Work Requirements Don’t Work

Summary

Optimist Economy - Episode: "Work Requirements Don’t Work"
Release Date: June 17, 2025
Hosts: Kathryn Anne Edwards and Robin Rauzi

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Introduction

In this episode of Optimist Economy, hosts Kathryn Anne Edwards and Robin Rauzi delve into the contentious issue of work requirements in public benefit programs, particularly focusing on Medicaid. They explore the historical context, underlying economic theories, practical implications, and the current policy landscape surrounding work requirements.

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Understanding Work Requirements

The discussion begins with a critical examination of work requirements—policies that mandate individuals receiving public benefits to engage in work or job-seeking activities to maintain their eligibility.

Kathryn emphasizes the fundamental economic principles behind work requirements:

"There's a trade-off between how much you can consume of leisure and how much you can consume of goods and services... Economists are normal human people."

This sets the stage for understanding how work requirements are intended to influence individuals' decisions regarding work and leisure.

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Historical Context: Welfare Reform of 1996

The hosts trace the origins of work requirements to the 1996 Personal Responsibility and Work Opportunity Reconciliation Act, which significantly reformed the welfare system in the United States.

Robin highlights the dramatic changes:

"We changed the program from Aid to Family with Dependent Children to Temporary Assistance to Needy Families and put incredible work requirements on the program."

Kathryn adds:

"The most stringent that you can imagine. And then they put a three-year cap on how long you could receive it over your lifetime."

These reforms aimed to reduce dependency on public assistance by enforcing strict work-related conditions, effectively diminishing the welfare system's reach.

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Economic Theory: Income Effect vs. Substitution Effect

A significant portion of the episode is dedicated to explaining the income effect and substitution effect, two key components of economic theory that influence labor supply decisions.

Kathryn breaks down the concepts with relatable analogies:

"Leisure has a price tag and that's the wages you don't earn. So when you get a higher wage, you would either work less so that you could consume more leisure because you can still afford the same life, or you would work more because leisure has become more expensive."

Robin summarizes:

"It's just reminding me when I got a raise and decided to work more because leisure became more expensive."

These effects are crucial in understanding how changes in wages or benefits can alter individuals' work behaviors.

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Impact on Public Programs: Medicaid and Food Stamps

The hosts critically analyze how work requirements are applied to programs like Medicaid and Food Stamps, arguing that these requirements often fail to achieve their intended outcomes.

Kathryn states:

"If you give people contingent money, that means less work because... if you give someone public benefits, they will work less."

Robin questions the practical implications:

"It's going to throw some people over some threshold in their lives that they'll say, okay, I'll work less... What if one of her kids has special needs and she can cut down to a part-time job and now take him to more appointments? Is that so terrible?"

They argue that while economic theory suggests work requirements should influence behavior, the real-world impact is muddled by factors like lack of control over work hours and the necessity of maintaining income for basic needs.

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Practical Implications and Evidence

The conversation shifts to empirical evidence surrounding the effectiveness of work requirements. Both hosts express skepticism about the ability of work requirements to significantly increase labor participation.

Kathryn points out the implementation challenges:

"They ended up with a caseworker that was like, you didn't fill out this X form and I don't know how to help you. So you lose your benefit."

Robin adds:

"They just do this to kick people off of benefits. You know, it's one thing to target very poor single moms in the '90s... But it's quite another to take a program that provides health insurance to 77 million people and say you need to prove you're working."

The hosts cite studies and real-world examples indicating that work requirements often result in benefit loss rather than increased employment, highlighting the administrative burdens and discretionary enforcement that undermine the policies' objectives.

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Current Policy Debates and Future Outlook

Kathryn discusses the current legislative efforts to impose work requirements on Medicaid:

"10 million people were projected by the CBO to lose Medicaid under this bill."

She expresses optimism that public backlash against such policies is raising awareness about their detrimental effects:

"I take a lot of optimism from their accidental public awareness campaign and from the fact that this bill does not have a ton of support."

Robin concurs, noting the political resistance and the broader implications for public health and economic stability:

"If you don't have health insurance, it's a lot easier to die... It pays for addiction treatment."

The hosts conclude that while work requirements are deeply flawed, the ongoing debate provides an opportunity to address and rectify more effective economic policies that better support vulnerable populations.

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Conclusion

Kathryn and Robin effectively dismantle the notion that work requirements serve as a viable solution for reducing dependency on public benefits. Through a blend of economic theory, historical context, and real-world evidence, they argue that these policies are not only ineffective but also harmful to those they intend to help. The episode underscores the need for comprehensive policy reforms that focus on empowering individuals rather than imposing punitive measures.

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Notable Quotes with Timestamps:

• [06:10] Katherine: "Work requirements were the mechanism for ending welfare."
• [10:04] Katherine: "You are optimizing your labor supply to the exact amount to maximize the right consumption of goods and leisure."
• [12:23] Katherine: "The income effect says if you give someone public benefits, they will work less."
• [19:58] Robin: "Is everybody working?"
• [21:05] Robin: "It's the wrong yardstick."
• [35:15] Katherine: "Employers are not required in the United States to provide a pay stub. They have no legal need to."
• [38:33] Robin: "It's an everything burger bill."
• [39:02] Katherine: "That's the debate around Medicaid... work requirements force you into this conversation of whether these people are actually working as opposed to whether the program is doing the job that it's meant to do."

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Authors: Kathryn Anne Edwards and Robin Rauzi
Podcast: Optimist Economy
Website: optimisteconomy.com
Support: Become a Paid Member | Buy Me a Coffee
Contact: [e-mail]

Transcript

[Katherine]

I think that maybe one thing that people who have not been around a two year old would not understand is just how much they fucking love Band Aids.

[Robin]

Yes, they do.

[Katherine]

It's like it's God. They're addicted. Hello and welcome to Optimist Economy. I'm Katherine.

[Robin]

Hi, I'm Robin.

[Katherine]

On this show, we believe the US economy can be better and we talk about how to get there one problem and solution at a time. Foreign. We start our show off with a very quick announcement that we have a [e-mail] you can give us money through Buy me a coffee. We love your letters, we love your support, we love your money and we'd love for you to become part of the optimist community. And of course you can always email optimist economymail.com so last week we talked.

[Robin]

About the national debt, all $36 trillion of it, and why it shouldn't lead to ulcers or panic attacks. Do you have any retcons about the national debt? She's just shaking her head.

