Better Welfare Delivery Through Innovation

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posted February 28, 2001

Canada replaced the Canada Assistance Program (CAP) and the 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, healthcare, and social assistance.

Similarly, in 1996, the US federal government replaced the Aid to Families with Dependent Children (AFDC) program with 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 the number of welfare recipients. The number of welfare beneficiaries, as a percent of the population, in Canada has declined from a peak of 10.8% in 1993/94 to 7.5% as of 1998/99—most recent year for which data is available. This is still nearly 40% above the previous low of 5.4% achieved in 1974. In other words, we still have a large number of people on welfare compared to our population. Despite the decline of welfare since 1993/94, all of the provinces, save for Alberta and New Brunswick 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% in 1994 to 2.3% in 2000. This is well below the previous low of 5.08%, also achieved in 1974.

Why? A more robust economy and lower unemployment rates in the US partially explain their 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. In fact, only Ontario and Alberta have undertaken any serious reforms of the welfare system, although even in these jurisdictions, the level 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 organisations including both non-profits and for-profits. Many of these reforms have focused welfare delivery on dealing with the underlying causes of the problems rather than simply cutting a cheque.

One such 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 standard, meaning the company only gets paid if welfare recipients are successfully employed.

In order to achieve this America Works has developed an innovative program aimed at removing barriers preventing 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 and interviewing. This is followed by a 4-month trial work period. At the end of trial period, the employer recruits the participant directly on a full-time basis.

America Works receives no payment until the welfare recipient is placed in a job. At this point, it receives a payment of 18 percent of the total value of the contract—US$5,490 per recipient. America Works then receives 70 percent if the employer hires the recipient as a permanent employee after the 4-month trial and then receives the remaining 12 percent if the individual remains employed for the next three months.

How has the program done? A 1998 study by New York State’s Department of Social Services revealed that of those recipients placed in jobs over a 3-year period, 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 one study, America Works is capable of training workers for about $5,500 per recipient while similar city programs cost approximately $29,000, implying savings of over 80 percent!

This type of innovative program clearly makes recipients of welfare better off by assisting them in acquiring needed life and job skills which enable them to become self-sufficient. At the same time the program is able to save taxpayers money. This is a win-win situation for welfare recipients and taxpayers alike. If Canada is truly serious about dealing with the causes of welfare and fundamentally changing the way we try to help those in need than one solution has to be greater experimentation and innovation.

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