Arizona Welfare Reforms Will Correct Labor Market

By: Patrick Hedger-Policy Director, American Encore

Last week, I posted a quick blog warning state-level politicians, especially in the GOP, from touting falling unemployment rates in their states as a measure of success. Usually falling unemployment rates are a good thing, however the recent downward trend in the national unemployment rate is a bit of a false positive. This means that falling local unemployment rates are likely not indicative of improving economic conditions either.

The problem stems from the labor force participation rate, which measures the percentage of the total population that is actively engaged in the labor market either through employment or the search for a job. This population parameter has collapsed to lows not seen since the 1970s. This can artificially lower the unemployment rate if many long-term unemployed persons simply give up looking for work. Many experts believe this to be the current case and have been working tirelessly to highlight this problem for the past few years.

It would behoove local governments to not ignore this national trend, which is certainly the product of many state and local trends. Arizona seems to have received the message. Since the “Great Recession” of 2008-2009, Arizona’s labor force participation rate has fallen a few percentage points. This can have a major impact on the reported unemployment rate. In a move announced last week, Arizona’s GOP-controlled legislature and Republican Governor Doug Ducey have instituted a 12-month limit on welfare benefits. They are further seeking to institute work-requirements for Medicaid recipients.

The important take-away here is that the government gets what it pays for. If it is willing to pay people not to work, then they won’t. Combined welfare programs offer lucrative benefits to some. Depending on the circumstances, using several available welfare programs, families can bring in annual incomes higher than those in many professions, especially entry-level jobs. This creates a poverty trap where welfare recipients hold out for jobs that would pay more than their combined benefits, making them unwilling to pounce at the first available job opening. This keeps people dependent. Certainly entry-level positions or minimum wage jobs aren’t ideal, however they are often the first step towards better jobs and independence. Rules have to be put in place to encourage people to take that first step by reentering the labor market, even if it is at the bottom level. 

Arizona has done just that. This could result in a brief spike in technical “unemployment.” However, a rising labor force participation rate will indicate that the state is headed in the right direction.