FREE ESSAY ON WELFARE

WELFARE

The United States or The United Welfare States - A Cost Benefit Analysis 
The role of welfare within our society has always been controversial. This problem
emphasizes the need to understand the roles of variable factors when pertaining to the
subject of welfare within our society. The proposed analysis will address the phenomenon
of welfare assistance and several factors which may contribute to the increase or
decrease of welfare assistance to the poor in 4 ways: (1) by defining major concepts and
any other concepts about which there is likely to be misunderstanding, (2) by further
examining the past history pertaining to the subject of welfare assistance within the
United States, (3) by developing the formulation of a hypothesis which will provide for
an explanation of welfare, and finally (4) determining whether or not the benefits of
welfare assistance outweigh the cost. Ultimately, the purpose of this research analysis
is to investigate variable factors that may contribute to the increase or decrease of
welfare assistance. This cost benefit analysis is an attempt to explain the tentative
assumptions of others pertaining to the subject of welfare, in order to determine and
explain the relationship of welfare to the economic cost and benefits. Cost-Benefit
Analysis before welfare assistance can be analyzed there is a need to define the terms
that will be used. Policies like welfare assistance are worthwhile only if the benefits
to society are greater than the costs. When choosing among a set of policies, the policy
with the greatest net benefit (benefit over cost) should be chosen. Hence, this is where
the term cost-benefit analysis comes from. Cost-benefit analysis is a technique for
determining the optimal level of an economic activity such as welfare. In general, an
activity such as welfare assistance should be expanded as long as it leads to greater
benefits than costs. In purely economic terms, does the benefit of welfare assistance
justify the costs of welfare assistance? (Mishan 13) Why Use Cost-benefit Analysis? Since
1981, government agencies have been required to perform cost-benefit analyses called
Regulatory Impact Analyses (RIA's) for all major regulations within the United States.
Many statutes require that cost-benefit analysis be undertaken and the results be
reported to Congress (Mishan 2). Cost-benefit analysis can also be a good way to measure
how effective a policy such as welfare assistance has been, or to find ways in which a
program can be improved. But, regardless of how it is used, the preparation of a cost
benefit analysis provides a useful framework for consideration of the possible effects of
a proposed policy.
Past History of Welfare Assistance: One of the first welfare programs to provide income
support to the poor was a federally backed plan called the Aid to Dependent Children
(ADC) program. This legislation was introduced with the establishment of the Social
Security program during the Great Depression. (Rowley, and Peacock 43) The ADC program
which had started nearly sixty years ago is now better known as the Aid to Families with
Dependent Children (AFDC) program, which provided a federal entitlement to economic
support for single parents with children younger than 18 who fell below a threshold of
assets and income (Rowley, and Peacock 44). Federal guidelines allowed for each state to
set its own predetermined needs standards for families of different sizes and living
locations. Both the federal government and the states supplied funding for the AFDC
program (Rowley, and Peacock 50). In 1996 Congress adopted the Temporary Aid to Needy
Families (TANF) program by enacting the Personal Responsibility and Work Opportunity
Reconciliation Act that ultimately changed the structure of federal financial assistance
to the states thereby abolishing the AFDC program. Another social welfare program was the
Supplemental Security Income (SSI) program. Congress established the Supplemental
Security Income program in 1972, with payments beginning in January 1974. It replaced the
former Federal-State programs of Old-Age Assistance (OAA), Aid to the Blind (AB), and Aid
to the Permanently and Totally Disabled (APTD)(Myles, and Pierson 9). An individual may
have qualified for payments on the basis of age, blindness, or disability. Any person
aged 65 or older was also eligible. President Richard Nixon enacted the Supplemental
Security Income program with the signing of the Supplemental Social Insurance Act. The
benefits under this program were originally targeted to the elderly who did not qualify
for social security and the blind and disabled whose income and assets fell below the
specified thresholds. A third major welfare assistance program is the Medicaid program.
The Medicaid program is a health care support program targeted toward the poor. Medicaid
was originally supposed to provide the same health care to the poor as privately insured
Americans received with their health care programs. (Myles, and Pierson 9) The Medicaid
program was originally set up so all families who qualified for AFDC or SSI were
automatically entitled to Medicaid benefits. Today, Medicaid is the major mechanism for
financing health and long-term care for the poor in the United States. As such, the
Medicaid program covers the medical expenses for over 35 million Americans at a cost of
more than $152 billion a year (Myles, and Pierson 12). 