[Katherine]

I went so heavy on retcon last week, I made a whole retcon episode and put it into our regular show. I feel like I'm.

[Robin]

You did. It was like a 20 minute retcon. It was really long.

[Katherine]

This is because I just wanted to do retcon con and you said no. And then I did it anyway in a worst way. I don't know if I have any records of the debt.

[Robin]

I was going to try to figure out how much of the debt is owed to me by other Americans, but I didn't have time to do the math. All right. Terms and conditions.

[Katherine]

All right. Well, I looked up one or maybe one was pointed out to me and that is that bonafide is in fact two words.

[Robin]

Two words.

[Katherine]

Bona fide, fide, you know, bonafide. And it's not, in fact one word that looks like bonafide.

[Robin]

Bonafide.

[Katherine]

Bonafide. B O N I F I E D. It's like you bonifi something in the past, it has become bonafide.

[Robin]

That's right.

[Katherine]

And I don't want to bring up who pointed that out and how. I don't feel like I need to name names. I'm just. If you can see me, I'm pointing into space.

[Robin]

She's pointing into space.

[Katherine]

I'm just pointing into empty space. And not at a particular person or co host in that they didn't do it while laughing in all caps just to make sure they thought it was funny.

[Robin]

And I feel like now my term and condition is just piling on.

[Katherine]

Really?

[Robin]

Because I was listening to our. Our Letters episode. You're talking about Jeff Bezos and you said that guy had a lot of upper hands or something to that effect.

[Katherine]

Oh, I'm sure that's right. That doesn't sound right.

[Robin]

I was like, I think she's just mixing a metaphor. Like either he was dealt a lot of good hands or he was given some hands up. But it did make me look up upper hand, actually. And why where that comes from?

[Katherine]

Surely not left handed people as we all know, they're backwards and evil.

[Robin]

Right? Or backhanded. Right, Exactly. I was like, this is a continuation of our handed terms. But first of all, much older than I thought. Like, goes back again to our friends at the OED. 1481 is the first known use of this. And it sort of means what you think it means. It means an advantage, a mastery or control. But it also was even at that time used also synonymously with overhand, which sometimes was related to like the whip hand. So like the kind of controlling hand. But we also think of it related to the game or the thing they do in like Little League where you put your hands up a bat and whoever gets to be at the top has the home field advantage.

[Katherine]

Okay.

[Robin]

So that's like kind of a sort of a roll of the dice upper hand grabbing that advantage.

[Katherine]

It's nice.

[Robin]

It was apparently pretty like long time thing that was done with sticks long before we had Little League bats.

[Katherine]

Okay, well, I'm glad there's at least one definition that wasn't related to something like horrific or violent. Like every other phrase that we've used from the middle Ages. It's just this like, it's just this like B plot of our little violent. But yeah, this is the B plot of our like optimist future show is like. And remember, the past was pretty messed up.

[Robin]

That's right. But apparently you can only have one upper hand at a time, I think.

[Katherine]

Okay.

[Robin]

It's like in a situation, somebody has the upper hand, you gain the upper hand. You don't have a lot of upper hands.

[Katherine]

You only have what, like, you can't.

[Robin]

See me gesturing, but I'm gesturing multiple hands.

[Katherine]

Humbling as that is. The whole thing about bonafide is I was trying to say that, like, I'm a legitimate expert in economics where I have a PhD and there's lots of people in this space, influencer space, in the podcasting space that they will call themselves economists and they don't have a PhD. And I'm, I'm, you know, I don't want to be a jerk. And I'm not like, it's not like this is like, you know, optimist economy with like Dr. Catherine and Robin, and I make sure I get like the letters in there. That's just weird. But there is like this, like, on the other side. It does, I don't know, knife in the side a little bit that, like, I work so hard on a credential and like, have this like, body of knowledge and, you know, there's going to be an influencer who has so many more followers and has like, sponsored content. And he's like. And I'm like the youngest economist on TikTok. And I'm like, yes, because you're 20 and you don't have a degree in anything. I was trying to like, say that, like in a way that was more humble, that it's not like flashing around the PhD to say that. No, I'm like, I'm an actual economist. But of course I did that in a way that revealed that I'm like, actually bad at grammar. Trying to be like, Bob, I'm real economist bonafide in some ways and not others. Let's talk. This is going to be our most. This is a good preface, though, because some actual classic econ theory might come up in our centerpiece discussion, which is on work requirements.

[Robin]

Work requirements.

[Katherine]

Work requirements.

[Robin]

Sounds like a good idea.

[Katherine]

It's a terrible idea.

[Robin]

It's a terrible idea. Work requirements, I mean, obviously about to be in the news again, because they're a key part of the plan to reduce the budget, specifically related to Medicaid. Yes, but they have a long history, Right?

[Katherine]

They do. So the idea of a work requirement has a very specific function in classic economic theory as we think about program benefits. That's one thing to talk about.

[Robin]

Okay.

[Katherine]

The second thing is that what's funny about work requirements in this context of how they're being discussed in Medicaid is that work requirements were the mechanism for ending welfare. When we say we ended welfare in 1996, what we mean is that we put on such stringent work requirements, we basically zeroed the program out of existence in a lot of ways. The third part about work requirements is that we only apply them to people who for the most part are in the low wage labor market. They have to be. If they were a high wage worker, they wouldn't be eligible for public benefits. So they have to be working and earning little enough money. And the labor market basically Eats the work requirement and the whole notion of this classical economic theory. So there's the policy history of like we love telling people they have to go to work for public programs, but then there's the kind of like econ theory side, which is that these are just a very well constructed notion from classic econ theory that our large low wage labor market just like eats alive. Okay, Theory versus history.

[Robin]

Theory versus history. So in theory, what is a work requirement, why should it work, and why would we want them? Let's start there.

[Katherine]

Let's start there. So let's pretend that you still get summer vacations, okay? And that you're a college student who has a summer vacation and you want to be able to like hang out with your friends and drive to the beach or the lake or the river or whatever body of water you're going to swim in in the summer, the pool. You want to spend as much time with friends swimmin as possible, but you also want to be able to buy things like gas for your car or food or drinks or new clothes or new swimsuits or whatever. So you have these competing demands, one of which that you want to not work, AKA spend times with friends and swim, AKA we would call that consuming leisure. Economists are normal human people. And just like other humans, we would say that spending time with our friends is consuming leisure.

