A New Homestead Act—To Jump Start the U.S. Economy

Published December 15, 2015

The National Interest - January/February 2016 issue

The Homestead Act of 1862 is one of America’s best-known and beloved laws. By giving away federal land for free to anyone who settled and cultivated it, the act enshrined the governing principle of the newly ascendant Republican Party: government should act to help the average man help himself build a better life. Together with the Land Grant College Act and the Pacific Railroad Acts, the Homestead Act placed the federal government squarely on the side of the average American in his or her quest to live in comfort and with dignity.

Today we have no frontier, no untapped source of federal lands. We do, however, have the same issue the Homestead Act tried to solve. Millions of low-to-moderately skilled, native-born and immigrant Americans live in places where they can’t find decent work while a vast new economic frontier unfolds in Southern and Western states such as Texas, Florida and North Carolina. These wide open spaces are enticing enough to encourage millions of Latin Americans to undertake dangerous and expensive journeys, yet millions of other Americans remain mired in ghettoes, depressed steel towns and struggling regions like Appalachia and the Mississippi Delta.

This is a perplexing and serious problem. Why don’t Americans who live in depressed areas move to places where they can start new lives and get back on their feet? One main reason is the nature of the modern American welfare state. Most welfare-state programs are awarded by states and localities. More crucially, their receipt is often tied to or complicated by continued residence in those places. Thus, for a person who has become dependent on Temporary Assistance for Needy Families (TANF) grants, food stamps, Section 8 housing vouchers and Medicaid, moving for potential work comes with great risk. It should come as no surprise that the people for whom moving would provide the greatest opportunity—those with little or no job skills who need to take the first step on the ladder of opportunity—are precisely those for whom the prospective loss of benefits or the difficulty in continuing them provides the greatest barrier to their deciding to risk moving at all.

Many Republicans concerned with entrenched poverty, such as Speaker of the House Paul Ryan and Senator Marco Rubio, propose turning authority over these and many other federal anti-poverty programs to the states in block grants on the theory states are better placed to help get people on their feet. This approach, however, would likely only exacerbate this problem. Benefit receipt would become even more tied to locality than it is currently, giving people already averse to moving even more of a reason to stay put. Republicans who wish to tackle entrenched poverty need to look back to their future. The GOP should propose a new Homestead Act that reforms federal tax law, unemployment compensation, income-support efforts and welfare programs to encourage worker mobility.

The evidence of insufficient domestic migration is all around us. Texas, for example, has had robust job growth in recent years, adding 1.2 million jobs between July 2010 and July 2014. While some Americans did move to Texas during this time—about 533,000—every indication is that the state could have supported even more. Texas’ unemployment rate remains well below the national average, and well below the rates of nearby states. Indeed, while the standard deviation of unemployment rates across the fifty U.S. states has trended down in recent decades, it has not fallen nearly as much as one would expect in a country where the movement of information and people has never been easier. Instead, millions of able-bodied, working-aged Americans are staying in low-growth or declining areas. These “job deserts” are well known to most observers—Appalachia, parts of the Rural South and Midwest, aging towns and cities in America’s Rust Belt.

A few hundred miles east of Texas on I-20 is Mississippi, where job growth has been anemic for years. The state lost about eleven thousand jobs between July 2005 and July 2014, and the Magnolia State’s employment wasn’t rosy in 2005, either. At 61.9 percent, Mississippi had one of the nation’s lowest labor-force participation rates (LFPR—the measure of how many adults sixteen years of age and older are looking for work). It also had one of the highest unemployment rates at 7.4 percent. Despite this relatively bleak outlook, outmigration from Mississippi was only a fraction of what one might expect. Only twenty-five thousand people—roughly equal to a single suburb of the state’s capital, Jackson—left Mississippi during the July 2010–July 2014 period. Rather than look for work elsewhere, tens of thousands of Mississippians stayed put. The result: even lower labor force participation rates (55.2 percent in May 2015) and continued high unemployment (6.7 percent) as people look for jobs that will never come.

