Re the Cato Institute study (reported in the WSJ op-ed page, a leading source of sick humor parading as journalism) claiming to show the overwhelming generosity of total welfare benefits, once one takes into account non-pecuniary benefits like Medicaid, and allows for the fact that welfare benefits are tax free. I sent for a copy of the study and have the following to report (confirmed in a conversation with one of the authors, Michael Tanner, who was quite forthcoming): 1) I retract my previous retraction: the most inflammatory statistical results in the study DO involve comparisons of apples and oranges: that is, comparison of "pretax wage equivalent" of welfare *including* non-pecuniary benefits to a measure of payroll income which *does not include* imputed value of non-pecuniary benefits. This is most clearly seen in Table 12 of the study, "Pretax wage equivalent [of total welfare benefits--more on this below] as a percentage of mean salary." Now, do you suppose that their estimates of "mean salary" include non-pecuniary and delayed benefits, such as: medical insurance; life insurance; present value of pension; present value of Social Security benefits (that's what FICA taxes pay for, after all--and they DO adjust for FICA taxes in the study); etc.? No way. So again, somehow non-pecuniary benefits count as income only if you're on welfare, but not if you work. Needless to say this comparison dramatically inflates their estimates of "percentage of mean salary" provided by welfare. 2) As has been mentioned by Randy Albelda and others, the numbers calculated proceed on the assumption that the typical welfare recipient receives *all* of the various transfers--AFDC, Medicaid, Rent assistance, etc. There is a section in the study that deals with this assumption--entitled "Do recipients recieve all benefits?" in which the authors recognize that all recipients clearly don't, clearly in the area of housing support. The solution, offered in Table 15, is to run the numbers including only AFDC, Food Stamps, and Medicaid. This cuts the median estimate of "equivalent hourly wage" nearly in half--from $9.18 to $4.86. And of course, this still assumes that the typical welfare recipient receives all three of those programs. Add to this that, as the authors recognize (but do not evidently control for), aid from particualr programs is adjusted downward to reflect multi-program participation. What information is there on the total welfare package actually received by the median welfare recipient? 3) I argued earlier that the study could be interpreted with equal validity to show that compensation for low-end jobs was too low, rather than that welfare benefits are somehow "too high." The authors recognize this possibility in their introduction, saying: "Although it would be nice to increase the wages of entry-level workers to the point where work paid bettter than welfare, government has no ability to do so. (Attempts to mandate wage increases such as minimum wage legislation, result chiefly in increased unemployment.)" [Parentheses in original.] The footnote in support of the parenthetical comment carefully avoids *all* of the recent work suggesting that raising the minimum does not reduce, and may increase, employment; for example it ignores the new book by Card and Krueger devoted to the subject, and to criticisms of earlier studies. However, the footnote *does* refer to the J Ec Lit survey article by Brown, Gilroy, and Kohen (1982), which concludes that the best overall estimate is that the disemployment effect is small to zero--i.e., highly inelastic, which certainly does not support the conclusion that the "chief" effect of raising minimum wages is to cause increased unemployment. On a related note, I suggested that the absence of national health care and guaranteed day care contributed to the lack of mobility off welfare. The authors pay no attention to the former difficulty but dismiss the latter based on an American Enterprise Institute publication by James Heckman et al. Does anybody know about this or more generally about the effectiveness of providing day care to would-be job seekers? I conclude as before: the figures presented by the study are seriously misleading about the income equivalents recieved by welfare recipients, both absolutely and in comparison to median wage earners. The study illegitimately discounts the alternative explanation that low-end wages and non-pecuniary support (particularly health care and child care) are too low, rather than that welfare is too high. Finally, the primary consequence of the chief policy suggestion of the study--to "cut benefit levels substantially" would be to exacerbate seriously income inequality and the poverty rate in the US, which are already the worst among developed capitalist economies. Gil Skillman
