08/29/2011 11:12 am ET Updated Oct 29, 2011

A New Social Contract With Reformed Welfare

When President Clinton signed off on welfare reform in 1996, he created the Temporary Assistance for Needy Families (TANF) block grant in order to replace the Aid to Families with Dependent Children (AFDC) program. While the TANF program was initially successful in its goal of reducing poverty by encouraging employment, in the fifteen years since its implementation, the employment gains recorded have all but disappeared and poverty in America has starkly risen. Disturbingly, TANF caseloads have not increased to meet the higher demand and in fact they have declined by 60 percent.

Given today's economic swivel, the failure of the TANF system calls for a major overhaul before the crisis of poverty in inner-city communities and its attendant social problems, like violence and poor performance in schools, overtake our ability to solve them. When black unemployment hovers around 16 percent, it is imperative that TANF be reformed and a cash transfer element be reestablished in the vein of the AFDC program, which was forged during the exigency of the Great Depression in 1935.

Yet it is not enough to simply introduce a cash transfer program. A new program must be established that equally pairs cash transfer with progressive labor market policies to help the poor attain good jobs that provide a living wage. Welfare reformers of the past were right in focusing on employment in their efforts to create a new social contract with the urban poor. Employment opportunities are essential to creating vibrant communities. Indeed, it is widespread employment that often prevents a thriving community from suffering the conditions that are too prevalent in the inner city. According to a famous study by Merva and Fowles, a 1 percent rise in unemployment resulted in a 6.7 percent increase in homicides, a 3.4 percent increase in violent crimes and a 2.4 percent increase in property crimes. The researchers noticed similar trends with increasing income inequality, which is also on the rise.

Clearly, the government and business community must come together to help those whose corrosive environments often make it difficult for them to attain the skills necessary to get jobs in today's competitive economy by offering job training that in some cases bypasses the traditional education system. The government can rise to the occasion by increasing its investment in the urban poor through including a more robust cash transfer policy in a revamped welfare program and the business community can work with the government's new labor market wing of welfare to funnel worthy candidates to special job training programs that will teach job-specific functions.

As Columbia economist Jeffrey Sachs notes in his book Common Wealth, "Many times the very poor are simply reshuffled out of one activity and are then left without the means to start up productive work in another." Sachs illustrates the disparity between European countries and America in the level of cash transfer funding, government services and especially labor-market policies, noting that the European countries who pay the poor more, serve them more and employ them more have less poverty and more social cohesion. Programs like TANF never went as far as European labor market policies, which employ those with less education that the market will not employ. While it would be Pollyanna-ish to think progressive politicians can solve all of our poverty problems in these partisan times (though in a saner world, they could), it is vital that conscientious policy makers get the ball rolling with a welfare program that recognizes the failure of TANF. Cash transfer must be paired with labor market policy to create jobs and stem the violence that all too often accompanies a community where joblessness is the norm.

A realistic starting point for a new era of welfare reform would be in President Obama's newly created Office of Urban Affairs whose leaders can exchange ideas for best practices in implementing this two-pronged approach to poverty and determine the funding needed. However, a figure in the ballpark of $44 billion per year in combined state and federal outlays for the cash transfer and special job-training services would be reasonable to give the new model of welfare a chance to succeed in this harrowing economic climate. This is double the amount of basic cash assistance that was spent by state and federal TANF programs in 1997, when poverty was briefly on the decline, and much larger than the $13 billion spent in 2009. Again, while it would be difficult to secure funding for such a large increase in welfare assistance in times of austerity, not doing so would risk subjecting an entire generation to decades of poverty.