Spending on social welfare rose as economy tanked during recession

Jobless surge fueled deficits

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Spending on social welfare programs soared by $500 billion to $2.1 trillion during the Great Recession, but the increase was almost entirely due to the historic surge in unemployment to 10 percent rather than a liberalization of benefits by the government, according to two studies out this month.

The rise in spending on programs including food stamps, unemployment benefits, Social Security and Medicaid contributed to record budget deficits that hit as high as $1.5 trillion a year during and after the recession, setting off alarms in Washington and on Wall Street. But as occurred after previous downturns in the U.S., the economy slowly recovered and 7.8 million jobs opened up in the private sector in the past 4 1/2 years, causing social spending to subside, income tax revenues to rise and deficits to fall by half.

A Johns Hopkins University study earlier this month is the first to put an overall price tag of $500 billion on the cost between 2007 and 2010 of the so-called “safety net,” which helped people put out of work by the recession to pay their mortgage, food, heating and health care bills while they were unemployed and looking for jobs.

The recession caused a doubling of the unemployment rate from 4.6 percent to 9.3 percent from 2007 to 2009, cutting the incomes of U.S. families by 8.3 percent on average. That led to the surge in spending on unemployment benefits and other programs that in more normal economic times primarily benefit a smaller number of people who are elderly, disabled or living around the poverty level.

“The programs did their job and made a difference, there’s no question about it,” said Robert A. Moffitt, and economics professor and author of the Johns Hopkins study. “Our results show that there was a major response from the safety net to the Great Recession.”

Mr. Moffitt found that caseloads in the safety-net programs rose to 310 million in 2010 from 276 million in 2007, before the recession. Spending on the Supplemental Nutrition Aid Program (SNAP), or food stamps, more than doubled to $65 billion. The program not only helped more people, but the benefits were somewhat higher than before the recession because of more liberal policies enacted by the states and in President Obama’s $800 billion stimulus bill in 2009. The last of the stimulus-related increase in benefits expired this month.

Spending on unemployment insurance also skyrocketed to $142 billion from $34 billion before the recession, mostly because of the surge in joblessness but also because of more generous benefits enacted in the stimulus bill. The extended unemployment benefits originally enacted by President Obama and a Democrat-led Congress in February 2009 provided up to two years of unemployment checks to people who lost their jobs. Because of a record level of long-term unemployment, those enhancements were renewed several times after Republicans took control of the House a year later, but are due to expire this year.

Safety-net spending surge

Despite the move by Congress to make benefits more generous, a second study by the National Bureau of Economic Research found that the jump in spending on benefits after 2007 was nearly entirely because of the surge in unemployment and severity of the recession, not the easing of standards for welfare programs enacted by Congress or the states.

“Much attention has been given to the large increase in safety-net spending, particularly in unemployment insurance and food stamps, during the Great Recession,” said Marianne Bitler, co-author of the bureau’s study. But she said the increase was “consistent with historic patterns” during previous recessions in the U.S., and virtually all of the increase in spending was because of the severity of the recession rather than the generosity of the stimulus law.

The most comparable period to the Great Recession was the double-dip recession of the early 1980s, when unemployment peaked at a somewhat lower 9.7 percent, as compared with 10 percent during the Great Recession. The Johns Hopkins study found that spending on unemployment and other benefits grew by 14 percent from 1979 to 1982, compared with an 18 percent increase in the 2007 to 2010 period.

The studies found that one welfare program that increased significantly in the 1980s recession — cash welfare benefits — did not increase in the most recent downturn, apparently because of tightened eligibility requirements enacted in the 1996 welfare reform law. Cash welfare spending increased by 3 percent in 2010, for example, as compared with a 7 percent rise in 1982 when President Reagan was presiding in the aftermath of a previous deep recession.

Appetite for food stamps

In the most recent recession, unemployed people appear to have sought out food stamps, Medicaid and other benefits rather than tapping into the cash welfare system. The Johns Hopkins study found that spending on Medicaid surged from $327 billion to $401 billion from 2007 to 2010, while spending on the Earned Income Tax Credit, a federal income tax refund for low-income working families, rose from $49 billion to $59 billion. Spending on other programs such as Social Security and Supplemental Security Income also increased as people close to retirement or eligible for disability benefits enrolled in the programs after losing their jobs.

“There have been many complaints that the U.S. safety net has been shredded and is inadequate to serve those who are in need. And there have been other voices saying that government is ineffectual and that much of the money is wasted,” Mr. Moffitt said. “Neither of these is correct. The U.S. safety net is very healthy and was extremely responsive to the Great Recession, helping families of all different types and at all different income levels.”

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