.. sizable benefit increases and extensions of eligibility introduced in 1986, 1990, and 1993. (Myles, and Pierson 6) Table 2 Federal Spending on EITC and AFDC, 1980-1996 ($ In billions) EITC AFDC 1980 2.0 5.4 1981 1.9 6.9 1982 1.8 6.9 1983 1.8 7.3 1984 1.6 7.7 1985 2.1 7.8 1986 2.0 8.2 1987 3.9 8.9 1988 5.9 9.1 1989 6.6 9.4 1990 6.9 10.1 1991 10.6 11.2 1992 12.4 12.3 1993 13.2 12.3 1994 19.6 12.4 1995 22.8 12.8 1996 25.1 13.2 Source: United States House of Representatives, Committee on Ways and Means, Where Your Money Goes: The 1994-95 Green Book (Washington, DC: Brassey’s, 1994), 389, 700. Note: AFDC expenditures exclude state-level spending and Administrative costs. Although the EITC expenditures have surpassed the old welfare program AFDC, cost-benefit analysis can help identify the optimal level of expenditures of welfare assistance programs, as long as estimates of the benefits and costs of welfare assistance are supplied. Once benefits and costs are estimated, cost-benefit analysis indicates that well being will be enhanced through an increase in welfare assistance programs so long as the benefit society derives from the increase is at least as great as the cost of the increased activities. (Sharp, Register, and Grimes 101) The Opportunity Cost The costs or money expense of welfare assistance to society is ultimately supplied through some sort of tax revenue.
The economic cost to society is the value of the goods and services that resources used for welfare assistance could have produced if they had not been used for welfare assistance. This simple concept is also known as the opportunity cost principle which states that the true cost of producing an additional unit of a good or service is the value of other goods or services that must be given up to obtain it (Sharp, Register, and Grimes 8). The opportunity cost principle can be an effective means of identifying the actual costs of welfare assistance. To illustrate the costs of welfare assistance a production possibilities curve, which measures units of welfare assistance along the horizontal axis and units of all other goods and services along the vertical axis, will be used (Figure 2). Curve PP shows all goods and services as well as welfare assistance that the economy’s given resources can produce in a year. There are two combinations represented by D and J. When the economy is producing combination D, it is obtaining W1 units of welfare assistance and S1 units of other goods and services.
W1W2 represents one unit of welfare assistance per year therefore S1S2 units of other goods and services were sacrificed to produce one more unit of welfare assistance. This is the real cost of producing a unit of welfare assistance (Sharp, Register, and Grimes 7). The Explicit Costs Other types of cost pertaining to welfare assistance are explicit costs. Explicit costs are the cost incurred by the producer to buy or hire the resources required to accomplish its objective (Sharp, Register, and Grimes 69). Although welfare assistance is provided by the government and not a business it does have an objective and that objective is to provide for the poor.
The explicit costs of the services provided by the government be it state or federal are the costs of the resources that it buys and hires to provide such services. Such expenses include land, employees, buildings, equipment, and etc. Welfare assistance is provided in all 50 states with offices throughout each state and probably each county. The explicit costs alone to provide for welfare assistance are tremendous. The Implicit Costs Another type of cost is implicit cost.
Implicit costs are the costs induced by the producer for the use of self-owned, self-employed resources (Sharp, Register, and Grimes 69). These costs are sometimes ignored or tend to be hidden costs. Such costs can also be identified by the opportunity cost principle. The cost to society of producing welfare assistance could exceed explicit costs. By the government concentrating resources or providing for welfare assistance they reduce the amount of other goods or services, for example, military hardware available to society.
By the government cutting back on military hardware, which could have been sold for a profit, it is able to provide more welfare assistance to the poor. These forgone earnings are implicit costs to the government and to society of the welfare assistance obtained by the poor (Sharp, Register, and Grimes 71). Benefits The poor, the government, and society all receive an abundance of benefits on account of social welfare assistance programs. The most obvious benefactor is the poor. Without welfare assistance some individuals might not make it in this world. Also, the poor benefit from other social programs such as job training, childcare, educational grants, medical expenses, and tax credits.
If not for social welfare assistance programs, a large majority of these individuals would have a hard time obtaining such programs. The poor aren’t the only people to benefit from welfare assistance; the government also benefits from such programs. If welfare assistance programs weren’t available to the poor eventually the poor would have to support themselves. There are only a couple of ways to support yourself and it’s legally or illegally. If a person can’t get a job because of scarce employment or no or little job skills that individual is going to try to “obtain” money some way to put food in his/her stomach.
Without a prospering economy and social welfare assistance programs the crime rate would probably skyrocket. Finally, society in general benefits from social welfare programs. Again, if welfare assistance programs didn’t exist the crime rate would probably be very high due to the lack of the equal distribution of resources. This unequal ownership pattern of resources gives rise to an unequal distribution of income in society (Smith, and Zietz 208). Because of the higher crime rate, resources would have to be reallocated to try and put a stop to such problems. This wouldn’t be using resources efficiently due to the high expenditures of crime prevention compared to welfare assistance programs.
Also, problems such as drug use, prostitution, and many other deviant behaviors associated with crime would become rampant in a society that got rid of social welfare assistance programs. Conclusion To some extent, the results of analysis in relation to welfare reform are in a state of waiting. The predictions following the passage of the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 have yet to be assessed, in part because they demand more time or major events such as an economic recession for a full evaluation. Nonetheless, a cost benefit analysis has shown that programs such as welfare assistance can be beneficial to a society but, at the same time be somewhat costly at times. Then again, the recent welfare reform measures that are setting time limits and job training have proven to help alleviate and shrink the welfare rolls. Do the benefits of endorsing welfare assistance programs outweigh the cost? Cost benefit analysis shows that as long as the government can stay on track with the new social welfare reform measures that have taken place over the past few years, then yes it is beneficial.
However, when the day comes that it is no longer beneficial to support such programs should society follow economic indicators or follow it’s moral obligations? Work Cited Mishan, Edward J. Cost-Benefit Analysis. New York: Praegor Publishers, 1976. Sharp, Ansel, Charles, Register, and Paul, Grimes. Economics of Social Issues.
Boston: Irwin/McGraw-Hill, 1998. Rowley, Charles, and Alan Peacock. Welfare Economics. London: Martin Robertson & Co. Ltd., 1975. Smith, Russell, and Dorothy, Zietz.
American Social Welfare Institutions. New York: John Wiley & Sons, Inc., 1990. Myles, John, and Paul Pierson. Friedman’s revenge: the reform of “liberal” welfare in Canada and the United States. Politics & Society, Dec 1997 v25 n4 p443(30). Bibliography Mishan, Edward J.
Cost-Benefit Analysis. New York: Praegor Publishers, 1976. Sharp, Ansel, Charles, Register, and Paul, Grimes. Economics of Social Issues. Boston: Irwin/McGraw-Hill, 1998.
Rowley, Charles, and Alan Peacock. Welfare Economics. London: Martin Robertson & Co. Ltd., 1975. Smith, Russell, and Dorothy, Zietz. American Social Welfare Institutions.
New York: John Wiley & Sons, Inc., 1990. Myles, John, and Paul Pierson. Friedman’s revenge: the reform of “liberal” welfare in Canada and the United States. Politics & Society, Dec 1997 v25 n4 p443(30).