A New Homestead Act—To Jump Start the U.S. Economy

December 15, 2015 Topic: Economics Region: Americas Tags: UnemploymentWelfareMobilityHomestead ActPoverty

A New Homestead Act—To Jump Start the U.S. Economy

Why don’t those who live in depressed areas move to places where they can get back on their feet?

Block granting means-tested benefits, as proposed by Rubio and Ryan, would also likely not alleviate this problem. It might be true that states know their own populations best, but many states are simply not generating enough jobs in the areas where poor and low-skilled people live to help get them on the ladder to success. Simply sharing cost savings with states which reduce their welfare rolls, as the 1996 welfare reform act did, encourages them to persuade low-income people to enroll in purely federally-financed low-income-support programs, such as the nation’s two federally funded disability programs. Neither Rubio nor Ryan is proposing to send those massive programs to the states.

Nonwork among the able-bodied, prime-aged adults is not increasing primarily because government support programs often do not contain a work requirement or, if one exists, is loosely enforced. Nor does it occur because funding for work-support programs (such as the EITC) is not high enough. It is increasing because more and more low-skilled, native-born Americans live in job deserts where a good, well-paying career with some measure of advancement is increasingly rare. The solution to this problem will not come from asking these people to work or asking taxpayers to pay more. It will come by asking these people to do the one thing we do not currently ask them to do: move.

The new Homestead Act would start to solve this problem by systematically reforming our safety net to do two things. First, it will give people information about jobs they can do in other states and subsidize their decision to pursue new horizons whether they receive income-support benefits from the federal government (such as Social Security Disability Insurance [SSDI] or TANF) or from the states (such as Unemployment Insurance [UI]). Second, where people are already receiving state-based benefits, such as Medicaid, housing vouchers or food stamps, it will make them fully transportable across state lines so that the fear of temporarily losing their benefits is no longer a reason to stay put.

Most people who are looking for work or who have lost a job will come into contact with the unemployment-insurance system. UI programs are run by the states, and all have requirements that UI recipients search for suitable jobs. UI recipients are also required to take suitable jobs if one is offered during the benefit period. Both the job-search and job-taking requirements, however, are limited by one’s location. A recipient is only required to take a suitable job if it is nearby. The databases used by UI offices generally only list jobs within that commuting radius, although some states like California and Pennsylvania do have intrastate job databases. Thus, most UI recipients will never find out about suitable jobs they could do outside their local areas or, at best, their states.

UI recipients also get no financial help to move even if they find out about a job in another location. Travel to interview for these jobs is not subsidized: the applicant must supply any money for that from their savings or benefits. Many people simply can’t afford this. Furthermore, even if they did find a job elsewhere they might be unable to afford the move. Current federal law does not allow people to write off losses on their houses if they have to sell to move. The tax code does allow people to deduct moving expenses if one moves further than fifty miles for work, but the practical value of that deduction is nil for most middle- or working-class families, as many such families have no income-tax liability thanks to either the Child Tax Credit or the EITC. Some people moving after a period of unemployment might have also no tax liability to which the deduction can be applied simply because they didn’t earn enough income. Even if one does have some income-tax liability, today’s low marginal tax rates mean that most people would get only 10 or 15 percent of their moving expenses recovered through lower tax payments.

TANF recipients face a similar hurdle. Although TANF does have a strong work requirement, it is a state-based program and by definition cannot require people to take jobs in other states. As a practical matter, state-run TANF programs follow UI programs in offering recipients neither information nor subsidies to take jobs outside a reasonable commuting distance from one’s residence.

SSDI applicants run into this mobility trap in different ways. Most SSDI applicants today do not qualify for benefits because of a medical impairment. Instead, according to the Manhattan Institute’s Scott Winship, 58 percent qualify because they are deemed to have a low Residual Functional Capacity (RFC). An applicant’s RFC is assessed by looking at their age, education and transferrable job skills. Generally speaking, the older and less educated the applicant is, then the likelier he or she is to be found to have a low enough RFC to be classified as disabled.

Theoretically, the RFC is assessed based on whether there are jobs anywhere in America for which the applicant has transferrable job skills. But the SSDI process neither gives the applicant specific information about such jobs nor provides any fiscal incentives to move to take them. If there are few jobs within the local economy for which the applicant has transferrable job skills, and which pay more than he or she would receive in SSDI payments, applicants have a strong incentive to appeal a denial of benefits and argue that the RFC overstates their skill level. Applicants who do this have great success: nearly two-thirds of applicants who are initially denied benefits are approved on reconsideration or appeal.

The bias against encouraging moving for work extends to SSDI’s main voluntary program to encourage beneficiaries to go back to work, the Ticket to Work program. The Ticket to Work program encourages recipients to go back to work by connecting them with Employment Networks or, in cases with severe disabilities, Vocational Rehabilitation agencies. In both cases, however, the networks or agencies operate through states and do not normally attempt to prepare beneficiaries for jobs outside their local area. Even when they do, there are no specific financial incentives or subsidies that will encourage people to make the move.

Government must offer people in need information and incentives to overcome this bias. Encouragement—and perhaps requirement—is necessary for people to look for suitable employment outside their local areas. This is particularly important in job deserts where the economy has sputtered for decades or where the closure of a large area employer sends the region into a tailspin. Once suitable jobs are identified, they need to be given financial assistance to encourage them to make the move.

Any smart plan will start with information. Job databases already exist in every region of the country, yet are not adequately linked. In an age where FedEx can trace a package anywhere in the world in real time, connecting these databases into something a person can easily access should be possible. In fact, the Obama administration is already starting to do this with the beta version of its online American Job Center. This system allows a user to search for jobs by title, keyword, city or state anywhere in the country. Once this system is fully operational, SSDI, UI and TANF should be required to use it as part of their respective work-encouragement schemes. UI recipients, for example, could be required to search for their specific jobs in areas known to be fast growing in those fields. An autoworker thrown out of work in Michigan, for example, could be required to look for new auto-plant jobs in Kentucky or Tennessee, states where the auto industry is healthier than in Michigan. That person would not be required to move, but simply giving them the information might be enough to convince them to take the plunge.

Recipients could also be given information on the relative health of job markets in different areas. The American Enterprise Institute’s Michael Strain notes that the data already exists to provide people information about unemployment rates, job gains and payroll gains by industry in every region of the country. Simply giving a person this information in a short, easy-to-understand format, he contends, might be enough to help encourage him or her to search for work in those places. For SSDI recipients, the database could come into play at the initial application process. Someone found to have transferrable job skills, for example, might be given a list of specific jobs in other states to consider. That person might still want to appeal or ask for reconsideration, but having something specific to work towards might encourage some to withdraw their application and start work elsewhere.

Incentives, however, will probably be necessary to persuade many people to leave their homes and neighborhoods. Moving is never easy, and lower-skilled and older people are particularly resistant to making the changes needed when one uproots and resettles somewhere new. On the margin, those risk-averse people will likely need a tangible, significant benefit if they are to be convinced to move. Those incentives could take many forms. Eli Lehrer and Lori Sanders of the R Street Institute have proposed allowing unemployed persons with few assets to “cash out” the UI benefits they would otherwise have received over the maximum eligibility period. Lehrer and Sanders propose these “cash out grants” could be 70-80 percent of that period’s benefits, allowing the person to afford the move and perhaps have some money left over for a nest egg.