[Robin]

So you want to consume goods and you want to consume leisure.

[Katherine]

So there's this trade off between how much you can consume of leisure and how much you can consume of goods and services. And even though this sounds kind of silly, there's a reason why you don't work 24 hours a day, or there's a reason why you don't work absolutely nothing at all. Because you have to have things. Yes, in theory you would work as much as you can 24 hours a day, and that's how you get the most money. But nobody wants to do that because you want have time off. And so this idea that you have these competing demands on your time based on how you would like to get happy, they're a natural conflict. So an economist would say that looking at your labor supply curve, your indifference curves, and your budget constraint of time and money, we would say that you work the right amount to optimize the amount that you want to consume and the amount of leisure you want. So how many days do you work at the Gap in the summer? It's however many days it'll get you enough money that you can still spend time with friends, but have some money to play around. With. Right. Like you are picking the labor supplies.

[Robin]

It's just reminding me. When I was in college, I actually did this. I got a temp job, and I worked full time as a temp. And then when I knew I'd made enough money, I just quit. Yeah. And then I just screwed around for the summer.

[Katherine]

Yes, Robyn, you are. You are optimizing your labor supply to the exact amount to maximize the right consumption of goods and leisure. That left you with the highest level of utility. You're also a human person, just like me. So that's how people pick how much they want to work in the perfect in.

[Robin]

In the perfect abstract economy.

[Katherine]

Okay, so now let's say you get a raise.

[Robin]

Great.

[Katherine]

Now, if you get a raise, that means you don't have to work as much to consume the same amount of goods and services. So if I make $5,000 more a year, I can work $5,000 less in hours, and I'll still be able to have the exact same consumption bundle, but have more leisure time. This is called the income effect. But if I'm making five grand more a year, that means my price of leisure, which is foregone wages, that's gone up, right? And now every hour that I spend at the pool has just gotten a lot more expensive because I'm leaving more on the table, so I should work more. That's called the substitution effect.

[Robin]

Okay, so let me just get this straight. Let's say I'm making $20 an hour. I get a raise. I'm making $22 an hour.

[Katherine]

Do it in extremes first. It's helpful to do it in extremes. So you are that temp, right? And you are making. You're gonna make $3,000 for the summer, right? And then you're gonna quit and have some fun. But the company comes to you and says, wow, Robin, you're such a great temp. You're such a great temp. We are $100,000 for your time over the summer, okay? Which is crazy, right? But, like, think of the extremes. Like, if you thought you were going to make three grand at a job and they told you you were going to make 100 grand, like, would you still quit on the same day? Probably not, because you would have so much more money working, right? This is like someone gives you a raise and you work more. Because now, like, that day at the beach isn't costing you the $200 you might have earned. It's. It's going to cost you, like, $2,000 or $20,000. And then it's like beach has got to be real wor walk away from 20 grand and everything that that'll buy me.

[Robin]

So basically, leisure has a price tag.

[Katherine]

Leisure has a price tag and that's the wages you don't earn. So when you get a higher wage, you would either work less so that you could consume more leisure because you can still afford the same life, or you would work more because leisure has become more expensive and you can get more goods. And your decision to work more or work less, which effect dominates the income effect or the substitution effect would depend basically on your preferences.

[Robin]

Or I could work the same amount, play the same amount and save a little more.

[Katherine]

Okay, well, sorry, we don't save in two dimensional, classic econ theory. So I need you to. We would just say like, nope, that's future consumption or future leisure. Got a big Robin. Remember you're a human person right now. Okay, so this idea, if you get a little bit more money, would you work more or less? Is at the heart of like every public policy debate when it comes to whether or not we help people in need. What happens with the public benefit is it's the same question of do you work more or do you work less when you get more money. So in this case, instead of getting a wage increase, you would get a benefit. So I make $20,000 a year and now I get $5,000 in public benefits. I mean, the short version is if someone gives you free money, you will work less. But there's two ways that we think this happens, the income effect and the substitution effect. So the income effect really obvious. I can work $5000 less and consume the same amount of goods because I'm getting five grand from the government so I can have same goods, more leisure. This is a slam dunk. Free money equals less work. Income effect says if you give someone public benefits, they will work less. The substitution effect is a little bit more nuanced because when you think about a wage increase, you have to substitute between work and leisure with a public benefit. It's not about substituting between work and leisure. It's actually about substituting between work and benefits. The price of leisure hasn't changed. Instead, the price of work has changed because now it has foregone benefits. If I work too much, I lose benefits or I get less in benefits. So I've added a cost to working, which is the price of foregone benefits. This is less of a slam dunk, but like still getting points on the board. If you give people contingent money, that means less work because Just like how wages were the price of leisure, now wages are the price of benefits. And to be fair, we definitely think this happens. Like if you look at people who become eligible for Social Security, an inflation adjusted cash benefit that they'll get for the rest of their life, like even if they work longer than their full retirement age, by the time they get their Social Security benefit, the incentive to work, I mean, it just, it feels, falls off the cliff because you can have the same life in more leisure. All these things, like, we think they all happen to a certain degree, like your summer job, the Social Security recipients. If you get money from the government, it has a work disincentive through either the income effect or the substitution effect or both. And the income and substitution effects came up during the 2021 Extended Child Tax credit when all families got a monthly payment. And there's a fact checker in the Washington Post that kind of goes into the detail about this, about how the economists, some of which fell in the left camp and some of them fell in more, the right camp became really torn about the size of the income and substitution effects for the child tax credit. Because for decades and decades, economists have tried to estimate the precise size of these effects, like, quote, unquote, in the wild, so to speak. So we studied all kinds of changes in policy in the economy to figure out what the income and substitution really are for both wage increases, for public benefit increases, and so on. Well, they got into like a super nasty fight about it. And some people saying the expanded child tax credit would cause 150,000 people to drop out of the labor force. And others were saying that it would be closer to 1.5 million. Right. Like 10 times the size.

[Robin]

Right. And remind me again how large those tax credits were. It was like $500 per child or something.

[Katherine]

So it was $3,600 a year if your kid was under 5 and 3,000. Otherwise. If you were to tell someone, you know, you have a kid and I'm going to give you three grand a year to help you, and they're like, and you're probably going to stop work, you'd be like, what is your deal? Have you ever lived in an economy? Like, do you know what it's like to have children? $3,000, they'd suck that into a vacuum the first weekend you gave it to me. Like, it feels so detached from reality. But at the same time, if I told you the government's going to give you $100,000, would you work less? You'd say, yes. And so it's, it's hard, I think sometimes to think of this economic theory because the things that make sense in extremes, economists also think happens on the margin. Like, sure, if I gave you a $300,000 check from the government, you would not work.

