Originally published in Terra Nova, Observer Research Foundation
While other countries invest in people by building welfare systems that provide security, enhance well-being and health, and keep people from falling into poverty, the United States (US) has maintained a poorly coordinated patchwork of programmes. Social assistance and insurance help people and families get through tough times and improve people’s well-being. As such, they lead to better social and economic outcomes both in the short and long term.
The lack of investment in people means the US is falling behind its peers. Before COVID-19, life expectancy had stagnated over the previous decade. During the same period, life expectancy increased by 1.2 years in the Netherlands, by 1.4 years in the UK, and 2.1 years in Finland. In the US, 21 percent of children under 17 live in poverty; almost twice as many children as in Germany. The US is also the only high-income country without universal healthcare, and thousands of Americans die prematurely each year because they don’t have health insurance. The infant mortality rate in the US is more than twice as high as in Spain, Italy, and Sweden.
The US is also the only high-income country without universal healthcare, and thousands of Americans die prematurely each year because they don’t have health insurance.
Most evidence suggests that providing people with economic support during periods of hardship such as unemployment or an unexpected diagnosis has positive economic outcomes in the short and long term, with knock on effects for wellbeing and health. Unemployment insurance (UI), for example, is a social insurance programme in the form of an income transfer for people who involuntarily lose their job. UI helps people pay for things like rent and food. While the US does have a UI programme, compared to other high-income countries, it has more stringent eligibility criteria, less generous benefits, and a shorter period of payments. The maximum duration of UI in the US is around half the median of advanced economies. UI benefit amounts are also 10 percentage points less than the average across OECD countries.
Adequate UI benefits—in terms of amount and duration—allow people the time needed to find new and suitable employment without falling into poverty or debt. Recent research shows that in no area of the U.S. can a person survive solely on unemployment benefits. Evidence suggests that those with access to sufficient UI find jobs that better match their qualifications, have higher wages, and greater access to benefits like health insurance. Collectively, these effects mean that individuals are better off in the future. UI payments are also important for smoothing incomes for families with children. Household income has important causal effects on a wide range of child outcomes, including cognitive development, and school achievement.
Unemployment insurance (UI), for example, is a social insurance programme in the form of an income transfer for people who involuntarily lose their job.
The US is one of the only countries globally that doesn’t provide paid parental leave. Even though paid leave for both new mothers and fathers has positive economic outcomes for parents. It has been noted in California—where there is a paid family leave policy, that taking paid leave increases female labour force participation, leads to higher wages and increased hours and weeks of work amongst women. Moreover, investment in childcare, which is notoriously unaffordable in the US, is an investment in the future. A recent study found that when less advantaged children had access to childcare, their labour market, health, and education outcomes were significantly better as adults.
Fear abounds that lazy people drain state coffers. However, the evidence doesn’t support this notion or the fear that generous protection programmes incentivise people not to work. This is a longstanding fear that resurfaced during COVID-19 with the expansion of unemployment benefits under the CARES Act. However, research suggests that the expanded UI benefits did not encourage people to stay out of work. These match findings from research in countries worldwide, showing that social safety nets don’t disincentivise people from working.
Evidence from Mexico’s Progressa—a conditional cash transfer programme–—for example, reveals that children who benefitted from Progressa in childhood had better educational and employment outcomes decades later.
A second pervasive argument is that we cannot afford broad-based welfare programmes. However, the US spends less on social welfare as a share of GDP than the average OECD country. We are seeing that such investments in people pay off. Evidence from Mexico’s Progressa—a conditional cash transfer programme–—for example, reveals that children who benefitted from Progressa in childhood had better educational and employment outcomes decades later. Likewise, a study of the US food assistance programme, Supplemental Nutrition Assistance Program (SNAP), implemented between 1961 and 1975, shows that children who received food assistance had better health as adults, and women had greater economic self-sufficiency than similar children who didn’t have food assistance.
Perhaps it is time to dispel the notion that welfare is a cost, not an investment. Difficult times befall many of us; if designed well, social protections can ensure that people don’t fall into economic ruin during these periods. Instead, social policies can provide sufficient and reliable support. This will benefit recipients in the short term and have wider spread economic benefits in the longer term. For example, providing an adequate social safety net can provide enough security so that people have the freedom to innovate. The failure to make such investments is why the US underperforms on many basic indicators of social progress compared to its peers. The US could benefit from looking around at what other industrialised countries are doing as they offer lessons and evidence to support such investments.