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 Title

Making Welfare Work: What Ontario Could Learn from Alberta’s Welfare experiment

 Synopsis

Notes for a presentation to the Centre for the Study of State and Market conference entitled: Conservatism or Counterrevolution?: The Harris Government at Mid-Term

 Author

Kenneth J. Boessenkool

 Author Notes

Policy Analyst, The C.D. Howe Institute

 Essay - 10/10/1997

In 1993, Alberta embarked on a substantial overhaul of its welfare program. Its focus on early intervention and tough love produced a social policy success story worth repeating in other jurisdictions. In 1995 Ontario also embarked on an overhaul of its welfare program. Changes to benefit levels were long overdue, and produced some promising early results. Ontario is hoping that the expansion of workfare will do the same.

Unfortunately, the design of Ontario Works ignores the importance of early intervention demonstrated so clearly by the Alberta reforms. As a result, it is unlikely that Ontario will mimic the success of Alberta in getting its welfare recipients back to work.

SETTING THE STAGE: WELFARE REFORM IN ALBERTA

Despite experiencing only moderate economic expansion, in the three years following its overhaul of welfare, Alberta saw some stunning results.

- The total number of welfare caseloads was cut in half, with much larger reductions in the number of young employables. (Note 1)

- A majority of those removed from the caseload found work. (Note 2)

- The number of individuals living below Statistics Canada’s Low Income Cut Off (LICO) was reduced by 2 percent, and the number of unattached individuals below LICO was reduced by 5 percent. (Note 3)

- Youth employment (under 25 years old) kept pace with the economy for the first time in fifteen years. (Note 4)

There were many changes to welfare in Alberta that helped produce these numbers. Two of the most important were early intervention and tough love.

Early Intervention

During the 1980s and early 1990s a rise in short term use, particularly by young employables, was the most important reason for increased in welfare use in Alberta — Albertans were increasingly using welfare as unemployment insurance, rather than as a last resort. Over time, some of these short-term users became trapped by perverse incentives such as high tax-back rates and benefits that exceeded market earnings. Alberta Family and Social Services responded by emphasizing early intervention, that is, by focussing its reforms on welfare applicants rather than welfare recipients.

Alberta reduced the intake of short-term users by tightening eligibility, particularly for young employables. Alberta also required that employable applicants exhaust all other means of support, including active labour market programs, before granting welfare benefits. About 35,000 applicants never received welfare because they were transferred to various other, mostly short term, programs.

Mandatory workfare was not part of the Alberta reforms. The closest Alberta got to workfare was three small voluntary programs targeted at long-term users of welfare — at a cost per participant of four times the benefit rate for single employables. (Note 5)

The impact of this early intervention was substantial. Alberta reduced inflows into welfare by 60 percent within one year. (Note 6) The overall reduction in welfare use was therefore not a result of pushing people out, but by making it tougher to get in.

Tough Love

The second, or tough love, element of the reforms was a reduction in benefit levels. Alberta Family and Social Services insisted that benefit levels not exceed the wages of low-income working Albertans. This meant a 19 percent reduction for single employables, with 12 to 13 percent reductions for other demographic groups.

MAIN STAGE: WELFARE REFORM IN ONTARIO

Like Alberta, Ontario has seen a massive increase in the number of employables on its welfare roles. In 1992 employables and students made up more than three quarters of the General Welfare caseload. (Note 7) In response, the current government has reduced benefits and introduced Ontario Works, more commonly referred to as workfare. How well do these compare to the tough love and early intervention approach of Alberta?

Benefit Reductions

Soon after taking office Ontario reduced its benefit levels to 10 percent above the national average. (Note 8) Despite the elusive rationale for this benchmark, the reductions meant the end to ten years of damaging increases in welfare benefits.

Between 1980 and 1995, Ontario went from having the lowest percentage of its population on welfare and relatively stingy welfare benefits to having the highest proportion of its population on welfare, and benefits far above that of any other province. (Note 9)

The economic climate undoubtedly contributed to the rise in welfare use, but is only partly responsible. A simple, but extremely well behaved regression of Ontario welfare use shows that changes in the economic environment (a lagged unemployment rate and low income wages) are important to explain changes in welfare use. It also suggests that, from 1989 to 1993, changes to the benefit levels explain nearly half the increase in welfare use. (Note 10)

The Ontario benefit reductions were thus long overdue. The policy question concerning the appropriate benchmark for welfare benefits remains, however. The rationale used in Alberta, namely that benefit levels should not exceed low-income wages, is both politically appealing and economically defensible. If benefit levels are above the level of earnings of a substantial portion of the population, the rational economic agent will choose welfare over work. This is particularly the case when welfare offers many non-monetary benefits, and/or there are additional costs to working.

