British debates about welfare reform have often been influenced by American ideas. The Clinton-era welfare reforms were echoed in some of Tony Blair’s alterations to British benefits. Gordon Brown, as Chancellor, introduced a new Working Tax Credit as a direct result of studying the Earned Income Tax Credit. Brown particularly liked the political advantages of a ‘tax cut for hard-working families’, as opposed to a ‘benefit handout to welfare families’.

But now the transatlantic traffic in ideas on welfare is going the other way. The U.K.’s introduction of a single, unified system of transfer payments – the Universal Credit – is getting quite a bit of attention in the wonkier regions of D.C. politics. Paul Ryan, at a Brookings summit on social mobility, mentioned the Universal Credit (UC) as a possible inspiration for a new round of welfare reform. (Ryan is giving a speech at AEI in a couple of weeks: we’re likely to hear more about his thinking then.) When the architect of the UC, Iain Duncan Smith, visited D.C. recently, he held a series of meetings with leading Republicans to discuss his reforms.

The main attractions of the Universal Credit are fourfold:

1. Simplicity. By unifying five cash benefits and an ‘in kind’ benefit (Housing Benefit) into a single, monthly payment, the complexity of the system from the point of view of the recipient will be greatly reduced.
   
   
2. Cost control. Housing Benefit is paid directly to the landlord, which reduces the tenant’s incentive to control costs.  Add that to the crazily overheated U.K. housing market, and should come as no surprise that Housing Benefit has become a major strain on the system, quintupling in cost in real terms over the last two decades to hit £24 billion a year (c. $41bn), to become the second-biggest element of the U.K.’s system, after pensions.  By including an allowance for housing in the single cash payment in UC, the recipient will be incentivized to control their own housing costs.
    
3. Stronger work incentives. The UC has a flatter ‘taper’ than existing benefits, meaning that cash payments are reduced more slowly as earnings rise. In particular, the UC will allow benefit recipients to work part-time (less than 16 hours a week), and still keep claiming. On the downside, incentives for second earners in two-adult families will be reduced. 
   
   
4. Tighter and more targeted work requirements. The UC will contain stronger requirements to seek work than existing benefits, and importantly, has a ‘sliding scale’ of requirements, depending on the position of the recipient. For example, parents with children under the age of 1 will be exempt from work requirements; those with children aged between  1 and 5 will be obliged to attend for interviews with a case worker to prepare for a return to work; those with children at school will be required to ‘actively seek work’.

Sounds pretty good, doesn't it? And in fact it is, on paper at least. In practice the introduction of UC has been marked with huge overspend and delay on the required new IT system. The whole exercise has also been made much harder by cuts in many of the relevant cash benefits, as well as the introduction of a ‘household cap’ on total welfare receipts. The Universal Credit as an idea has a lot of support. As so often, it has been putting the idea a reality that has been difficult.

What—if anything—can the U.S. take from the UC? Short answer: not much. 

Many of the problems the UC addresses do not really apply in the U.S. Work incentives are already pretty strong in the U.S., thanks to the relative generosity of the EITC, and the relative meanness of out-of-work welfare supports. Also, there are already much stronger work requirements in the U.S. system. Some want to go further, and add work requirements to the receipt of food stamps, for example. But this would not require a major overhaul.  As Melissa Boteach and her colleagues at the Center for American Progress write,“the primary problem that the Universal Credit is supposed to address in the United Kingdom—the lack of incentive for jobless workers to enter the labor force—is far less of an issue in the United States”.

The UC also further centralizes an already highly centralized system, by getting rid of Housing Benefit, which is currently administered by Local Authorities. The U.S. system is much less centralized, with states and cities having a high degree of control over the way TANF and SNAP are administered. It is hard to see how anything like a UC could work in the U.S. at anything higher than State level. A Wisconsin Universal Credit makes sense in a way that a U.S. Universal Credit does not.  But if shifting towards block grants to states is really what this is about (see Marco Rubio’s ‘flex fund’ idea),that’s a whole different debate.

A final point. Simplicity and ease of use for the recipient is a key goal of the UC, and a worthy one. The stress and difficulties faced by low-income families just in applying for assistance is unacceptable in the 21st century. But it is not clear that the whole system has to be upended to achieve this goal. Technology ought to allow a single access point to the system, with the complexity out of sight of the user. 

In the U.K. the Universal Credit has a strong rationale, despite the implementation challenges. In the U.S., it is a solution in search of a problem. 

At 77 years of age, the federal minimum wage deserves a respite from the day-to-day combat of political life. Today, protestors around the country are demanding a $15 minimum. But few observers think this level is economically desirable: even fewer think that it is likely.

Democrats want a higher minimum, and say so loudly. Republicans of a free-market persuasion mostly do not—but tend to stay silent because they know that swing voters look positively at raising the wages of low-earners.

The minimum wage is lagging…

Congressional political stalemate has meant the U.S. wage floor has lagged behind median earnings. In contrast wage growth in other OECD countries has performed much better, as this graph produced by the Hamilton Project shows:

Advanced nations have de-politicized minimum wage decisions

The federal minimum wage is an established piece of the U.S. policy furniture—and one that is quite dated. It now makes sense to consider taking some of the power and responsibility for setting the wage rate out of the hands of politicians—just as interest rates are set by the Federal Reserve.

This is not a novel proposal in international terms. In most advanced economies, minimum wage decisions are not purely political. Out of 66 countries studied by Tito Boeri in 2009, 24 delegate the determination the minimum wage level to a tripartite body; 26 countries set the minimum wage after taking advice following formal consultation between the Government and representatives of employers and workers; and just 16 countries (including the U.S.) set the minimum wage through a simple legislative vote.

