When Welfare Sabotages Lives

As Christmas approached last year, the United Kingdom accelerated the rollout of a social security scheme only Ebenezer Scrooge could have loved. The “universal credit” program replaces six different welfare benefits – such as the child tax credit and the housing benefit – with one. The goal is to incentivize employment, and to create an online system that is easier to use.

That’s the idea, anyway. Unfortunately, the new system’s rollout has been rocky. A minimum 42-day wait for the first payment has meant that some families have been left penniless for as long as six weeks. When money has arrived, many recipients have found that their benefits have been reduced. And in areas where universal credit has been widely implemented, referrals to food banks are increasing, as are evictions.

But, for all the dramatic headlines, there is a deeper, unreported problem with the UK’s welfare reform: rather than reduce poverty, it could actually exacerbate it.

In their pioneering 2013 book Scarcity: Why Having Too Little Means So Much, Harvard’s Sendhil Mullainathan and Eldar Shafir of Princeton University examined the conditions under which people make decisions regarding how they manage their jobs, families, and lives. Their study holds two lessons that should be considered in evaluating the latest overhaul of the UK’s welfare system.

The first lesson is that people – rich and poor – often make bad choices when they lack a key resource, like money or time. For example, ruinously expensive “payday loans” can be appealing to cash-strapped borrowers, even if the terms of these loans tend to push people deeper into debt.

This is not because people lack education. In controlled studies, Mullainathan and Shafir asked Princeton University students to play a timed computer game in which they were given the opportunity to “borrow” extra seconds, even though doing so would mean forfeiting double the number of seconds from their overall time. Many took the opportunity, leading Mullainathan and Shafir to conclude that poor decisions can result from conditions of scarcity and stress.

 – Social Europe