Before the 1995 benefit reductions, the ratio of single employable benefits to the first decile earnings of males working full time in Ontario was one third higher than that ratio in Alberta. (Note 11) Following its benefit reductions, Ontario’s ratio remains 10 percent above that in Canada’s three other large provinces, suggesting that Ontario still has room to reduce its benefit levels. Ontario’s current benefit to the low wage ratio may be one reason for its failure to the mimic the results of welfare reform in Alberta. However, it is not the major reason.

Workfare

In my view, the major reason for the lacklustre success of the Ontario welfare reforms is a failure to appreciate the significance of early intervention.

Ontario’s approach to workfare is substantially different from the early intervention approach used in Alberta. First, eligibility requirements have not changed much. Second, in both the pilot projects and in the recent legislation, mandatory enrolment in Ontario Works takes place only after a waiting period of four months. During these initial four months, welfare operates much as it did before — applicants receive benefits and are responsible for looking for work on their own. (Note 12)

The rationale for the four-month waiting period is primarily fiscal. As already mentioned, many recipients use welfare for only a short period, and find work on their own. A four-month waiting period, it is argued, would save considerable amounts of money.

This waiting period may, however, increase costs. It may encourage individuals to stay on welfare in order to access job search assistance. The substantial oversubscription of Ontario Works placements is evidence of this contention. Further support would come from evidence the time spent on welfare had increased after the imposition of Ontario Works.

Summary

Alberta reduced welfare use and got people back to work by focussing its reforms on the inflows of employable individuals. Ontario, by contrast, has done little to reduce the short-term use of welfare by employable individuals other than modest benefit reductions.

Ontario should review the focus of its welfare program with the goal of getting more of its employable welfare recipients back to work. It could do this by further tightening eligibility and referring employable applicants to active labour market programs before, not after, a stint on welfare. The current robust economic expansion means that the payoff, especially to current and potential welfare recipients, would be large.

Note 1: K.J. Boessenkool, Back to Work: Learning from the Alberta Welfare Experiment (Toronto: C.D. Howe Institute, April 1997), Table 3.

Note 2: Boessenkool, Back to Work, p. 19; D. Elton, J. Sieppert, J. Asmier and R. Roach, Where Are they Now? Assessing the Impact of Welfare Reform on Former Recipients, 1993-1996 (Calgary: Canada West Foundation, June 1997), Table 1.

Note 3: National Council of Welfare, Poverty Profile 1995 (Ottawa: National Council of Welfare, Spring 1997), Graph M.

Note 4: Boessenkool, Back to Work, p. 19-20.

Note 5: Details of these programs can be found in Alberta Family and Social Services, Alberta Welfare Reforms: Progress Report, March 1993-December 1995 (Edmonton, 1996); Boessenkool, Back to Work, p. 16-17; and Elton et al., Where Are They Now? Table B-3.

Note 6: Boessenkool, Back to Work, p. 10-11.

Note 7: Human Resources Development, Inventory of Income Security Programs, January 1993, p. 106. That number has risen from 58 percent in 1983. The 1992 caseload was 2.5 times larger than in 1983.

Note 8: The Progressive Conservative Party of Ontario, The Common Sense Revolution (Ontario, 1995), p. 11.

Note 9: D.M. Brown, “Welfare Caseload Trends in Canada,” in J. Richards and W. Watson (eds.), Helping the Poor: A Qualified Case for ‘Workfare’” (Toronto: C.D. Howe Institute, 1995), pp. 59-64.

Note 10: The equation is:

cases/population = a0 + a1 (unemployment)t-1 + a2 (benefits/ average second decile male earnings)t-1.

The equation R2 is 0.966, with D-W of 2.18 using annual data from 1983 to the 1993. For more details see Boessenkool, Back To the Work, Appendix. See also C. Kapsalis, “Social Assistance Benefit Rates and the Employment of Lone Mothers,” Working Paper (Ottawa: Human Resources Development Canada, Applied Research Branch, Strategic Policy, September 1996).

Note 11: Boessenkool, Back to the Work, Table 4. Over the past three years both Quebec and British Columbia have reduced their benefit levels, bringing their ratios in line with Alberta.

Note 12: Government of Ontario, Ontario Works and You (Toronto: Queens Printer for Ontario, May 1997), p. 2.


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