Bouncing Back: The Role of Social Safety Nets
Social safety nets exist to help those who have fallen on hard times. However, when poorly designed they can lead to long-term dependence. It is crucial to design social safety nets to encourage people to transition from government assistance back into the workforce.
- How can we create effective social safety nets?
- Besides helping people from falling deeper into poverty, what are some other benefits of social safety nets?
- Read “The Great U.K. Depression: A Puzzle and Possible Resolution” by Harold L. Cole and Lee E. Ohanian to learn more about the United Kingdom’s experience after WWI due to poorly designed social safety nets.
Every thriving society should offer help to citizens who have fallen on hard times.
Those services - like unemployment benefits, food stamps, and Medicaid - are called a social safety net, and a well-designed safety net enables people to quickly move from temporary government assistance back to full-time work.
But when a social safety net is poorly designed, people can become stuck in a cycle of dependence - especially when the benefits they receive exceed the rewards from working.
The United Kingdom’s experience after World War I provides a stark example:
The government tripled unemployment benefits, removed time limits on how long they lasted, and tied housing assistance to affected locations - essentially paying people to stay in areas where new opportunities were unlikely to occur.
As a result, people who had lost their jobs - even after one day of work - could receive benefits comparable to the return from working, and they could receive them forever, as long as they didn’t move.
This well-meaning policy led to high, long-term unemployment and a 20-year depression all while the rest of the world got wealthier.
Social safety nets are a crucial component of every society, but it’s VITAL to design them in a way that encourages people to transition from government assistance BACK into the workforce.