The program for better jobs and income

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The program for better jobs and income
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Table of Contents
    Front Cover
        Page i
        Page ii
    Letter of transmittal
        Page iii
        Page iv
    Table of Contents
        Page v
        Page vi
    I. The budgetary costs of PBJI
        Page 1
        Page 2
    II. The effects of PBJI on various groups of people
        Page 3
        Page 4
        Page 5
    III. The cost and distributional effects of changing some PBJI characteristics
        Page 6
        Page 7
        Page 8
        Page 9
        Page 10
        Page 11
    IV. Summary and conclusion
        Page 12
        Page 13
        Page 14
Full Text





915th Congress JOINT COMMITTEE PRINT
2 Session O










THE PROGRAM FOR BETTER JOBS A-NI)D


INCOME:


AN ANALYSIS


OF COSTS


DISTRIBUTIONAL EFFECTS






A STUDY

PREPARED FOR THE USE OF THE

JOINT ECONOMIC COM-MITTEE


CONGRESS


OF THE UNITED


STATES


FEBRUARY 3, 1978


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3 1978 1 ~

2
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Printed for the use of the Joint LEconondc Conmitt ee


U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1978


For sale by the Superintendent of Documents, U.S. Government Printing Office
\ahil gtvr, I).C. 20402
Ther is a minimum ciir of $1.00 for each mail order


\(, I I 2i.


I


AND


21-890






























JOINT ECONOMIC COMMITTEE


(Cratod d1ursui:nt to sc. 5(1) of Public Law 301, 7Ah Cong.)
IlCHA N I) HOLLIN t, Misouri, Chairman
LLOYD NTSEN, Texas, Vice Chaiman


IIOUSE OF REPRESENTATIVES
Il ENRItY S. REUSS, Wi Sosi1
WI LLIAM S. MOO R EAI), Pennsylvania
LEE II. HAMILTON, Indiana
(I LLS W. L)N (;, uisiana
(I (i PIKE, New York
('LA RNCE J. BROWN, Ohio
1;A RRY BROWN, Michigan
MARGARET M. hECKLER, Machn.etts
JOIIN IT. ROUSSELOT, California


SENATE
JOIN SPAIRKMAN, Alabviia
WILLIAM PROXMI RE, \ionsin
ABRAIIAM RIBICOFF, Conecticut
E 1)\VA R I) M. KENNEDY. Massachusetts
GEORGE McGOVERN, South Dakota
JA(OB K. JAVITS, New York
WILLIAM V. ROT JR., Delaware
JAMES A. NhCLURE, Idaho
ORRIN ;. HiATCII. Utah


JOIN R. STARK, zeculr Dirclor
LOuI C'. KRAUTlrOF II, Alsiatanrt Direclor
RICHARD F. KAUFMAN, (General ouJuneI

ECONOMISTS


G, THOMA CATOR
TILLIAm A. Cox


ROBERT I). IIAMRIN
K N DUU11.If l. IES
L. DI}OUGkLAF L


PI nnP MCM ARTIN
DiEORAH NORui MATZ
(GEORGI R. TYLER


MINORITY
CrHRLES II. BRADFORD STEPHEN J. ENTIN
M. CATIERIN MiltLER


GEORGE I). KRUMBHAARt, Jr;
MARK Ri. POLIc.INKr


(11)












LETTERS OF TRANSMITTAL


JANUARY. 81 197.
To the Members of the Joint Economic Committee:
Transmitted herewith for use of the members of the Joint Economic
Committee and other Members of Congress is a study entitled "The
Program for Better Jobs and Income: An Analysis of ('osts and
Distributional Effects."
This is one of three studies commissioned by the Joint Economic
Committee on the subject of welfare reform. These studies ar'e ini-
tended to provide information and analysis to the Congress on this
important issue. This study, prel)ared by Professors IRobert Httavem:aln
and Eugene Smolensky, University of Wisconsin, focuses on the )u(lg-
etary costs and distributional effects of varvin cert am basic elements
in the Administration's welfare reform proposal.
The views expressed in this study are those ol its authors an(]
should not be interpreted as representing the views or recommen(la-
tions of the Joint Economic Committee or any of its members.
RICHARD BOLLING,
Chairman, Joint Economic Committee.

JANUARY 27, 1978.
Hon. RICHARD BOLLING,
Chairman, Joint Economic Committee,
U.S. Congress, Washington, D.C.
DEAR MR. CHAIRMAN: Transmitted herewith is a study entitled
"The Program for Better Jobs and Income: An Analysis of Costs and
Distributional Effects," prepared by Professors Robert tIaveman and
Eugene Smolensky, University of Wisconsin.
This study is the third Committee study on welfare reform intended
to provide information and analysis on important aspects of the wel-
fare reform proposal, including a review of its macroeconomic effects
and an analysis of its budgetary costs and distributional effects.
Drs. Haveman and Smolenskv have evaluated the cost and 1)enefit
effects of various revisions of the Administratioi i's prol)osals.
The Committee is grateful for the cooperation and assistance of the
U.S. Department of Health, Education, and Welfare in the preparation
of this study. This study was reviewed by Deborah Norelli MIatz and
Tom Cator of the Committee staff.
Sincerely,
JoHN R. STARK,
Execti'e Dircctor,
Joint Economic ('ommnt ce.


