I have been following the news about the stimulus plan with interest, but not as closely as I might. So it’s possible that others have already discussed this, but I believe it is important.
One of the issues that has drawn ire of House Republicans is the inclusion of additional funding for Pell grants in the plan. Most people who have written to defend funding for Pells have focused on the importance of having an educated workforce, or on regaining some competitive ground America’s universities have lost (here’s one example. These are both important and valid reasons to include educational funding in the stimulus package, which is not just aimed at economic recovery, but also at economic growth.
But equally important is the need to delay the entry of young people into the workforce. In a period of rising unemployment, as 2009 is anticipated to be, any policy that increases the number of young people who choose college over working will benefit unemployed workers, especially lower-income unemployed workers. Of course, most people who receive Pell grants will also work — a Pell doesn’t pay one’s entire tution — but the number of jobs available to the unemployed will still be higher than it would be otherwise.
This is not an unusual function for a social program. The U.S. welfare program — Aid to Dependent Children (ADC), and later renamed Aid to Families with Dependent Children (more commonly known as AFDC or just as “welfare”) — had similar ambitions. It was designed primarily to assist families where the male bread-winner was deceased. But it wasn’t just a bleeding-heart scheme to help the less fortunate. Passed in 1935 in the middle of the Great Depression, the measure was a way to keep widowed women with children out of the workforce, thus preserving the jobs they might have taken for unemployed men. Sadly, ADC was massively underfunded at passage, receiving only $25 million of the requested $120 million, so it didn’t have as large an effect on the workforce as it otherwise might have, but it did keep some people out of the workforce and ration jobs. It’s also worth noting that the GI Bill served a similar job rationing function as men returned from World War II and flooded the labor market.
Unfortunately for us today, AFDC was replaced by Temporary Assistance for Needy Families (TANF) in 1995. TANF imposes time limits on the number of years a person can receive TANF assistance in their lifetimes. This means that TANF does not serve the job-rationing function that AFDC did. One of the key criticisms made against AFDC was that it gave parents the option of staying out of the workforce — which was in fact an outcome it was designed to produce, but during the era of 3% unemployment, no one cared about that. Although many, many states have waivers freeing them from the time limit requirement, many don’t. It’s not likely that the Obama administration will ever revise TANF overtly given the intense opposition that welfare programs always face from conservatives (of both parties) and it’s unlikely that the states will be able to fund further changes to their systems via more waivers any time soon, given their dire financial circumstances. It’s too bad, because the labor market could use all the help it can get right now and welfare programs are an important way to leverage available jobs.
In any case, my point here is that of course Pell grants are important for helping low-income students, for educating the workforce, and for retooling for the future. But they are also critically important for limiting the rise of unemployment right now. They have a very proper place in the stimulus plan.