Explanations for Welfare: Although the United States is a country with an extensive
amount of economic resources, problems still transpire. One such problem occurs with not
the amount of resources but actually how those resources are distributed among its
citizens. Because of this, some citizens live in squalor or complete poverty while others
live in luxury. This poverty dilemma in the United States is usually referred to as an
income distribution problem or size distribution of income. (Schiller 734) For example,
some citizens have an annual income of several billion dollars while other citizens have
no income whatsoever. The incidence of poverty in the United States is usually referred
to as the poverty rate. The figure below shows the trend in the poverty rate between 1960
and 1995. During the beginning of the 1960s, 22.2% of the population, or 39.9 million
individuals, officially lived in poverty. During the 1970s the incidence of poverty fell
to 12.6% of the population. Since 1970, the poverty rate has steadily increased to 13.8%
of the population in 1995, or 7.5 million families. The figures are even greater among
certain family groupings such as single family households headed by females with children
under the age of 18. In fact, the highest rates of poverty are found among this group
living below the poverty threshold level. (Sharp, Register, and Grimes 202) Table 1 shows
the poverty threshold levels in 1995. Table 1, Poverty threshold levels in 1992 Family
Size, Threshold Level 1- $7,763 2- 9,933 3- 12,158 4- 15,569 5- 18,408 6- 20,804 7-
23,552 8- 26,237 9 or more 31,280. Again, the poverty issue affects a large portion of
the United States population. It is because of the reasons mentioned above that social
welfare programs have been established to help alleviate the suffering of the poor within
our society. 
But, what causes poverty? At first, this would appear to be a simple question to answer.
Lets first define what poverty is: Poverty or poor means not having enough income to
provide the essentials of everyday living food, shelter, clothing, and other basic
needs.(Schiller 751) However, many factors are at play in determining the actual causes
of poverty. They include low quality of resources, low market values on the services they
provide in a market, low productivity, low pay of the poor due to low levels of education
and training, misfortune, small or no inheritances, and discrimination. (Sharp, Register,
and Grimes 206) Because of the many factors involved there is no one simple answer to
what is the actual cause of poverty. Moreover, many would argue about just how much
income is needed for the essentials of daily living. The debate goes on.
Does the Benefit of Welfare Assistance Outweigh the Cost? Now that there is a general
understanding of the establishment of social welfare programs, the next question to
answer should be does the benefit of welfare assistance outweigh the cost? Beginning with
the introduction of the Temporary Aid to Needy Families program, the United States has
been at a turning point with social welfare programs. For example, during 1980 the
expenditures for the old welfare program, AFDC, was $5.4 billion while the Earned Income
Tax Credit (EITC, also a social welfare program), was $2.0 billion. The annual cost of
the EITC grew from $2 billion to $12 billion between 1986 and 1992. By 1996, annual
outlays reached $25 billion, almost double the level of federal expenditures on AFDC.
While part of this growth is due to a rising demand, the main reasons for expansion have
been sizable benefit increases and extensions of eligibility introduced in 1986, 1990,
and 1993. (Myles, and Pierson 6) Table 2 Federal Spending on EITC and AFDC, 1980-1996 ($
In billions) EITC (first) AFDC (second) 1980: 2.0, 5.4 - 1981: 1.9, 6.9-1982: 1.8,
6.9-1983: 1.8, 7.3-1984: 1.6, 7.7-1985: 2.1, 7.8-1986: 2.0, 8.2-1987: 3.9, 8.9-1988: 5.9,
9.1-1989: 6.6, 9.4-1990: 6.9, 10.1-1991: 10.6, 11.2-1992: 12.4, 12.3-1993: 13.2,
12.3-1994: 19.6, 12.4-1995: 22.8, 12.8-1996: 25.1, 13.2 Source: United States House of
Representatives, Committee on Ways and Means, Where Your Money Goes: The 1994-95 Green
Book (Washington, DC: Brassey's, 1994), 389, 700. Note: AFDC expenditures exclude
state-level spending and Administrative costs. Although the EITC expenditures have
surpassed the old welfare program AFDC, cost-benefit analysis can help identify the
optimal level of expenditures of welfare assistance programs, as long as estimates of the
benefits and costs of welfare assistance are supplied. Once benefits and costs are
estimated, cost-benefit analysis indicates that well being will be enhanced through an
increase in welfare assistance programs so long as the benefit society derives from the
increase is at least as great as the cost of the increased activities. (Sharp, Register,
and Grimes 101) 
The Opportunity Cost: The costs or money expense of welfare assistance to society is
ultimately supplied through some sort of tax revenue. The economic cost to society is the
value of the goods and services that resources used for welfare assistance could have
produced if they had not been used for welfare assistance. This simple concept is also
known as the opportunity cost principle which states that the true cost of producing an
additional unit of a good or service is the value of other goods or services that must be
given up to obtain it. (Schiller 10) The opportunity cost principle can be an effective
means of identifying the actual costs of welfare assistance.