(111)




















Digitized by the Internet Archive
in 2013














http://archive.org/details/progbetter00unit




























CONTENTS

Page
Letters of Transmittal .....-III
THE PROGRAM FOR BETTER JOBS AND INCO-ME: AN
ANALYSIS OF COSTS AND DISTRIBUTIONAL EFFECTS
I. The budgetary costs of PBJI----------------------------------- 1
II. The effects of PBJI on various groups of people-----------------3
III. The cost and distributional effects of changing some PBJI charac-
teristics-----------------------------------------------------6
IV. Summary and conclusion-----------------------------------------12
(v)















THE PROGRAM FOR BETTER JOBS AND INCOME: AN
ANALYSIS OF COSTS AND DISTRIBUTIONAL EFFECTS
By ROBERT ITAVENTAN AND EUGENE SMIOLENSKY*
The program for better jobs and income (PBJI) would change the
pattern of income flows to a large number of the nation's families and
would change both the incentives and the opportunities to work. In a
previous report, we presented a critique of the entire plan. Here, we
focus on two aspects of the proposal in more detail-its cost and its
distributional consequences.
In sections I and II, we briefly review what is now known about thE
program's costs and distributional effects. This review is based largely
on recent estimates by the Congressional Budget Office (CBO) and
serves as background for some additional calculations made by the
Department of Health, Education, and Welfare (DHEW), and sup-
plied to us by the Joint Economic Committee. In these calculations,
several aspects of the program were altered and the resulting changes
in costs and distributional effects estimated. These particular changes
were chosen because they appeared to be characteristics of the PBJI
most likely to prove contentious during the legislative process. The
results of these calculations are presented in section III. Finally, in
section IV, we characterize what it is the administration is buying with
the incremental expenditures required for PBJI, and summarize some
of the findings from the simulations reported in section III.
It should be emphasized that the data in this report were estimated
by DHEW with the same basic microdata simulation model as was
employed by the administration in their original description of the
consequences of enacting PBJI. Our analysis is aimed at examining
some of the effects of changing various aspects of PBJI; it does not
challenge the accuracy or adequacy of the procedures by which DHEW
predicts costs and benefits.'
I. THE BUDGETARY COSTS OF PBJI
The administration presented cost estimates at the time the details
of the program were released. Table 1 presents the details of these
estimates. The two main components of outlays are the cash benefits of
$19.2 billion and the public service jobs of $8.8 billion. Offsetting these
expenses are, primarily, the phaseout of three existing transfer pro-
grams which accounts for $17.6 billion and the reduction which is
possible in manpower training and other public employmIeit programs
*The authors are professors of economics and staff members of the Institute for Reseairch
on Poverty, University of Wisconsin, Madison, Wis.
'The administration's cost and benefit estimates have been scrutinized in: Danziger,
Sheldon; Haveman, Robert; and Smolensky, Eugene, "The Program for Better Jobs and
Iiwome-A Guide and a Critique," Joint Economic Committee Print, U.S. Congress. October
1 7. 1977; Itausman, Leonard J. and Friedman, Barry L., "Work, Welfare, and the Prioga.1m
for Better Jobs and Income.'' Joint conomiv Committee Print. U.". C),.-r s (-,it )lr 14.
1977; U.S. Congress, Congressional Budget Office. letter on cost estimates for Representa-
tive James C. Corman, November 29, 1977; and Storey, James R., et al., "The Beiter ,Johs
and Income Plan: A Guide to President Carter's Welfare Reform Proposal and I:r.i 'r
Issues," the Urban Institute, mimeo, January 5, 1978.
(1)









()f IB,! which aCOlit for h billion ( onlIderingl th
Plu~t' ari iiln~eS, the net (rail. on the Federal budget in 197' is
1>tiziated( to he o 2.,-, ilion,


TI\1 1 1


( h grzuit tLu (qigi~l


...$19. 17
S17. ()t
... (15. i1 )

__ 2. 20


I iivr:tI c sts fu'r uI tcling Str, t* Isp WI Iut -.
AId u-t !lints for ho harn'dss, Mtt hare (':IlclzLttion, and Puerto Rico
it il tr() -, tzx credit ..
1E :hhrge'v atssistance . . .. .. .. .. .. . .. . . . .


J ill-I iinu


Tintil ,u t t... . .il -..- . .. . . . .. . .
Sn',yin g fr )fl rtdtitiou1 in (eXl)en(It ire' on other programs or increases


1.49
-. 49j
11. 50
4.)



.52
.40

31. 05


in taxes 28. 30

Abolition of AF1)(. .. 6.40
A )(dolition of S1 ........ 70
Aolition of food stamps .....- -. 5O
Iled.ctions in EITC from additional earnings ......1. 10
Reductions in CETA, Win, and UI-6. 90
Reduction in housing programs-.30
Increased payroll taxes-.70
Reduction in fraud-------------------------------------------.41)
W\Vllhead tax--1. 30

Net cost of PBJI__ 2. 78
'Tat benefits of $."O,,00,O00O00 for those who will not receive income supplements are
not convd(ered by the administration to be a cost of the welfare program.

The administration's cost estimate, in particular, the use of energy
tax revenues and fraud elimination to offset program costs, and the
li(e(Ile(t of additional tax redllction benefit< given to middle income
grouips', have been qiiestionedl.2 Iowever, they serve as a useful startmilv
1)hit for the analyses to be undertaken in part III. They were caici-
lated r ing the same computer model and are therefore consi>tent with
alI (lireetly comparable to the lllmibes I)re-eIted there.
2 See l)anziger, Haveman, and Smolensky, Ibid. ; U.S. Congress, Congressional Budget
Offi-e, ihid. ; and Storey et al., Ibid.


tI., si~a'i,,f j ti a' .f the costs v:f f'lIJ I, ayd the en; po~ts uf coaf
i $ 1 ,, ,S baitlfim.)








