Wednesday, November 8, 2000
Halifax Chronicle Herald

Getting welfare to work in Nova Scotia

By Brian Lee Crowley

At last, a real debate about what welfare means and how it should work.

Goaded by the Opposition in the legislature over the government’s proposed welfare reform, Premier John Hamm lost his cool at the suggestion that the advocates of more generous welfare somehow have cornered the market on compassion.

The NDP claimed that the reforms, designed to make it more attractive for welfare recipients to work, were mean spirited and hurt the most vulnerable in our society. The Premier, in high dudgeon, rose to say that it was not right that people on welfare should ever be in a position to earn more than people who work. Welfare, he reminded the House, should be a helping hand in time of crisis, not a way of life where people capable of working could expect to be able to live indefinitely at the expense of the taxpayer. The Opposition retorted that the answer then was to raise the minimum wage, and boost workers’ wages higher than welfare, not to reduce welfare. Who is right?

The evidence is overwhelming that welfare rates that are too high entice people onto welfare and keep them there, even when the economy of doing well and there are lots of jobs available. In Ontario, successive provincial governments in the 80s and early 90s pushed welfare rates to among the highest in North America. The result was that each time there was a recession, welfare recipients rose dramatically, but then did not fall during the upturn.

This constant ratcheting upward meant that when Premier Mike Harris took office, one Ontarian in 10 was on welfare, a staggering state of affairs in one of the wealthiest jurisdictions in the world.

One of the things that clearly drags people onto welfare is exactly the poverty trap that the Premier described: because of the way the tax and benefit systems work together, people are often materially better off on welfare than they are working. Welfare benefits are not taxed and there are lots of non-cash benefits too. Someone working full time at minimum wage pays taxes, plus has all kinds of social benefits clawed back as their income rises.

Is the answer to force up the minimum wage, and widen the gap between welfare and earned income? Hardly.

Minimum wage jobs are the entry point to the labour market. The higher the minimum wage, the harder it is for people to jump that first hurdle. If you have poor job skills, poor education and little training, it takes a while to acquire those skills. Employers can only pay a high minimum wage to people who can already produce high value for that wage, which excludes those people who aren’t too productive to begin with. A high minimum wage makes the poverty trap deeper for society’s most vulnerable.

What helps people out of poverty is working. In fact it is a tiny minority of the workforce that works at the minimum wage. That’s because the more people work, the more valuable they become as employees. In fact, the Statscan data about income are eloquent on this point: the best way to move people off low incomes is not to raise welfare rates, but to get people into the labour market, where they acquire value to employers and self-esteem for themselves.

If you’re on welfare, the only way you can get a “raise” is if the government ups welfare rates. If you work, you can easily influence your value in the marketplace. You can finish high school, get government or employer-sponsored job training, take a university course or put in an exemplary work performance. Generally you become a powerful agent for change in your own life. That is one of the reasons why working isn’t just about money — it’s also a moral benefit.

So the Premier is right to call for policies that make it decisively more attractive financially to work than to be on welfare. That is the policy that most benefits the poor, and it benefits society as a whole by lowering the tax burden and making Nova Scotia more productive and less dependent. And make no mistake about it, under the current dispensation, people trying to move off welfare and into work make themselves worse off, not better off.

In fact, the arguments in favour of the premier’s position are so good, it’s rather disappointing that he’s not prepared to go further with them. The province ran a welfare reform experiment in the Annapolis Valley earlier this year that was more generous in its incentives for welfare recipients to work than the plan now being proposed for the province as a whole. Yet the take-up in the Valley was a tiny 6 percent of those eligible.

The Premier’s instincts about the malaise in our welfare system are right, but to fix it he must do more than just tinker around its edges.

Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a public policy think tank in Halifax. E-mail: BrianLeeCrowley@aims.ca