation, training, trial work period, and recruitment. Participants are initially prepared for the discipline of working life. Next, a training program lasting roughly 5 weeks covers a range of workplace skills including clerical tasks and interviewing. This is followed by a 4-month trial work period. At the end of the trial period, the employer has the option of recruiting the participant directly on a full-time basis.
Each welfare recipient is potentially worth US$5,490 to America Works. But there is a catch. The organization receives no payment until the welfare recipient is placed in a job for a trial work period. At this point, the government pays it 18 percent of the US$5,490. America Works receives a further 70 percent if the employer hires the recipient permanently after the 4-month trial period, and receives the remaining 12 percent if the individual remains employed for the next three months.
How successful is the program? A 1998 study by New York State’s Department of Social Services revealed that of those recipients placed in jobs 3 years before, 88 percent were still off the welfare rolls. The Social Market Foundation further noted that America Works had been "successful in helping the long-term unemployed to find jobs and at saving public money." In fact, according to another study, America Works is capable of training workers for about $5,500 per recipient while similar city programs cost approximately $24,000, implying savings of 77 percent!
This type of innovative program clearly makes welfare recipients better off by helping them to acquire needed job and life skills which enable them to become self-sufficient. At the same time, the program saves taxpayers money. Both welfare recipients and taxpayers benefit extensively from this innovative program. If Canadians are serious about dealing with the causes of welfare and want to fundamentally change the way we try to help those in need, then we must incorporate greater experimentation and innovation into our welfare delivery programs.
Chris Schafer is a Welfare Entitlements Intern at The Fraser Institute.
Jason Clemens (jasonc@fraserinstitute.ca) is the Director of Fiscal Studies at The Fraser Institute. He has a Masters Degree in Business Administration from the University of Windsor.
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