1I. THE EFFECTS OF PBJJ ON VARIOUs GROUPS OF PEOPLE
One objective of the PBJI proposal is to inlte rate an(I im,"oe the
administration of and incentives created by the existill. melange o1"
income transfer programs. A second objective is to increase the
opportunities for and n .ecessity of, work for many who now are
unemploye(l or un(lereml)loye(. A thirl objective is to re(luce the level
of income poverty in the United States. For this reason, estimates of
the effect of various I)rogram characteristics oln groil)s of' I etieficiatrie
are relevant t in the policy debate.
Here we summarize some estimates of the (listributiolal eflects of'
PBJI, as produced )y the Congressional Budget Office, employing a
computer model very similar to that used by DHIEW. I1hese figure>
are to serve as a backdrop to our sensitivity-tyl)e analysis iii l),ll't III
in the same manner as the base estimates of p)ro0.rram costs l)resente(
in the previous section.
Tables 2, 3, and 4 disf)lay the ('BO estimates of the antipoverty
and income distributional effects which PBJI would have achieve l if it
were in effect in 1975. The story which these figures tell can be sum-
marized as follows:
While two-thirds of welfare recipielits hadI annual income below
$5,000 in the current system, only 41 lercent of assistance
recipients wolul(I be below $5,000 under PBJJ, a reduction of one-
half' million families.
The current system eliminates $12.7 billion of the p)overty gal,,
which is about 54 percent of the preweltare gal). PBJI reduces
the gap by $16.1 billion, or 68 l)ercent.
Under current welfare programs, 11.2 percent of all families are
left in poverty, PBJ.1 reduces this to 9 percent, a reduction of
about 20 percent.
PBJI appears to reduce poverty for most demographicc groui)s-
the aged, single l)arent families, intact families, families with
dlisabled members, working poor families, and Southern families.
It fails to raise the ratio of black to white incomes.
While about one-Iourth of poor families would be made worse
off ltnder PBJI, 43 percent would experience al improvement inl
their financial status. Nearly all aged families would remain at
least as well off. About 50 l)erceiit of single-l)arent families would
be benefitte( an(l very few left worse off. Over one-thirl of all
black families are gainers, relative to about one-fifth of white
families.


21 --90-7S -2











' II~L IL HS "i BLNEFITS BY PREWELFARE INCOME CLASSES UNDER CURRENT
F'LI Di I''jATION'S WELFARE REFORM PROPOSAL, 1975


So $5,0 1t 1(,99 U SIb. to $25,OOand
S $,",4$14, 9,49 2 9 ( .P


I ~">
*~ti tc~
~ ,
'A

~ tat

~ ) ~
I


16 P7 738


16, 310


8 614 2 Al
3~i1

73, ~8


Wue eform


d ~ St8~ ~
V I v~' ~ JGUS
F ~1 ncome ta~ c


All 1
.~' ts ~tiII~on of dolb 5)
'11 t~H
I -,
~re P ; z~n

Total
~ P n t'd~ ~ ,,elfa "
ropr~I
t asn j~ ~t
~uI s ~ ,e jobs
k~!ned ncorn~' ta' c ed t


1, 292
2. 37




15)'


3,934
91J5
4, 783


5, 794


8, 548


2, 26
294
4,741


5,373


74, 576

12,715
6, 483


9,4 211 15, 727


1, 351
251
1, 432


17, 351
2, 787
13,129

23, 371


2, 3!8


0.9
3f)


20. ,4
1.2


15.5 3.4 12 .9 .3 21.6


271 4.7 21 1.2 .2 25.5
33 1.8 0.6 .1 6. 1
.4 18 1.3 .4 20 3.9

2 8 S.4 40 2.0 .3 35.6


A ci de, aid to lar ihes with deipendent c) [hren, supplemental security income, state general assistance, and food
P tids toz

e Pr1 na'y eJ ate O(t. :z, 1977
Surce Stateme-nt of a bert D. Re sc auer, "P'Ieliminary Analy s of the Cistributional Impact of the Administration's
Ael;are Reform Poosal, Task [rce on Oist butne Impacts B det and Economic Policy Committee of the Budget,
U-S CongressF O't 13, $77.


TABLE


f m I s)


Total











TABLE 3.-NUMBER OF FAMILIES IN POSTTAX, POSTTRANSFER POVERTY BY TYPE OF FAMILY AND REGION OF
RESIDENCE UNDER CURRENT POLICY AND ADMINISTRATION REFORM PROPOSAL, 1975

lFamilies in thousands

Posttax, posttransfer income
Post cash
social Administra-
insurance tion's reform
Characteristics of families income Current policy proposal

All families.. ..---------------------------------------------10, 840 3, 339 6. 713
Age of head:
65 and over. ..------------------------------------------2,916 2,0'7 1, 444
Under 65-------------...............---------------------7, 924 22 2
Family type:
Single parent with children. ..---------------------------------2,577 1,565 1, 172
Youngest child under 6-------------------------------1,235 355 551
Youngest child 6 to 13---------------------------------1,058 541 d54
Youngest child 14 and over-------------------------------284 I' 9 156
2 parents with children---------------------------- 1,6-76 1, 213 523
Other. ..-----------------------------------------------6, 587 5, 5c0 5,317
Health status:
Disabled member. ..---------------------------------------1,425 o7 721
Nondisabled member..-9-. 15 7, -52 5,992
Employment status of head:
Working full time --------------------------------------- 2,35 1 989 1, 525
Working part time--------------------------------------- 1, G07 1, 200 1, 012
Unemployed.. .. .. .. .. ...------------------------------------- 912 738 587
Not in labor force------------.----------------------------- 5, C'16 4, 4'2 3,589
Race of head:
White.----------------------------------------- 39 9. 2-8 4.854
Nonwhite. ..-------------------------------------------- Sl2, 2.091 1, 859
Region of residence:
South.. .. ..------------------------------------------ 2IF 0, 8 2,935
West--------------------------- 1,28 7 1, 077
Northeast_.-------------------------------------------- 2, 207 1,480 1,064
Noth central - - - - - - - - -2,-,54 1, 944 1, 637

Note: Preliminary estimates, Oct. 12, 1977,
Source: See table 3.