[Robin]

Sure.

[Katherine]

But if I gave you a $3,000 check from the government, you'd be like, obviously, I have to keep working. But we think on some margin there's a work effect there that this income effect, AKA work disincentive, would still be acting on you even if it was small at the margin.

[Robin]

And do we, I'm sorry, do we really think that or is this just classical theory or.

[Katherine]

No, I mean, they definitely try to estimate it. That debate about the child tax rate.

[Robin]

It'S going to throw some people over some threshold in their lives that they'll say, okay, I'll work less, I'll stop working Saturdays or whatever it is.

[Katherine]

The debate around this got really absolute of like, will people leave the workforce or will people work less? And it all comes down to moms.

[Robin]

Yeah, I was going to say, yeah.

[Katherine]

If you gave a mom 3 grand with no strings attached, like, would she work less? That was the part that I think a lot of parents struggled with. Of like, what kind of life do you think I lead that I would get three grand and suddenly all my money problems would be solved and I would have to work less? I always was of the mind that if three grand was attached to every kid, yeah, people would work less. It's just not clear that that's a bad thing. Right. Like, if you have a mom who has two shifts and she holds two jobs to keep her family afloat and.

[Robin]

And now she could work one and.

[Katherine]

Now she can work one and spend more time with the kids. Like, is it really that bad that she's working a little bit less? Or like, what if one of her kids has special needs and she can cut down to a part time job and now take him to like more appointments? Like, is that so terrible?

[Robin]

Yeah. I was thinking there's this thing reminding me of my. A friend of mine whose dad worked overnight shifts because they got paid more and never saw his kids, big families that he was trying to support and if, you know, if they didn't have to work an overnight shift, would that be bad?

[Katherine]

Would it be so bad if people pulled back from the labor market? This is why I think that they weren't ever talking about the same thing. Because the work incentive, people, like, work is everything, right? Getting people to work. That is the point of public policy, whereas I think on the other side it was maximizing the welfare for children. And so they weren't even trying to achieve the same things. The idea of a work requirement is that it basically shuts down the work disincentive. So it's a way to say like, hey, we'll still give you the help you need to, but you have to keep working. And the way that we're going to guarantee that is we're going to put in a work requirement. That is the theoretical and economic justification for a work requirement.

[Robin]

Right.

[Katherine]

To shut down the income effect that comes from the boost in consumption that you can get when you get a public benefit, whether it's a cash benefit or an in kind benefit like Medicaid or food stamps.

[Robin]

Yeah, it does seem like those things would have different effects, but I suppose economists account for that. Like giving someone cash welfare would seem to me to be different from giving them, say, health insurance.

[Katherine]

Yes, but it does free up money in the budget for other things.

[Robin]

Or we could believe that they just wouldn't have health insurance, which is what had happened.

[Katherine]

Yeah, well, that's, I mean, that's, I mean that's just your opinion, man. Okay, but even, but even if they, even if they didn't have health insurance, they might still consume health care of like going to an urgent care.

[Robin]

Right.

[Katherine]

Or going to an ER or having to pay for some kind of like clinic or something like that, that they would still consume some type of health care that they spend money on and that giving them Medicaid is giving them a boost. I think one of the biggest problems I have with the debates around public policy today is that this work question and how much people are working is paramount. And it trumps every other aspect of any public program is just, are people working to the maximum extent that they could? And that is the approach to how we evaluate public programs in the US like, is Medicaid doing a good job?

[Robin]

Well, is everybody working?

[Katherine]

Is everybody working that can be working? Because if the answer is no, then Medicaid's not doing a good job. Right. Even though Medicaid is like it's not alive. And the same thing that happened the child tax credit happens with food stamps. It happens with food support for children, the summer food program that a bunch of Republican governors refused the federal money to help keep kids in their state who are very poor fed during the summer. It all came down to is everybody working? That can be working.

[Robin]

But it does just sound like everybody is working. It's like everybody's working some sort of maximum amount.

[Katherine]

Yeah. Basically they all need to be working as much as possible. And if you get a benefit and that makes you work less than you would otherwise, then the benefit is therefore bad. That is the conversation around almost every public program we have in the US and it doesn't matter what it does, it doesn't matter what it accomplishes. Three million children lifted out of poverty by the child tax credit, that doesn't matter. I mean, work requirements to me are on some level so uninteresting a topic. Because the bigger and much more important question is, are we really evaluating Medicaid based on how many people go to work?

[Robin]

Yeah, like it's the wrong yardstick.

[Katherine]

Yes, it's the wrong yardstick. And, but that's the problem with work requirements is that it forces you into this conversation of whether or not these people are actually working as opposed to whether or not this program is doing the job that it's meant to do.

[Robin]

If the idea that you have said here is that the size of the US Economy is based on the amount of workers in the economy and if the plan is to grow the economy and that's what our policymakers want to do, I mean, I can sort of see the rationale. I'm not saying I personally agree with it.

[Katherine]

Yeah. So what's interesting is that if you were to say, like, look, we need more workers in our economy. This is just an economic calculus. You would not start with people who earn little enough to qualify for programs like Medicaid and food stamps and try to squeeze a few more hours out of them because it would be a really low return and you'd have a much higher return addressing very key barriers to work and getting people on the other side of them. You've got low wage workers who are eligible for public programs is a whole different bucket than you've got millions of people sidelined because they have a disability or because they have a at home and can't afford child care or because they have a felony conviction and no one will hire them. Even if that was the right way to view all economic policy, this one would be so, so small relative to other problems. It wouldn't make sense for it to come first. So this is where I get really frustrated in the conversation with things like.

[Robin]

I'm sorry, but do you think that's in part because we, we know that, that there are a lot of people using something like Medicaid, but we don't really think about how what percentage of them are actually potential labor force participants who aren't Already working.

[Katherine]

Yeah. So Medicaid and food stamps have these really big numbers. So Medicaid is like 77 million people.

[Robin]

Right? I mean it's a really big number, but only like I don't know, 7% of them or something are not already working and can work.

[Katherine]

Yeah. Because 40% are children and some are.

[Robin]

Students and some are disabled.

