NCPA - National Center for Policy Analysis

Canada Experiments With Work Incentives

July 31, 2000

Some economists say that welfare reform should have three main goals: to reduce poverty, increase employment and limit government dependency. Often, critics say, achieving one goal can exacerbate problems with the other two.

Canada may be finding a way to break that cycle and achieve all three goals. Policy analysts report that Canada's "Making Work Pay" program may become the preferred model for moving people from welfare into jobs. Early results are encouraging, but the longer-term effects are not yet known. Here's how the program works:

  • Single-parent welfare recipients are encouraged to find jobs by being offered up to three years of payments to supplement earnings from any full-time job found within a year.
  • The supplements double what most participants earn from a minimum-wage job or receive in welfare alone.
  • For example, someone on welfare who received about $10,000 in benefits would be promised a minimum of $20,000 when job wages and income supplements are combined -- a process known as "topping-up."
  • It won't be known until next year whether those in the project who took jobs will keep them after the incentives expire -- but advocates of the experiment are hoping that skills gained through work will lead to pay raises or higher-paying jobs, thus encouraging workers to remain employed.

Although many welfare recipients have remained jobless despite the incentives, the program doubled the percentage of welfare recipients who found work, compared with a control group not offered incentives.

The Canadian welfare-reform model differs from that of the U.S., which has primarily emphasized limiting the amount of time that recipients receive benefits or limiting the size of those benefits.

Source: Mark Heinzl, "Economists Watch Canada Welfare Reform," Wall Street Journal, July 31, 2000.

 

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