TABLE 4-NU BR OF FAMIULS GAINING OR LOSING BENEFITS, BY FAMILY TYPE, UNDER ADMINISTRATIO'
WELFARE REFORM PROPOSAL, 1976


Amount
lost


Current po4hcy psttx, postiransfer $5 Y r
income status rie


Income Amount of income
Total Families Total
$100 to families with no families $100 to $50 or
$499 l10in5 change gaining $499 more


P.ert, status
bekA po~e !1 ....... .... .

e~are 1atus
Cas ass stan only..... ............
F od stam p; nly . ... .. .......
.a'cs st~ie and food stamps
as stance or food stamrps



f i t,pe
l parent tt' ch~ Id er ....

Youngest i I t o I

\el nn~t st. a1arJoe

Ds Iei member~ .... ..
,'n sailed member
; I ,-nt status of head
A ngfull tme
,o ag part .me
U 3m-ployed
1.ot n labor force.
Pa': of ead
V te . .. ...
'lOnln te ..
Re- on of evidence
q uth . .. .

Y-rlheast
or central-
A faro I eP ... ... ... ... ... .


7(1 1,010 1, 30 2,r11 2,9C2 1,303
1, 23 1, 42 2, 835 50 (10 14.3-I8 6,7Z9


21
1, 4~2

2

1, t~
S-c
I S~
2-'
12
5-,
1 23


916
,0(77
423
55


1, 150
2, 59
99


552
779
531
52, 621


1, 229
2, 462
2, 530
11,048


5,3
1, 03
5, 097


741 1,2?d 10,915 3,312 2,008
1, 76 45' 41,706 13, 958 6,024


52'

3;
1325


1. 7
2'4
25
873
2, 742


2, 321
385
1 107
829
13, 68
33, 691


3,691
I 594


9529
4,550


I, 492
7 1
614
168

2, 510


651 453 1,114 1,123 1,251 510
1,533 2,039 3,571 51,498 16.,009 7,492


519
... 3'I
.. 99
... 1, 2f5


683
433
189
1, 19'


791

2. 4 1


30, 350
7, 358
1 5 -8
133 -8


8. 1 5
2, 235
1,071
5, 798


3,615
1, 051
367
2, 976


1,629 1,977 3,.60 47, 787 13, 981 6,611
555 524 1,073 4,i34 3,289 1,391


-. 531
._ 591
(3 8
._ 453
__ 2,181


1,017
497

2,5)1


1.1548
991
1, 035
1,110
4, 685


15, 686
10, 20
11,98S
14, 636
52,21


r6. 388
2,677
3, 899
4, 305
17, 269


3. 319
1, 189
1,618
1,877
8, 032


IT, Su- ey of lncome and Educaton underestimates the amount of food stamp benefits provided in 1975. Therefore,
tese ',nary estmates may overstate the number of gaiers and understate the number of losers for those who
rece e #oo 1 tamp benefis under th- current program.
t e l~m P 'm a', est mates, Oct. 12, 1977
S ee table3.

H E ('OST AND DISTRIBUTIONAL EFFECTS OF CHANGING SOME
PB.JI (HA RACTERISTICS


>ee, 10o15 I md II serve a background 1'or a supplemental set of
c1(-) ]!,t to1 I rcqllleste(I by the Joint Ecomionilc ( committeee an(I supplied
b I )HE. The purpose of th ( illCtl1ul:tiOll is to analyz( the effect
Oi l bth p1oro1i1i (costs anld d i t iittionlal iliptlct-, of changes in a
11-n I ed n11mbe1r of key t)rogran mImitalileters. "[he, analysis focusses on
ito--' ptaramers I ikely to lbe (111-,tioed (l11-ing legislative delibera-
tI l oi thf, proposal. In thIs section, we (ldscribe the parameter
('1ti i i ,s nI s11 t1'ize their cost and distributive impacts.

1 .-7;m ,t;t ,f T,,',, Tiers in, the Cash Benefit Portion of the Federal

I' -.Ir111.Wnd Morf, ,e (t to a S;,gle Tier Negatre Inc ome Tax With a


lb('11~ 1n h e(ivalent Ito ra-tuig t(le g 1alIltP( an eli tuinating
S111,' $ISOn !I srPgzll whel 'alulti ig (,1 Ii >!lI))lez P1ts for those
,d) 4 ',) wIork. It i- a -iiil(lif,ti ll ()f tl. pIill. So e jud(Ige that
I ii ii-,t X,...ilii ak.' I lie t;.k ol !Z "ttiln,.. l)eo!)iL' to s(',k joh. rnore
i l ii v i iit (' l t',4) l}i' I)enlflI, f' r W )1 vXO1ki1i,! ,,k .! trams-


(} ;I ld ](A), ( lldt'


1, 599
7, 639
716
1, 074
1, 49


7,934

2, 198
884
1, 038
276
5, 028
2,010
721
8, 517
4, 514
1, 181
684
2, 858
7, 340
1,897