Michigan, meanwhile, has not been as structurally depressed as Mississippi, but the severe decline in the auto industry hurt the state deeply. Despite the industry’s comeback, Michigan still has about 120,000 fewer jobs today than it had in mid-2005. Michiganders have moved from the state, but not as many as one would expect given the state’s steep decline in jobs. Like Mississippi, Michigan’s lack of migration is exhibited by a low LFPR. In 2005, Michigan had a 65.8 percent LFPR, only slightly lower than the nation’s 66.1 percent. In May 2015, however, Michigan’s LFPR had dropped to 60.3, while the nation’s had only dropped to 62.9 percent. Michigan had gone from an LFPR only 0.3 percent below the nation’s to an LFPR 2.6 percent lower. That 2.3 percent difference matters: it means that 157,000 adults who used to look for work had stopped—and that’s after over 150,000 Michigan residents had already left the state.

Some of the nation’s decline in labor-force participation is due to the aging of the Baby Boomers. As they began to reach retirement age, it was natural that LFPR—which does not exclude older Americans from its calculations—would decline. But there’s no reason to think that most job deserts are aging any faster than the rest of America. Michigan’s rapid decline in LFPR is not due to older retirees “aging in place.” It’s primarily due to adults dropping out of the work force entirely. The case of the long-standing job deserts is even more difficult to explain by aging in place. Large parts of America have exhibited low LFPRs and low job growth for decades, yet working-aged Americans still stay in place rather than move in search of work.

In prior eras, consistently poor growth rates or sudden, catastrophic declines in jobs would have spawned mass migration. In the face of the Dust Bowl of the 1930s, for example, tens of thousands of Okies and Arkies left their barren home states for the relatively fertile job soil of California, as movingly described in John Steinbeck’s The Grapes of Wrath. Today, however, the modern welfare state permits many people to just get by on various forms of benefits and part-time work, inadvertently encouraging people to stay put rather than move in search of work.

This becomes obvious when you overlay county-level maps of receipt of means-tested benefits with maps showing LFPR. U.S. counties dominated by large, older cities such as Baltimore, Milwaukee, Philadelphia, Detroit, New York and St. Louis are high recipients of “income support” benefits, including food stamps, disability payments and the earned-income tax credit (EITC). According to a map of county-level LFPRs in 2010, the counties containing these large cities had LFPRs ranging from 49.4 percent (the Bronx) to 56.6 percent (Milwaukee). These totals are much lower than the national 2010 LFPR of 64.6 percent.

As dreary as these totals are, they are a genuine beacon of light compared to those in Appalachia and the rural South, areas which also exhibit very high rates of income-support-benefit receipt and lower LFPRs. The whole state of West Virginia, for example, had an LFPR of 54.7 percent in July 2010. Many counties had LFPRs below 40 percent, or nearly ten percent lower than the worst urban county. These counties invariably also receive high shares of personal income from government income-support benefits. Jefferson County, an African-American county in the Mississippi Delta, received over 9 percent of its total personal income just from income-support benefits: its LFPR was a dismal 37.1 percent.

Even these LFPR measures surely mask the dire conditions many Americans face. Many people in these counties work part-time or find sporadic, seasonal work and make do with income-support benefits that top off what they can earn in the private sector. Food stamps (now called the Supplemental Nutrition Assistance Program [SNAP]) and the EITC are two ways that low-wage, part-time work in job deserts are made bearable enough to convince people to stay put. One could look at these data and conclude, as demographer Nicholas Eberstadt did, that America is becoming a “nation of takers.” His analysis criticizes the entire welfare-state structure built over the past eight decades and argues for at minimum a substantial pruning back of the edifice, if not its demise.

I disagree. The problem is not the fact of the availability of government benefits. We have rightfully decided that Americans ought not to live forever in poverty, mired in hopelessness and despair. Any agenda that seeks to repeal this consensus is both politically impossible and, more importantly, unjust. Standard conservative welfare-state reforms, however, are also not likely to significantly alleviate these problems. Extending TANF’s work requirement to the whole panoply of means-tested benefits, as the Heritage Foundation’s Robert Rector urges, would likely simply shift some people from nonwork into subsidized, low-wage work. That surely is better for the recipient’s character and as an example to children growing up in job deserts, but it does not place these people on the upward ladder of mobility because few of these ladders are being built in those deserts.

Block granting means-tested benefits, as proposed by Rubio and Ryan, would also likely not alleviate this problem. It might be true that states know their own populations best, but many states are simply not generating enough jobs in the areas where poor and low-skilled people live to help get them on the ladder to success. Simply sharing cost savings with states which reduce their welfare rolls, as the 1996 welfare reform act did, encourages them to persuade low-income people to enroll in purely federally-financed low-income-support programs, such as the nation’s two federally funded disability programs. Neither Rubio nor Ryan is proposing to send those massive programs to the states.