[Katherine]

Some are students, some are disabled. A lot are elderly too.

[Robin]

Yeah.

[Katherine]

You know, Medicaid is one of the biggest service providers for institutional elder care. So yeah, if you strip away all the people on Medicaid who aren't children, aren't elderly, aren't disabled and are left with like a relatively able bodied adult who doesn't have that much money, the majority of them are working or have worked recently and are in between jobs.

[Robin]

Right.

[Katherine]

Most of the people for whom work requirements would be applied to people who earn little enough money to be eligible for public programs, they are in a low wage labor market that is in incredibly volatile. And I don't care what kind of job you have, if you don't make less than 17 an hour, you are in a different world than people who are in the low wage labor market.

[Robin]

Sorry, is that a formal definition of like.

[Katherine]

No, I mean there's not really a formal definition of low wage work. We tend to think of it as people who are. Again, there's lots of way to measure workers, but if you look at hourly wages, the bottom 20% is like 1660 and the bottom 25% is just over 17.

[Robin]

So the, so that's kind of the.

[Katherine]

A functional cutoff would be $17 an hour or less and that would capture a quarter of all workers. In the US we have the largest low wage labor market of any of our peers. I mean you're talking about 40 million people.

[Robin]

Yeah.

[Katherine]

Now just to put that in perspective for you, if you were making $17 an hour, if you work every single hour of the year 40 hours a week, 52 weeks a year and you have two kids at home, you are eligible for Medicaid in the expansion states. So if you make less than 17 an hour or if you can't, or you don't get 40 hours a week in your shift, or you don't get all the weeks in the year in the year. You know, you're talking about a fourth of the U. S. Workforce that are potentially eligible for these benefits simply by virtue of how low their wages.

[Robin]

So maybe if you wanted them not to be eligible for benefits, you would do something about their wages.

[Katherine]

Yeah. So there's like a Lot of other options here. I mean the low wage, the low wage workforce. Some, some things about the bottom of the US workforce. So most people, if you say poor people in the United States, they're like, oh yeah, that person who's like never had a job.

[Robin]

Yeah.

[Katherine]

A lot of people in the low wage workforce, these bottom 40 million earners who make about $17 an hour or less, that group of people is associated with the most volatile ear earnings in the US Meaning that their swings in income from month to month are wild.

[Robin]

Yeah.

[Katherine]

And they can have, I mean one paper estimated this will phrase. Will mean nothing. That the coefficient of variation for the bottoms workforce, which is just like.

[Robin]

Yeah.

[Katherine]

Deviation around a mean. I mean it's, it's like 85%. You can measure this in terms of the number of spikes or dips in your earnings, the size of the spike and dip in your earnings relative to your average wage over a multi year period. The coefficient of variation around a mean of how much you're.

[Robin]

I mean, yeah, just showing off now with your.

[Katherine]

No, but they're all, they will all tell you the same thing. Yeah, it's just bonafide. Bonafide.

[Robin]

You're trying to prove that.

[Katherine]

This week I am feeling some confidence issues, I won't lie. But they would all tell you the same thing, which is that the most volatile income groups with the least predictable income are at the very top, at the very bottom. But the bottom swings more. And the bottom is more likely to say that the reason why their income swings is because they don't have control over their work hours.

[Robin]

Right.

[Katherine]

The reason why I bring this up is because if we go back to Robin, the summer temp employee who's going to work for a few months and then go to the beach or did you go to a pool? Where did you go? Swim.

[Robin]

I stayed home and I did some writing.

[Katherine]

Nerd alert. Robin, this analogy only works if we're swimming.

[Robin]

Okay, sorry. I was in Seattle and I went to Lake Washington.

[Katherine]

Awesome. You, Robin, as a temp worker who then quits after you get enough money, you are in control of your schedule. So the income effect, the substitution effect, all of that makes sense for you because you have agency and how much you work. The reason why work requirements fall apart for the people for whom we actually deploy them is because most of them are not, don't have any agency over their work to begin with. So the idea that Medicaid would have this huge income effect is very much eaten by the realities of the low wage labor market where it's not like they could just like casually pull back with a lot of control over when they work problem one and then problem two. Even with Medicaid, they don't have enough money to live, so they would still need to work in order to have rent and food and things like that.

[Robin]

So the economic theory just essentially dissolves in the face of reality here.

[Katherine]

I mean, there could be a huge work and disincentive for Medicaid that every one of us feels, but very few of them actually have the ability to act on. It's not that the theory has to be wrong or not applicable, but it's not explaining what you actually see. Something else is operating on people who don't have that much money. Poverty, poverty, real wanting to do better by their children. This is the other thing that gets lost in the policy conversation is that economics gives us more intuitions than it does predictions. Economics can tell you, like, hey man, you give people money that they don't have to work for, probably going to work less. But that doesn't mean that it's a rule. It just means that it's there and you can design programs to minimize it, but it doesn't become a rule. There's a gap between the intuition behind our economic decisions and their manifestation.

[Robin]

Can we talk a little bit about how work requirements, the role that they played in the welfare reform of whatever that was 1996, 6.

[Katherine]

The Personal Responsibility and Work Opportunity Reconciliation Act. What's interesting about welfare is welfare was a monthly benefit that you got based on the number of people in your household, typically the mom and her kids. And it had two terrible design flaws. The first one was, and the most obvious one was that if you worked any amount, you got a dollar for dollar reduction in your welfare benefit. So if I got 200 bucks a month from welfare and then I picked up a job that paid me 50 bucks a month, they would reduce my welfare benefit by 50 bucks. So I would stay at exactly $200.

[Robin]

So. So I can see, based on the theory that we were discussing earlier, this.

[Katherine]

Is a massive work disincentive. Like this was designed to prove the inc. The income effect exists. Part of me is like, did some like kind of bastard economist design the program like this just to prove that he thought the income effect was real and he wanted to show it in a large population because, like, man was. It really looked like it was designed to do that. Yeah, it was a horrible work disincentive. And so you had a lot of women who often worked under the table or had some other way of getting earnings that they didn't report. And non formal work is never going to have the same type of trajectory as form work. So the debate around welfare really became around these women should get back to work. Not fair. Because welfare always trended with the unemployment rate and the majority of women on welfare weren't on welfare for that long. They had a hardship, something happened. They were on welfare for a bit and then they got off again. But the myth of this permanent welfare queen who had kids for more money, she'd rather have a kid than get a job. That dogged the program for decades. What's interesting about welfare is that it existed from 1935 to 1996, but it really had two eras. The first era was in the 30s, 40s and 50s where it was gate kept by local administrators. It wasn't really considered an entitlement and the majority of women who could apply for it didn't do it. It was really cruelly given too in a lot of ways. Like there's evidence of, I think it was in Florida where they kicked all women off of welfare during the orange picking season to make sure they had people to in the field. Like it's never been like a shining light. But in the 60s there were lots of civil rights cases related to how women on welfare were treated that made the entitlement aspect of it something that women took advantage of. So it went from like 40% of women who could get welfare apply to like 95%. And the big increase was amongst black women.