3, 040
1, 48
2,281
2, 429
9, 237








The effects of this change in the structure of PBJI are shown in
table 5. The implications of this change are very modest-while cash
benefits rise by 4 percent, the cost of the jobs program falls by 5
percent, leaving a net increase in program costs of $0.4 billion. If the
impact of the two-tier provision on employment and work effort is as
insubstantial as these simulations show, the program simplification
achieved by this change should be seriously considered. In addition,
estimates of the effect of the change indicate that the number of
existing welfare recipients made worse off will not increase. Indeed,
given the nature of the change, the increase in costs is likely to yield
some increased poverty reduction as well as simplifying the proposal.
TABLE 5.-THE EFFECT OF PARAMETER CHANGE 1 ON SELECTED COST AND DISTRIBUTIONAL INDICATORS
Proposed Modified
PBJI PBJI
Federal cash benefits (billions)..............-------------------------------------- $19.2 $20
Number of job slots (millions).. . ..-------------------------------------------- 1.175 1.116
Cost of jobs program (billions).. . . ..-------------------------------------------- $8.8 $4.8
Cost of EITC (billions)--------------------------------------------------$4. 5 ()
Number of current AFDC recipients made worse off (millions).........------------------ 3.8 ()
Number of current SSI recipients made worse off (millions)-------------------------- 1 )
I Indicates no change from the proposed PBJI.
2. Retention of the Existing Earned Income Tax Credit (EITO) or
Completely Eliminating It
The current EITC simultaneously reduces the benefit reduction
rate for low earnings (largely, part-time) workers and adds 10 points
to the benefit reduction rate for workers who earn from $4,000-
$S,000 per year. As a result, work incentives are increased for the for-
mer group, and decreased for the latter group. And, because of the
shape of the distribution of earnings, the latter group is relatively
larger than the former, very low earnings group. Two alternatives
are available for reducing the disincentives problem for the higher
income group. They are: (1) Increase the kink-point to the break-
even income level, or (2) eliminate the EITC altogether. The choice
made by the administration (to shift out the kink-point) reduces
the share of total PBJI benefits going to the poor although their
total benefits are increased. Table 6 indicates what is gained and at
what cost. If the EITC is eliminated, the incentive for individuals
to seek private rather than special public service employment is lost.
The implication of this change on the demand for public service jobs
and the characteristics of those who would hold them is shown by
the simulation.
TABLE 6.-THE EFFECT OF PARAMETER CHANGE 2 ON SELECTED COST AND DISTRIBUTIONAL INDICATORS
PBJI with
Proposed existing PBJI vitK
PBJI EITC no EITO
Federal cash benefits (billions). . ..--------------------------------- $19. 2 ((, ()
Number of job slots (millions). . ..---------------------------------- 1. 175 1. 1991. 257
Cost of jobs program (billions). . ..---------------------------------- $8.8 $8.93 $9.4
Cost of EITC (billions)---------------------------------------- $4.5 $0.5 0
Number of current AFDC recipients made worse off (millions) ..........-3.8 4.1 4.4
Number of current SSI recipients made worse off (million) ----1 (-) (-)
I ndicates no change from the proposed PBJI.








Table 6 shows the impact of both changes in PBJI on some im-
1)ortant cost and distribution variables. If expansion of the EITC
were rejected in favor of maintaining the existing tax credit, the de-
imnd for public jobs would( be expanded as individuals would find
private sector em)loyment less attractive. However, this expansion
is smal[--25,000 jobs--implying a 2-percent increase in the costs of
tle public jobs program. The costs of the ElTC would fall by about
90 percent, a reductiomi of $4 billion in tHie budgetary costs of the pro-
gram. Overall, a budget cost saving of $3.8 billion would be experi-
cnced. The effects of tlis- budget cut are: to increase the demand for
title IX special public service jobs, and some increase in the benefit
redurtioi rate at earnings levels between $4,000 and $15,000.
complete e elimination of tile EITC would have similar, but larger,
effect,. The (emanl for special public service jobs would increase by
82,000 and the bu.%-etar cost of the jobs component would increase
hy $0.6 billion, or 7 l)ercellt. The budgetary cost of the btal program
wV'o(Ill (lecreiae 1w $).9 l)illioin, a)proxii-lately the same amount as
simply retaining the existing EITC. Moving from retention of the
existing EIT( to its ,tifination appears to .yild very limited gains:
trivialbu(get savings are experienced, an additional 60,000 jobs must
be provided, and any gain in work incentives in the $4,000-$8,000
range are offset l)v re(luctions in the income range below $4,000.
Neither of the changes a nalyzedl have much effect on the status of the
existing welfare population although in both cases the number of
current AFD(' recipients in ade worse off increases somewhat. By the
nature of the chann(es, the target efficiency of the program would be
increased as the primary reduction in costs is from reduced benefits
accruing to nonpoverty families. Retaining the existing EITC results
in greater poverty reduction than eliminating the EITC altogether.
The expanded EITC reduces poverty even more than does the exist-
ing EITC.

3. Increasing the Iincenfl ce To Take a Regular Public or Private
Sector Rather Thnt a Special (Title IX) Public Sector Job
In the original PB.JI, incentives to seek private sector employment
rather than a public job came from two sources-the EITC paid on
only private earnings and a lower cash benefit schedule for those on
speciall purpose job>.3 When the program was finally unveiled, the full
l)IIr-len of inducing J)rivate sector job search fell entirely on the EITC.
The effect of this re(luctionI ininducement for regular employment is
lhown in Table 7. Substitution of the earlier, larger private sector in-
(lucemient would re(luce the costs of both the cash benefits and the
jobs colil)oit-n ts of PW,1I. Taken togetlwr, a cost saving of $1.6 billion
wou11(l be experience(I. Moreover, the number of new title IX jobs
whi(h wol( hve to be created by the amninist ration would be re-
rla(1~ (5,000, thi-iufl)er of workers would choose private or
"glM1,11 p public st c or jos()1). TIe l 1riiiaiy g i i fro l( ,the $1.6 billion cost
increase assocld t ,(l with this chia!e a reduction in the c omplexity
of calcjiat ir ci iJ- l llit. Beca Oe the small reduction in cash bene-
fits (f!mI1 $19.2 t S1I.7 h)illiof) reflect re(Iucid l)yients to workers
taking regulzr cmelolx !:1eIt. the (j,1 e will have little, if any, effect
on the status ()f xi',i i w'fare reiiint.
In the earlier benefit 'o h ltw the ; rit~ diVrv gird is ,