Nonwork among the able-bodied, prime-aged adults is not increasing primarily because government support programs often do not contain a work requirement or, if one exists, is loosely enforced. Nor does it occur because funding for work-support programs (such as the EITC) is not high enough. It is increasing because more and more low-skilled, native-born Americans live in job deserts where a good, well-paying career with some measure of advancement is increasingly rare. The solution to this problem will not come from asking these people to work or asking taxpayers to pay more. It will come by asking these people to do the one thing we do not currently ask them to do: move.

The new Homestead Act would start to solve this problem by systematically reforming our safety net to do two things. First, it will give people information about jobs they can do in other states and subsidize their decision to pursue new horizons whether they receive income-support benefits from the federal government (such as Social Security Disability Insurance [SSDI] or TANF) or from the states (such as Unemployment Insurance [UI]). Second, where people are already receiving state-based benefits, such as Medicaid, housing vouchers or food stamps, it will make them fully transportable across state lines so that the fear of temporarily losing their benefits is no longer a reason to stay put.

Most people who are looking for work or who have lost a job will come into contact with the unemployment-insurance system. UI programs are run by the states, and all have requirements that UI recipients search for suitable jobs. UI recipients are also required to take suitable jobs if one is offered during the benefit period. Both the job-search and job-taking requirements, however, are limited by one’s location. A recipient is only required to take a suitable job if it is nearby. The databases used by UI offices generally only list jobs within that commuting radius, although some states like California and Pennsylvania do have intrastate job databases. Thus, most UI recipients will never find out about suitable jobs they could do outside their local areas or, at best, their states.

UI recipients also get no financial help to move even if they find out about a job in another location. Travel to interview for these jobs is not subsidized: the applicant must supply any money for that from their savings or benefits. Many people simply can’t afford this. Furthermore, even if they did find a job elsewhere they might be unable to afford the move. Current federal law does not allow people to write off losses on their houses if they have to sell to move. The tax code does allow people to deduct moving expenses if one moves further than fifty miles for work, but the practical value of that deduction is nil for most middle- or working-class families, as many such families have no income-tax liability thanks to either the Child Tax Credit or the EITC. Some people moving after a period of unemployment might have also no tax liability to which the deduction can be applied simply because they didn’t earn enough income. Even if one does have some income-tax liability, today’s low marginal tax rates mean that most people would get only 10 or 15 percent of their moving expenses recovered through lower tax payments.

TANF recipients face a similar hurdle. Although TANF does have a strong work requirement, it is a state-based program and by definition cannot require people to take jobs in other states. As a practical matter, state-run TANF programs follow UI programs in offering recipients neither information nor subsidies to take jobs outside a reasonable commuting distance from one’s residence.

SSDI applicants run into this mobility trap in different ways. Most SSDI applicants today do not qualify for benefits because of a medical impairment. Instead, according to the Manhattan Institute’s Scott Winship, 58 percent qualify because they are deemed to have a low Residual Functional Capacity (RFC). An applicant’s RFC is assessed by looking at their age, education and transferrable job skills. Generally speaking, the older and less educated the applicant is, then the likelier he or she is to be found to have a low enough RFC to be classified as disabled.

Theoretically, the RFC is assessed based on whether there are jobs anywhere in America for which the applicant has transferrable job skills. But the SSDI process neither gives the applicant specific information about such jobs nor provides any fiscal incentives to move to take them. If there are few jobs within the local economy for which the applicant has transferrable job skills, and which pay more than he or she would receive in SSDI payments, applicants have a strong incentive to appeal a denial of benefits and argue that the RFC overstates their skill level. Applicants who do this have great success: nearly two-thirds of applicants who are initially denied benefits are approved on reconsideration or appeal.

The bias against encouraging moving for work extends to SSDI’s main voluntary program to encourage beneficiaries to go back to work, the Ticket to Work program. The Ticket to Work program encourages recipients to go back to work by connecting them with Employment Networks or, in cases with severe disabilities, Vocational Rehabilitation agencies. In both cases, however, the networks or agencies operate through states and do not normally attempt to prepare beneficiaries for jobs outside their local area. Even when they do, there are no specific financial incentives or subsidies that will encourage people to make the move.