The Explicit Costs: Other types of cost pertaining to welfare assistance are explicit
costs. Explicit costs are the cost incurred by the producer to buy or hire the resources
required to accomplish its objective (Sharp, Register, and Grimes 69). Although welfare
assistance is provided by the government and not a business it does have an objective and
that objective is to provide for the poor. The explicit costs of the services provided by
the government be it state or federal are the costs of the resources that it buys and
hires to provide such services. Such expenses include land, employees, buildings,
equipment, and etc. Welfare assistance is provided in all 50 states with offices
throughout each state and probably each county. The explicit costs alone to provide for
welfare assistance are tremendous. 
The Implicit Costs: Another type of cost is implicit cost. Implicit costs are the costs
induced by the producer for the use of self-owned, self-employed resources (Sharp,
Register, and Grimes 69). These costs are sometimes ignored or tend to be hidden costs.
Such costs can also be identified by the opportunity cost principle. The cost to society
of producing welfare assistance could exceed explicit costs. By the government
concentrating resources or providing for welfare assistance they reduce the amount of
other goods or services, for example, military hardware available to society. By the
government cutting back on military hardware, which could have been sold for a profit, it
is able to provide more welfare assistance to the poor. These forgone earnings are
implicit costs to the government and to society of the welfare assistance obtained by the
poor.
Benefits: The poor, the government, and society all receive an abundance of benefits on
account of social welfare assistance programs. The most obvious benefactor is the poor.
Without welfare assistance some individuals might not make it in this world. Also, the
poor benefit from other social programs such as job training, childcare, educational
grants, medical expenses, and tax credits. If not for social welfare assistance programs,
a large majority of these individuals would have a hard time obtaining such programs. The
poor aren't the only people to benefit from welfare assistance; the government also
benefits from such programs. If welfare assistance programs weren't available to the poor
eventually the poor would have to support themselves. There are only a couple of ways to
support yourself and it's legally or illegally. If a person can't get a job because of
scarce employment or no or little job skills that individual is going to try to obtain
money some way to put food in his/her stomach. Without a prospering economy and social
welfare assistance programs the crime rate would probably skyrocket. Finally, society in
general benefits from social welfare programs. Again, if welfare assistance programs
didn't exist the crime rate would probably be very high due to the lack of the equal
distribution of resources. This unequal ownership pattern of resources gives rise to an
unequal distribution of income in society (Smith, and Zietz 208). Because of the higher
crime rate, resources would have to be reallocated to try and put a stop to such
problems. This wouldn't be using resources efficiently due to the high expenditures of
crime prevention compared to welfare assistance programs. Also, problems such as drug
use, prostitution, and many other deviant behaviors associated with crime would become
rampant in a society that got rid of social welfare assistance programs. Conclusion To
some extent, the results of analysis in relation to welfare reform are in a state of
waiting. The predictions following the passage of the Personal Responsibility and Work
Opportunity Reconciliation Act of 1996 have yet to be assessed, in part because they
demand more time or major events such as an economic recession for a full evaluation.
Nonetheless, a cost benefit analysis has shown that programs such as welfare assistance
can be beneficial to a society but at the same time be somewhat costly at times. Then
again, the recent welfare reform measures that are setting time limits and job training
have proven to help alleviate and shrink the welfare rolls.
Do the benefits of endorsing welfare assistance programs outweigh the cost? Cost benefit
analysis shows that as long as the government can stay on track with the new social
welfare reform measures that have taken place over the past few years, then yes it is
beneficial. However, when the day comes that it is no longer beneficial to support such
programs should society follow economic indicators or follow its moral obligations? 
Work Cited
Schiller, Bradley R. The Economy Today. 7th Boston: Irwin/McGraw-Hill,
1997.
Mishan, Edward J. Cost-Benefit Analysis. New York: Praegor Publishers,
1976. 
Sharp, Ansel, Charles, Register, and Paul, Grimes. Economics of Social 
Issues. Boston: Irwin/McGraw-Hill, 1998. 
Rowley, Charles, and Alan Peacock. Welfare Economics. London: Martin Robertson & Co.
Ltd., 1975. 
Smith, Russell, and Dorothy, Zietz. American Social Welfare Institutions. New 
York: John Wiley & Sons, Inc., 1990. 
Myles, John, and Paul Pierson. Friedman's revenge: the reform of liberal welfare 
in Canada and the United States. Politics & Society, Dec 1997 
v25 n4 p443 (30).