TABLE 7.-THE EFFECT OF PARAMETER CHANGE 3 ON SELECTED COST AND DISTRIBUTIONAL INDICATORS
Proposed Modified
PBJI PBJI
Federal Cash Benefits (billions). . . . ..-------------------------------------------$19.2 $18.7
Number of Job Slots (millions). . . ..--------------------------------------------1.175 1. 022
Cost of Jobs Program (billions). . . ..--------------------------------------------$8.8 $7.7
Cost of EITC (billions). . . . ..--------------------------------------------------$4.5 $4.6
Number of Current AFDC recipients made worse off (millions)------------------------ 3.8
Number of current SSI recipients made worse off (million)---------------------------1
I Indicates no change from the proposed PBJI.
4. Increasing the Wage Rate in the Special Public Service (Title IX)
Jobs From the Mininum Wage to $3.00 ($4.00) Per Hour
As the wage rate on the public service jobs rises, demand for them
increases, particularly among those individuals now currently em-
ployed full time, full year in the private sector. If the $8.8 billion cap
on expenditures is maintained, total expenditures for cash assistance
would probably rise. There are two partially offsetting effects at work.
On the one hand, many more public service jobholders would receive
no cash assistance at all. On the other hand, many more families would
receive the maximum guarantee of the upper tier, if the expenditure
cap limits the number of jobs available.
Currently, there is mounting pressure for an increase in the wage
rate paid for title IX jobs. The concern is that payment of the mini-
mum wage would tag these jobs as second class, and perhaps more
importantly, payment of the minimum wage would tend to under cut
the prevailing wage rate in some labor markets. While these points
have merit, increasing the wage payment has the potential for greatly
increasing the demand for special public jobs and increasing the total
cost of the program. Table 9 presents the implications of increasing
the wage rate to $3 and to $4 per hour, under the assumption that the
total demand for special public jobs will be met.
The results in table 8 are most revealing. The modest wage r ate
increase from $2.65 per hour to $3 per hour increases the demand for
title IX jobs by 340,000, and increases the costs of the jobs component
of PBJI by $3.5 billion. The increase in the total cost of PBJI is a
smaller $2.6 billion because of reductions in cash benefits and the
EITC. As the wage rate is moved up to $4 per hour, the changes in
costs become much larger. The number of workers now preferring a
special title IX job is increased from 1.175 million to 2.491 million-
an increase of 1.316 million jobs. Without a cap the budget cost of the
jobs component more than triples-from $8.8 billion to $26.9 billion-
and the total cost of the program increases by $15.3 billion. The gains
from an increase in the wage rate are real. They include avoidance of a
stigma placed on the public jobs and the potential erosion of prevailing
wage rates. However, the budgetary costs of increasing the wage rte
to the $3 level and beyond are substantial. Although this change
primarily affects the balance of workers between p)rivate and public
sectors, there is some imp)rovcmcnt in the economic status of exist ing
AFDC recipients.






10

TABLE 8.-THE EFFECT OF PARAMETER CHANGE 4 ON SELECTED COST AND DISTRIBUTIONAL
INDICATORS

Proposed Modified Modified
PBJi PBJI ($3.00) PEfl ($4.0)

federal cash benefit (bilions)........... .. ...$19. 2 $185 $17.4
Number of job sl ts (millions) 175 516 2.491
Cost of joTs (t bins). $8.8 $12.3 $26.9
-t-----$4.5 $4 3 $3-5
Number of curre 1t AIF UCrecipients made worse off (Millions) .......... 3.8 3.4 3
Numbe of current SSI recipients made worse off (million) (I) (I)

I Indicates no change from the proposed PBJI.

5. Afhfke a Till X Public Serice Job Available to the Pr/mary
Earner in All Household Units

PIT _r~iarantee-s ai"public'service job to the primary earner in all
hotlieholil units with (hilIren" couples and unrelated in(lividuals are
excluded from t)articipating in the jobs c,-omponent of the program.
It would( seeI to be only a matter of time before these households are
brought more fully into the system. Because unrelated individuals
are (1olCVentrate1 at the le ofte earnings distibution, bringing
them fully into the systen could greatly increase the demandI for l)ubllc
ervi(e jogs. ()e fitor mo(leratiulg the demandd for jogs is that a large
Pnart of this population is (lisable(l and/or institutionalized.
Table 9 illustrates the effect of this parameter change. As expected,
the increase in the demandd for public service jobs is substantial-an
iticrease of 460 percent. The budgetary costs of the jobs component
rise from $8.8 billion to over $45 billion. The total cost of PBJI with
this modification is $37 billion greater than the administration's
proposal. While expanding the coverage of the jobs program to include
related individuals andi chil(iless couples would increase the hori-
zontal equity of the program, it entails large increases in budgetary
co-t>.