[Robin]

I'm sorry. Of the women who were eligible for welfare, 40% had applied and now and.

[Katherine]

Then it went up to like around 90%. And when, you know, legal rights and civil rights and mothers rights groups rallied around the program, it became like, you need to go out and claim this money. And a lot of women went on it. And I mean as soon as the numbers of people on welfare went up, the hatred of women on welfare went up and it became absolutely associated with black women and the welfare queen. So that was the second era of the program was lots of women getting it who are eligible. And I think what the US has was never comfortable with was the number of women who were eligible for the population. The idea that we had so many single moms. The second problem with welfare is that it did have a huge marriage penalty. And if you got married, you almost always lost your benefit. Yeah. So public policy learned a lot from how poorly designed welfare was. We now think of things like work disincentives, phase out of benefits, work bonuses Partner versus Marriage, thinking of marriage penalties and marriage bonuses. All of that is stuff that we take into account because we didn't with welfare. But rather than fix fixed welfare in 1996, is basically the conservative argument, one that these women just needed to go out and get a job. And so they changed the program from Aid to Family with Dependent Children to Temporary Assistance to Needy Families. And they put incredible work requirements on the program. I mean, the most stringent that you can imagine. And then they put a three year cap on how long you could receive it over your lifetime. But most women left the program because of the work requirements. And even now they still have work requirements. There's an amazing season of the Uncertain Hour by Marketplace where they talk about how work requirements act on women on welfare today. And it basically shuttles them into temp work. And the people who place them with temp agencies get more firm welfare than the women do. Not surprising. The work placement agencies are making tons of money because they get a bonus for every woman they place in a job.

[Robin]

Okay, can we, can we just talk a little bit about what work requirements, what they actually look like in practice?

[Katherine]

So the welfare work requirements are different. I mean, they're the most draconian by far. And that was, I mean, it helps to think of like the first federal work requirement we really had was intended to end a program. We have work requirements for food stamps. And basically they are very hard to figure out, but they should entail something like you have to either submit a pay stub or submit proof that you applied for jobs in order to keep your benefit. And there's this reporting requirement. Now there's a lot that's cruelly ironic. There. Employers are not required in the United States to provide a pay stub. They have no legal need to. Most of them do, but they're not required to. Another thing that's messed up about it is that sometimes these work requirements, like if you like, what does it mean to apply for a job?

[Robin]

Right.

[Katherine]

If I apply to a job on. Indeed.

[Robin]

Does the state have applied for a job?

[Katherine]

Yeah. Does the state of Wisconsin know? And so in some places you have a state job board and you basically have to log in and fill out a job application on a state job board. Yeah. The reason why work requirements are so loathed is because they're really paperwork requirements.

[Robin]

Yeah.

[Katherine]

You will not find a study of work requirements that show that after you put them in place, it increased work to any significant degree and punishes them if they don't.

[Robin]

It doesn't necessarily punish Them if they're looking for a job, the right job, a better job.

[Katherine]

I mean, brace for impact here, people. The federal government might just not be that great at knowing you're applying for a job or working well.

[Robin]

And these things get tracked often by the state too, right? Yeah, you're different from state to state.

[Katherine]

And now unemployment insurance has a work search requirement, but which also varies across every state. But most states work search requirement is like a report that you bring them. You aren't like limited to the state job board. It's more of like a voluntary reporting to keep your unemployment benefit in most places. Whereas on food stamps and possibly Medicaid in the future, it's a little bit more stringent.

[Robin]

And it's also designed, I mean designed in unemployment to be a temporary requirement of something you need to do while you don't otherwise have a job.

[Katherine]

Right.

[Robin]

As opposed to something you need to do in an ongoing way while you're also trying to hold down your job and what other responsibilities you might have.

[Katherine]

Right. I find the evidence around work requirements, around Medicaid and food stamps to be on a lot of levels just like, not that interesting because they all kind of show. They all kind of show the same thing of like new work requirement paper. And I'm like, oh, I wonder what that's going to say. Oh, look, it didn't increase work. A lot of people lost food. Great, great, great, great, great. Like, it's not, they're not going to take my breath away. I did watch a presentation of a paper where they try to meet the work requirements in a state. And what they find is that like the actual application of work requirements for food stamps truly depends on the caseworker assigned to you. And some of them are like, these rules don't make any sense. And so you just ended up with a caseworker who was like, yeah, you're probably working, Good job. Or you ended up with a caseworker that was like, you didn't fill out this X form and I don't know how to help you. So you lose your benefit. Like, it came down a lot more to caseworker discretion, which is kind of a sad full circle moment because that's how people. That was how welfare was distributed in the 30s and 40s.

[Robin]

We're back to, back to panels of men deciding what women are deserving of widows and orphans benefits. I do think there's a lot of awareness that work requirements are a lot of bullshit.

[Katherine]

Yeah, definitely. This tax bill is the most I've heard people kind of Become step into the knowledge that the government does weird administrative draconian things to kick people off of benefits. And people who have worked in the space for a long time are like, like, yes, they designed whole legislation around this. I've been surprised at how much and inspired by how much like the kind of common understanding is, oh yeah, they just do this to kick people off of benefits. You know, it's one thing to target very poor single moms in the 90s, which was the original like work requirement recipient.

[Robin]

Right.

[Katherine]

It is quite another to take a program that provides health insurance to 77 million people and say you need to prove you're working. And I think that do it in.

[Robin]

The context that they're doing it in, which is that they want to cut a bunch of out of the budget. Like the Congress, people passing these laws have made it transparent that they need to cut the budget. And then this is what they've done. Well, they're not doing something that will elevate people's income to take them off these programs.

[Katherine]

Right, right.