Over in the U.K., the Conservative Prime Minister David Cameron just jacked up the national minimum wage by 3% up to £6.70, with barely a squeak of protest from employers or the right wing of his own party. Why? Because, like his two predecessors, he simply followed the advice of the Low Pay Commission, which is comprised of nine commissioners—three each from trade unions, employer organizations and academia.

Two options for taking the political heat out of the U.S. minimum wage

Can the U.S. follow suit? And if it can, what might the new system look like? Two options at least are worth considering.

1. A Federal Minimum Wage Advisory Board. This could be made up (like the U.K. version) of nine members: three representatives of employer organizations, three from labor organizations, and three independent labor economists. The Board would recommend a rate for the national minimum wage each year, which would then be enacted by Congress in the usual manner. The Board would have a strong incentive to set a rate likely to be adopted by Congress, in order to establish and maintain its reputation: there is, after all, little point in sitting on a Board that is ignored. The Board’s recommendation would not be binding and would not become the legal ‘default’ level. But because the advice is likely to be sensible, Congress would likely be inclined to follow it.

2. Wage Indexation. An alternative—favored by my Brookings colleague Gary Burtless—would be to simultaneously raise the minimum wage and introduce automatic indexing, lifting the minimum wage at the same rate as either consumer prices or the median wage—preferably the latter. In effect, this would do for the minimum wage what President Nixon did for Social Security. Congress would have the power to suspend a rise—perhaps if unemployment reached a certain threshold—but the default position would be to link changes in the minimum wage to changes in the median wage or in the broader consumer economy.

Policy commitment devices in action

These are both examples of what I have called policy commitment devices—in a new paper, Ulysses Goes to Washington—that help to overcome political myopia in order to support longer-term policy objectives. In the first case, taking advice from an independent commission, the commitment is somewhat less binding, although as James Madison knew, ‘the counsels and checks of friends’ can carry plenty of weight. Indexation would be a tighter form of binding, since inaction on the part of politicians would lead to an uprating of minimum wage, rather than the current stasis.

For both sides, there are political attractions to sub-contracting some decision-making power over the minimum wage. By accepting the advice of an independent body or allowing indexation to do its silent work, Republicans can keep their business donors and right-wing critics at bay; Democrats can do the same for unions and the political left. Sometimes the most powerful thing politicians can do is give some power away. The minimum wage is now perhaps a case in point.

Improving data in the field of workforce development is a necessary step to evaluating programs and replicating success. What does current data tell us about the populations served? What outcomes should we measure to ensure programs are meeting America’s workforce development needs?

Earlier this month, we convened an expert group of policy makers, practitioners and scholars to address this problem, along with other challenges in workforce development. Previously, we interviewed Kate Blosveren Kreamer on the need to strengthen bridges from school to work. Next up in our Q&A series is Beth Weigensberg, a researcher at Mathematica Policy Research.

A: Although there is increasingly more rigorous research to assess effectiveness of programs, I feel a missing piece is understanding how to replicate and scale-up effective strategies. Often times workforce development programs that are deemed effective in one place do not always succeed when implemented in another. Research that evaluates effectiveness of programs should assess the role of contextual factors (including organizational, leadership, community, and political factors) to identify what is needed to successfully implement, replicate, and scale successful programs.

A: The workforce development field has an unfortunate history of “creaming”—programs selectively work with individuals most likely to succeed at finding employment, leaving those “harder-to-serve” individuals struggling to find assistance. Individuals that are often considered “hard-to-serve” include those who are homeless, disabled, formerly incarcerated, older workers, non-English speakers, low-income, and youth who are disconnected from school and employment. Increasing efforts to focus on these “harder-to-serve” populations include specialized targeted programs and strategies to help address the complex needs of these individuals, which often extend beyond skill development and finding a job. These specialized programs often provide additional support services to help address their complex needs, which can serve as additional barriers to obtaining and retaining employment.

A: Intermediate measures of engagement and skill development would provide interim measures of progress, while the ultimate objectives are obviously employment and educational attainment. Ongoing evaluation on interim measures allows for earlier acknowledgment of achievement and identification of those struggling to progress. Assessing outcomes in ways that control for different populations or barriers to employment, such as using risk-adjusted methodologies, can help us evaluate workforce development programs in an equitable manner.

One of the biggest challenges in the field is ensuring we have valid and reliable data to accurately estimate outcomes. The data available to assess outcomes are usually limited by what is collected in management information systems, which are often developed to be responsive to reporting requirements of publically-funded programs. But these siloed data do not allow for comprehensive assessment of workforce development outcomes within a state, locality, or even within a community-based employment and training organization that relies on numerous funding sources. Efforts are needed to integrate data and assess standardized outcome measures across program and funding silos to allow for more comprehensive assessment of outcomes within the field.

Improving the labor market and encouraging work are central to our goals of achieving greater responsibility and opportunity in America. The private economy is the arena where most Americans work hard to realize their dreams.

But employment today is failing to achieve the promise it did a few decades ago. Wages of unskilled workers have been fairly stagnant in real terms (especially among men) and have fallen relative to those of more-educated workers; and some groups of Americans (like less-educated men generally and black men, specifically) are working considerably less than they once did.

Stagnant wages and low work participation among some groups of workers are blocking progress. Both must be addressed.

In Chapter 4 of a new report from the AEI-Brookings Working Group on Poverty and Opportunity, the Working Group recommends policies that:

1. Expand opportunities for the disadvantaged by improving their skills;
2. Make work pay better than it does now for the less educated;
3. Expand both work requirements and opportunities for the hard-to-employ while maintaining an effective work-based safety net for the most vulnerable members of our society, especially children; and
4. Make more jobs available.

Downloads

• Download Chapter 4: Work
• Explore the full report