TABLE 9.-THE EFFECT OF PARAMETER CHANGE 5 ON SELECTED COST AND DISTRIBUTIONAL INDICATORS

Proposed Modified
PBJ1 PBJI

Federal cash benefits (billions) ..$19.2 $18. 3
Number of job slots (millions) .. 1175 6.580
Cost of jobs program (billions).... $8. 8 $47. 1
Cost of EITC (bllions) .$4. 5 $4.5
Number of current AFDC recipients made worse off (millions) -----3-8 (1)
N umber of current SSI recipients made worse off (million) --.1 .9

Indicates no change from the proposed PBJI.

6. (Cappql fi l t, b. ( wnponeitt of I BJJ by Imposing a ( eihing of
800,000 NVew Jobs

The I'cretio(n of new jobs on a mass bwis is a difficult undertakimg.
A-s we itd1(l in our earlier studyy
f]i 1 l~l:i err :i, i P 4) pl ilie, rviec h jis for lo w\:ige-lw skill vorkrs is some-
L v i t it h hi Ih t h- '1111i1t ,v h:l jjo lre\i( ill, rI NWI 17eJ(W. Y i fort is aii logous
I :i li '-j :iti fjiii s lp )i i)i~ o utrorI| er a jiw I)1i difl(e, the u iif~ict t~re of which
l v. t I I ,T ,h (! h v )(( (''l,)(d : l h C:f \V 111 the






11

effort is fraught with uncertainty, and the possibility of an ineffective and un-
productive program must not be neglected.4
Given tlie (lflfcllties of 1]ocat(mg g(jialifiJ (( ulit 1'aetr->pIi- )f- a Ii
airrangrin pro(1if-tive work rrafn(,en ts, it W I(l not I)e >11rr)risinj
if tle full con: ilenei t of 1.4 million jobs cold l i not be (reat e(1 lri'
tile firts few.Ycalrs of tle program. flTie nuint)er of jobs could also be
(,onstr1ain(1 )elowt tele administration I)rit)osal, since for t)ud(12etarv
reasons, lid may be placed on the minier of jobs to 1(e ffiinte(l.
lecaie of thie structure of PBJI, limiting the nunoer of jo})s ma(de
avalia5 wifl not result in proportional re(luction of total pro,rain
costs. While somie of the -workers who would have received a public jot)
will find alternative private sector employment, some will remain
unemployed and fall back on the benefits from the cash transfer
component of the program.
Table 10 presents the cost consequences of limiting the number of
job slots to S00,000. As expected, the budgetary costs of the jot),
component is redfhced -from $S.S to $6.2 billion, a savings of $2.6
billion. However, some of this saving is offset by a $0.5 billion in-
crease in cash benefits and a $0.1 billion increase in the EITC. The net
saving is $2 billion. Accompanving this saving, however, are the un-
desired side effects of increasing the discretion of program adminis-
trators, "cream-skimmino" in the selection of applicants, and hori-
zontal inequities in the allocation of jobs.
TABLE 10.-THE EFFECT OF PARAMETER CHANGE 6 ON SELECTED COST AND DISTRIBUTIONAL INDICATORS
Proposed Mocied
Pail PBJI
Federal cash benefits (billions). . . ..--------------------------------------------$19.2 $19.7
Number of job slots (millions)-------------------------------------------- 1. 175 .8
Cost of jobs program (billions)-------------------------------------------- $8.8 $6.2
Cost of EITC (billions). . . ..--------------------------------------------------$4.5 $4.6
Numbercf current AFDC recipients made worse off (millions)-------------------------- 3.8 4.1
Number of current SSI recipients made worse off (million)---------------------------- 1 ()
IIndicates no change from the proposed PBJI.
7. Elim iatc Fedtral Shar-ig of State Supplbwentat;on C'oss and U,
the Budyetary Sacings To Icrease the Guarantee on Both Tiers (f P JI
Federal incentives to encourage State supplementation of benefits
significantly complicate the structure of PBJ1, compromising the
administration's claims that the system has been made simpler a(1
that horizontal equity has been increased. Tile accompanying restric-
tions on the States also strain traditional intergovernmental relations.
To the extent that the objective is to relieve the fiscal burden on the
States, fiscal relief could also be obtained if the financial incentives
for State supplementation were droppedd and the Federal funds w ere
put into higher guarantee levels. Were that done, and if States
failed to supplement benefits on their own, many current recipIents
would be ina(le worse off an( the fiscal relief "provided would be
(oncentrated in the States now provi(ling relativel low benefit.
The effects on several relevant variables of simplifying tile plan in
this way are illustrated in table 11.
S Ihe1don I)anziger, Robert Uaveman, and Eugene Smolensky, op. cit.








TABLE 11,-Tei EFFECT OF PARAMAETE3 CHANGE 7 ON SELECTED COST AN) DISTRIBUTIONAL INDICATORS
Proposed Modi ed
PB1 PBJI
Fee 1 a.. be.e.s lionson) ... ..$19 2 t +9
Numb> of slats(m1llons) 1 175 1.21
Cost of ohs p'+o-ram (bi ons) ....... 8 8 $9. 1
Cost of 1ITC ( illons). $ 5 $5
Numbr of curre-t AFDC re points made worse off (millions) ......................... 3. 8 5. 4
NumL er of current SSI recpi'nts made worse off (m1ion1) 1. 24