[Robin]

They're doing something that instead we'll just, we'll just make sure it's really, really hard for them to be on these programs. Yes.

[Katherine]

Make the program harder to get. And what will happen?

[Robin]

Will those people stop getting sick? Sick?

[Katherine]

No. Actually I do have some like really depressing evidence around that this is. Suffice it to say, if you don't have health insurance, it's a lot easier to die. There's very clear mortality studies around Medicaid that I think the scary part for a lot of people, it's not about elderly mortality. I mean this is about like 20 and 30 year old mortality of people who aren't on Medicaid. Or you put people on Medicaid in their 20s and 30s and you lower their mortality rate, which is.

[Robin]

Well. And it also pays for addiction treatment. It pays for.

[Katherine]

Oh God, yeah. The number of people, I mean the number of people who are on Medicaid who are just using it for addiction therapy. In some ways I've been inspired by the backlash. It's not like it's passing because it has like groundswell support or that people are like demanding it. I'm not optimistic about the bill in the sense that I think it'll do good, but I am optimistic in the sense that like, I don't think this bill is popular and I think it is proof positive once again of how poorly managed our economy is. And that's the room to go forward. That's the one level of optimism for Me is yes, the public awareness campaign that they're inadvertently starting of how terrible this policy is. 10 million people were projected by the CBO to lose Medicaid under this bill. 10 million people, that's a lot of people. That's one in seven people on Medicaid will lose their health insurance because they cannot meet a paperwork requirement. Now, hang on a second. This is the part that really should blow your mind on these numbers. Texas hasn't expanded Medicaid yet. Ten states haven't. They're targeting the Medicaid expansion population. Like, you're not kicking people in Texas off the program because they already aren't on it. You're kicking off the people from the 40 expansion states, which is like, how are you kicking off one in seven people? And you don't even have Texas in there. It's a big state. So I take a lot of optimism from their accidental public awareness campaign and from the fact that this bill does not have a ton of support and.

[Robin]

From the fact that we. That in many of those states, and including conservative leaning states, they voted to expand Medicaid in those states. And not long ago, like, like you're.

[Katherine]

Kicking people off that we voted to have back on.

[Robin]

Yes, we voted to have in. Yes. Yeah.

[Katherine]

Like, it's a tax bill, but the debate has really been about the work requirements that it's, you know, everyone's like, this is a, well, there's a.

[Robin]

It's a lot of things bill. I mean, it's an everything burger bill.

[Katherine]

It's an everything burger bill. But I think what has gotten most attention is that it adds to the debt and it kicks 10 million people off of Medicaid. I take that to be like a very positive development in our economic discourse that people are upset about those things and that this is becoming like, like where you've got some, like, public standards that you're not meeting anymore and you can't get away with terrible policy much longer. So I take some optimism and then the optimism on the work requirements part. Like the work requirements themselves, I think. I mean, they're bad policy top to bottom. And even if you want more people to work and you're of the mind, like everyone who can work should work. I mean, they're not going to do it. And, and it's biting to have such a failed policy have so much prominence, but it's not solving the problem of the number of people who can't get to work but want to. I always take optimism in knowing that the solution is still in front of Us.

[Robin]

Yeah.

[Katherine]

I think it would be harder for me to be optimistic if we passed some, like, massive labor law reform. And, like, nobody worked. Like, y' all, we are pulling the best stuff we have out of our arsenal, and, like, nothing is working. That would be a sad day. But this is another one of these. Like, so, yeah, we've tried the worst idea five or six times now. It's still not working, but we might try it again. And you know what? That's actually not as depressing as the good idea not working.

[Robin]

Yeah.

[Katherine]

I don't know if that counts as optimism.

[Robin]

You know, it's kind of like wanting better problems.

[Katherine]

Yes. Better problems.

[Robin]

Yeah.

[Katherine]

Or a better low wage labor market, which we could also choose to regulate. Just saying. Yeah. Do you feel like you got both the theory and the.

[Robin]

I did. I actually went back to my notes that I took at the beginning, and inspired by your sort of high school debate champ practices.

[Katherine]

Does that mean I can keep going with news topics or should we just stop here?

[Robin]

Okay, it's time for a few upbeat things here at the end of the. Hopefully upbeat things here at the end of the episode. First up is executive orders. Katherine, what is your executive order this week?

[Katherine]

So this is a very special episode of Optimist Economy because this is the last one I will record from our nation's capital, my home for the last nine years. And I am relocating and moving back to Houston. And this is the end of my tenure here. This is my second tenure in D.C. i was here also before grad school for a few years. So that has, you know, only one major implication for our listeners. And I want to be upfront about it, and I want to be honest about it, but, like, my accent is coming back, and I don't want y' all to be like, she's faking it. She just tries to pretend like she has an accent. But if you listen to the first episode, she didn't. Like, I'm telling you right now, I'm gonna go back home, and it is gonna come back stronger. Like, I'm gonna talk to, like, a cousin or one of my aunts, and then I'll sit down for the show and be like, y' all caught me. Like, give me better. Come on, y' all. Like, it's just. It's gonna come back. I have a pretty low key accent right now, but I'm gonna have some kind of interaction, and then I'm gonna come back and be like, all right, so Social Security. I am probably gonna wear a cowboy hat. The first episode of Our court in Houston, just to make sure that y' all particular Robin knows where we're at. So that is the public service announcement. And so my executive order in honor of this week is the District of Columbia becomes the 51st state.

[Robin]

You can have that state in the Republic of Catherine Edwards.

[Katherine]

And it now the D.C. citizens have voted. It would be the Douglas Commonwealth. So we would keep D.C. but we would be the Douglas Common Commonwealth after Frederick Douglass.

[Robin]

Oh, nice, nice.

[Katherine]

And there would be like a. Basically, like a Washington federal city of, like, all of the real estate that the federal government owns downtown. If you carve out, like, the actual capital from the city and the city itself becomes the Douglas Commonwealth.

[Robin]

Would it be the smallest state? Would it be smaller than Rhode Island?

[Katherine]

No, it has more people than Wyoming. I mean, DC Right now has more people than Wyoming and maybe Rhode Island. So populate. I actually feel very strongly about D.C. statehood. It's ridiculous that I don't have a senator right now. That is my executive order. Douglas Commonwealth one day.

