Work is at the core of the American dream, bringing to people the promise of income, dignity, and security. The US social safety net has historically reinforced this work ethic, premised on employer-provided benefits in combination with public programs, policies, and workplace laws and regulations.
Yet shifts in the economy and the nature of work have created challenges for the social safety net. There is growing concern that the safety net is increasingly at odds with current and future labor market realities. This report examines these changes, discusses the implications for the social safety net, and offers potential policy solutions.
What is the social safety net?
We define the US social safety net broadly, including structures and supports that have proven essential to the country’s diverse spectrum of workers. For most US workers from the postwar era until at least the 1970s, employer benefits in combination with public policies and programs created a social safety net.
Unemployment insurance helped people out of work. Social Security, employer retirement and health benefits, and Medicare helped those in retirement. Workers compensation and disability insurance helped those injured on the job. Paid leave from employers allowed workers flexibility when they were sick or to attend to the needs of a family member. Wages, even for many without a college degree, allowed a reasonable standard of living. Tax credits and public assistance provided income support to those whose incomes were low.
How work has changed and what it means for workers and families
Over the past few decades, the industrial and occupational nature of work and workplaces have transformed, creating new challenges. As rapid technological advances take hold and industries shift from a base in manufacturing to services and technology, the structure of work and the relationships between workers and employers have also changed.
More businesses are relying on workers who do not have regular employee status, such as temporary workers and independent contractors. Many have reduced or do not provide certain worker benefits. This creates tension for the social safety net because most of the nation’s social policies, such as health insurance, unemployment insurance, and pensions, are based on the traditional employer-employee relationship.
In addition, more employers are contracting out whole areas of business (e.g., janitorial services or food preparation) that they do not see as “core” to their mission, leaving those workers in separate firms with lower wages and fewer benefits. This fissuring of the labor market is also reflected in other areas, such as the use of franchising models.
Implications for the social safety net
These shifts in work have created stark challenges for the social safety net:
- Declining access to employer-provided benefits, such as health insurance and retirement plans. Access to these benefits is lower for workers in the lowest 25 percent of the wage distribution compared with those in the highest 25 percent.
- Increasing wage disparities based heavily on skills and education. Wage growth for workers with a four-year degree or more outpace wages for workers with less education.
- Declining, or at least flat, labor force participation rates. For people who are not in the labor force and not in school, the negative long-run implications on future work prospects of being out of the labor market are a concern. For example, they might not have been able to build retirement accounts during their working years.
- Rising economic insecurity for many who are working and even for those receiving public social assistance. For some workers, employment alone is less likely than in the past to adequately sustain families economically and less likely to keep people out of poverty.
Potential solutions for the social safety net
Policymakers should consider the following solutions as they address the challenges facing the social safety net:
- Seek out alternative ways workers can access and retain benefits because many do not have access to employer-provided benefits.
- Adopt more comprehensive worker security and protection policies to complement employer-based unemployment insurance and protect income when people are out of work.
- Strengthen the social assistance and tax-based safety net to encourage and support work, provide stable work supports such as child care and family leave, and provide more income assistance for those who cannot work.