In this si1ulation, costs of the IFederal cash el befits portion of the
bill were allNed to rise by $0.8 billion. Nevertheless, both the costs
of ti.8 jobs liroram and the costs of the EIT( also rise by a total of
$0.6 billion. Despite the greater cost, the numilber of current AFD(
reuiplients lialte wors-e ol- icIreases y 42 l)ercent, and the number of
I recil)iets nade worse oH increase s by24 percent. ttence, simpli-
f IiI(g th State supplemelnts ortion of the bill in this way has signifi-
("ant adverse distributional effects. And while some fiscal relief is
provided to State governments by this niodification, its level is sub-
stantially reduced from that in the PB.JI.
IV. SUMMARY AND CONCLUSION
The program for better jobs and income dIirectly addresses the
judlgment of many observers of the current welfare system that those
who cannot meet their basic needs through earnings should have cash
assistance, but that those who can be provided the incentive and the
opportunityto earn their way, Daftin a program to accomplhish this
objective is technically diffilclt. Providing cash assistance creates an
incentive to sonie to reduce their work effort, and it is difficult to con-
fine this work disincentive only to those who are judged unable to
generate suflicient income through work. There are only two viable
alternatives for minimizing the disincentive effects of cash transfers.
One is to enforce a work test through tough administration. This re-
qllires a large bureaucracy and considerable intrusion into the priNvacy
of cash assistance recipients. The other alternative is to create effective
opportunities for and financial incentives to work, or at least to reduce
the substantial disincentives J)resent in existing programs. In the main,
PBJI opts for this alternative. When work is refused by those expected
to work, not only are earnins sacrificed, but the family sacrifices
$1,900 per year in' cash assistance. However, reliance is not entirely on
ol)Jortunities and incentives, since the decision of who is and who is
not expected to work is mdyadebyprogramadmiista1"tors.
PB, 111could have relied on the $155 per month penalty to send those
who can work into the private job market. ttowever, recogizing the
hiardl0hi0s that might thereby 1e created, a special public service jobs
program is created. To keep tie costs of the jobs program dlown, wages
were )as'ed on the tlinim u-n wage laws, not at prevailing market levels.
Becati'se the market wage of a lar ge ntu1ller of PBII beneficiaries is
this ininimTlui wage, the special lpurblic service jol)5 would 1e attractive.
I however, t ie.-e sl)eci jobl are intended to t emporarily sill)pletnent
'ivate (>('tor)) 'ley a re not intendledl to sIl)-titlute for private
'+fett< 01I, PBJI lprtic1 jlIts could bliioved ott of the I iiblic and
ilto tI ie ipri',zte etc -('to)tI b lIinistrative lIroc'(I1Ire, 1)1t1 cons-istent






13


with the general approach, financial incentives are brought to bear.
Through the EITC, work in the private sector or in a regular public
sector job is given a financial bonus.
Providing cash assistance, financial work incentives, work opportu-
nities, financial incentives to seek private sector employment, and
maintaining budgetary restraint make for a complicated p rogrami. In
addition, PBJI seeks to grant fiscal relief to the States and to sustain
current benefit levels for the vast majority of current welfare recipients
in a way that will not jeopardize other objectives, and thus, the pro-
gram becomes even more complicated. The technical problem of bal-
ancing all these objectives involves a multiplicity of tradeofls. How
the framers of PBJI chose to trade off among these objectives has been
illustrated in the preceding tables.
Holding the wage on special public service jobs to the minimum
wage is clearly an effective check on the demand for those jobs and
on total program costs. (See table S.) It does, however, constrain the
attractiveness of the work opportunities provided. Restricting public
service jobs to families with children also substantially reduces the
demand for those jobs and hence controls program costs. (See table 9.)
Again, however, there is a cost. The work opportunities provided are
limited to one group in the population, creating some horizontal
inequities. The program is designed to grant all eligible persons a job.
This decision entails higher budgetary costs than a more restricted
and less equitable (though perhaps more realistic) jobs program. (See
table 10.)
The complications associated with the two-tier cash assistance
benefit schedule also stem from concern with work incentives. This
concern may be exaggerated, as the elimination of the two-tier struc-
ture increases cash benefits by only 5 percent and reduces the demand
for special purpose jobs by 5 percent. (See table 5.) The expanded
EITC in the program is also designed to increase the reward to
work-in this case work in regular employment. The budgetary costs
of PBJI are increased substantially by this provision, which modestly
affects the demand for special public service jobs and increases work
incentives to those in the $4,000-$15,000 range. (See table 6.) Paradox-
ically, a simplification of the benefit schedule made before PBJI
reached the Congress significantly increased the demand for public
service jobs and total program costs. (See table 7.)
Finally, while Federal incentives to encourage State supplementa-
tion greatly complicate the PBJI, they effectively hold down Fede-al
budgetary costs and forestall a substantial loss of benefits among
current welfare beneficiaries. An alternative arrangement-raising
Federal benefits by the amount of the Federal supplementation cost-
increases the relative position of recipients in States with low current
benefit levels, grants less fiscal relief to current high benefit States,
and leaves many current recipients in high benefit States worse off
(unless, of course, States would supplement the Federal benefit level
in the absence of a financial inducement). (See table 11.)




UNIVERSITY OF FLORIDA

14 3 1262 09118 6162

ae'se *iultiions~ indicate the sensitivity( of cost and disribt
ttffoi to h II IiO ,'aio last!' of PBIJ!. Thue e~1:
vu LH [i Ve 1tzve ~~a~LIdV/e a, ill 10o sense exhaustive, and numerous
l im.in to" be answered. Among them are tIle follow ig:
I I )o all pcej de in ej1Ll tced receive equal treatment? (2) Arethe
(01 1 1 rised above the iTIcomes of scme no -
bext iciarv taxpayer,' ~ ~L~) II% EW the most alppropiaMte ency
to) administe'r toe pl)OpOedl ('aIi asistatLmeC )ranm? (4)t
woiild t. t ie ro't ami distribhtional cfrvcts of PBJIif the unemploy-
nieltt rate is above or below the 19,1 ueI1)lOiolmelt rate (5.6 percent)
I r',J~"~e(l l the administration?


0