[Robin]

Okay. My executive order comes from the just horrifying experience I had trying to buy a new phone, mobile phone this week. And so the Apple Store needs to have a service or checkout counter just like any other normal store. I. I'm so. I don't want to have to in and wander around like, I'm at a singles bar trying to pick somebody up who's paying attention to someone else just so I can buy a charger. Like, the Apple store seemed like a good idea when they. When they launched, but this. It's terrible. It's terrible service. Yeah.

[Katherine]

I mean, so many of the executive orders fall into the customer service space. But I get it, though. Like, why are we treated so awfully in the US when it comes to customer service?

[Robin]

Seriously, this. This. I asked a guy and I said, hey, look, I just need to buy a phone. I know what I want. Just go get the box. And he's like, I'll tell our lead person. And I just looked at him and I literally. And again, I know I have a short fuse, but I said, I don't care. Like, just get me the phone in the box.

[Katherine]

Some retail clothing outlet did this at one point where, like, they did. They weren't going to have checkout anymore. They were just going to have, like, someone with an iPad come by and check you out, like, wherever you were on the floor. And this happened to me once where I was like, I don't want. Like, I'm holding this in my arms. Like, can I put them on a Counter. And you put it in a bag. And he's like, just stay right there. I'll go get a bag. I'm like, no, no, this is. This is terrible.

[Robin]

The people made the decisions. Do they shop in stores? This is why people order stuff online. Yeah.

[Katherine]

All right, what are your spiritual sponsors for the week?

[Robin]

Okay, so our spiritual sponsor for Optimism Economy for the show this week includes J.D. burke of Durango, Colorado. He became our spiritual sponsor on a [e-mail].

[Katherine]

Ah, J.D. thank you.

[Robin]

My personal spiritual sponsor is the walkout for Angel City Football Club, which is the women's soccer team here. I'm apparently not allowed to play this music because getting a license for music is, I think, second only to work requirements in terms of the paperwork required. It is, nay, impossible. The song is called Here She Comes by Leslie Powell. You can look it up, Google it, because it is a crazy song with brass and drums, and it sounds like, you know, the. The Hunger Games. Like, as was. As the players walk out. But then what actually is my spiritual sponsor out of all of this is that they always walk out holding the hands of. Of girls who are soccer players who are, you know, maybe like seven years old, six years old. And it just brings tears to my eyes every single time.

[Katherine]

So I just want to say, personally, I wouldn't mind holding someone's hand, walking them out onto the field. Like, I don't know why it has to be just little kids. Like, I want to walk a soccer player out to the field, I'll wear. I'll wear my old uniform if that's what's required. But, like, I would love to do that. I'm just gonna say right now, I do think the kids are very heartwarming, and I love to see it. And they're always really nervous looking, and then that's great, but I'm just. I would walk out jealous, but, like. But you know what? Screw those little kids. Let me hold someone's hand. I guess I could see it being weird if it was. It was just like, a lot of little kids and then me. You'd have to do, like, a full adult one, or else it would just be weird. But, yeah, I mean, yeah, some of.

[Robin]

Them walked out with their daughters on Mother's Day.

[Katherine]

What? Jesus.

[Robin]

Kids. Because some of them were boys.

[Katherine]

Okay, well, fine.

[Robin]

Also sweet.

[Katherine]

Yeah, it sounds really sweet. I'm just going to lodge my complaint that, like, I could do as good of a job and, like, the kids are cute, but, like, you know, I'm just Saying I wouldn't mind doing it.

[Robin]

But also doubling down on the so Angel City shows. They didn't have to license music. They actually had their own song written, their own walkout song written.

[Katherine]

And smart.

[Robin]

It's. It's really great. Like, if you need a pump up song, you know, after you watch the. The World cup header a couple of times, you could also do it to the same.

[Katherine]

Yeah, well, I mean, as Robin knows, I'm kind of switching allegiances that my hometown team has been the Washington Spirit, and now I am going to be and have become a loyal Houston Dash supporter. I always rooted for the Dash, but had season tickets to the Spirit. And now it's DASH all the way.

[Robin]

It's Dash all the way.

[Katherine]

My spiritual sponsor for the week related to my executive order is the D.C. metro, which, if you have been to our nation's capital, is the pretty awesome brutalist Metro system. I think it's my spiritual sponsor. Mainly for all the transportation geeks out there who also love the DC Metro so much, it has broken my heart on a number of occasions. It does not always work that well, but it is a fantastic transit system. And if there is one part of the city that I will really miss, we live not that far from a Metro stop. And so just like walking to the station and like, finding yourself anywhere in the city is truly lovely.

[Robin]

Yeah. I also love the DC Metro. I went to DC for the first time when I was maybe 14, and I think it was really one of my first big city trips with my family. And the D.C. metro defined sort of what a big city was to me.

[Katherine]

They had this whole method for clearing everyone out of the stations during one of DC's, like, most brutal snowstorms. So they held all the trains at the very last stop, counted how many people were on every platform, and then just like, slowly sent the trains across the city to pick everyone up and take them home. So I remember I was switching from the blue orange to the green yellow. And when they opened the doors at the station, there was a guy there and he's like, are you the girl going north? And I was like, yeah. And he's like, like, get there. And the train was being held for me because, like, there was the last green yellow line train going north was coming through, and they're like, you need to hurry. And I, like, ran through a completely deserted Metro station. And they had one door open on the train and I got in and the door shut. And then it took me back home. And I was like, this is like my personal taxi. Like rich people who had their own trains in the Gilded Age. Like, this is my Gilded Age. Taxi is the D.C. metro during a snowstorm. Are you the girl going north? And I was like, yes. You know me. I'm famous here. That was such a. Such a banner DC Metro moment, as opposed to the number of times I looked at the minutes to train, and I was like, son of a bitch, be better, Metro. I mean, like, yeah, I've also cursed it. So. DC Metro, I will miss you. I only hope you continue to get better and recover. And thank you for the thousands of miles you've carried me across my hometown. Oh, my God. I'm gonna go. Hold on. Thank you for the thousands of miles you've carried me. I'm gonna cry. This is why I made you go first, because I knew I was gonna cry.

[Robin]

I know moving sucks.

[Katherine]

We stopped recording, Right? So anyway, we like to end the show by crying and also thank Sophie and Andy, who will make this sound like not a disaster and look like not a disaster. And we. We're gonna snap them out.

[Robin]

Yeah, you bet. All right.

[Katherine]

Thank you for listening, and talk to you in Houston. Talk to you. I'll see y' all on the other side.