Government must offer people in need information and incentives to overcome this bias. Encouragement—and perhaps requirement—is necessary for people to look for suitable employment outside their local areas. This is particularly important in job deserts where the economy has sputtered for decades or where the closure of a large area employer sends the region into a tailspin. Once suitable jobs are identified, they need to be given financial assistance to encourage them to make the move.

Any smart plan will start with information. Job databases already exist in every region of the country, yet are not adequately linked. In an age where FedEx can trace a package anywhere in the world in real time, connecting these databases into something a person can easily access should be possible. In fact, the Obama administration is already starting to do this with the beta version of its online American Job Center. This system allows a user to search for jobs by title, keyword, city or state anywhere in the country. Once this system is fully operational, SSDI, UI and TANF should be required to use it as part of their respective work-encouragement schemes. UI recipients, for example, could be required to search for their specific jobs in areas known to be fast growing in those fields. An autoworker thrown out of work in Michigan, for example, could be required to look for new auto-plant jobs in Kentucky or Tennessee, states where the auto industry is healthier than in Michigan. That person would not be required to move, but simply giving them the information might be enough to convince them to take the plunge.

Recipients could also be given information on the relative health of job markets in different areas. The American Enterprise Institute’s Michael Strain notes that the data already exists to provide people information about unemployment rates, job gains and payroll gains by industry in every region of the country. Simply giving a person this information in a short, easy-to-understand format, he contends, might be enough to help encourage him or her to search for work in those places. For SSDI recipients, the database could come into play at the initial application process. Someone found to have transferrable job skills, for example, might be given a list of specific jobs in other states to consider. That person might still want to appeal or ask for reconsideration, but having something specific to work towards might encourage some to withdraw their application and start work elsewhere.

Incentives, however, will probably be necessary to persuade many people to leave their homes and neighborhoods. Moving is never easy, and lower-skilled and older people are particularly resistant to making the changes needed when one uproots and resettles somewhere new. On the margin, those risk-averse people will likely need a tangible, significant benefit if they are to be convinced to move. Those incentives could take many forms. Eli Lehrer and Lori Sanders of the R Street Institute have proposed allowing unemployed persons with few assets to “cash out” the UI benefits they would otherwise have received over the maximum eligibility period. Lehrer and Sanders propose these “cash out grants” could be 70-80 percent of that period’s benefits, allowing the person to afford the move and perhaps have some money left over for a nest egg.

This approach could also be used for SSDI applicants. Applicants denied because they are deemed to have a sufficiently high RFC to take a job elsewhere could be given a lump sum, say 70 percent of two years’ worth of benefits, if they successfully pursue and obtain a job outside their local area. AEI’s Michael Strain proposes a similar idea, relocation subsidies. His plan would give long-term unemployed people in areas with poor labor markets a subsidy that covers most of the cost of moving for work. For those without enough assets to make up the difference, he proposes offering a low-interest loan with generous repayment schedules so asset-poor people can afford to move.

The federal tax code could also be reformed to encourage less-affluent people to move. A refundable credit for moving expenses could be offered in addition to the current deduction. For people without much taxable income, the refundable credit offers them much more money than the traditional deduction. Making it refundable also lets them get money back. Alternatively, one could allow these people to “carry forward” unused credits to apply against future years’ tax liabilities, much as corporations are allowed carry forward losses or unused tax benefits.

The same principles can be applied to losses low-income households might incur upon selling their home. Perhaps they can be given a refundable credit of a certain percentage of their loss if they also move from a job desert to a job garden. Alternatively, they can be given a deduction for the full amount of the loss, plus closing costs incurred in the sale, that can be carried forward to apply against future income from the new job. Either way, these measures would significantly lower the value an existing home might have for a low-asset, low-income household and encourage them to take a risk and move.

These measures would likely be sufficient to encourage some people to move, but the toughest cases face another financial barrier: the difficulty in taking benefits with them. Medicaid, Section 8 housing vouchers, food stamps (SNAP), and a host of other income-support programs are awarded by states even though the programs are wholly or partially funded by the federal government. All of these benefits either require approval of a government agency to move (Section 8) or reapplication for benefits (SNAP) in the person’s new state of residence. In some cases, such as WIC or Section 8, the amount of benefits available in a certain area is capped. If that amount has already been expended or committed, new applicants are placed on waiting lists to receive benefits once money is available. The mere chance that a single mother, for example, might lose her Women, Infants and Children (WIC) assistance or Section 8 voucher is a strong disincentive for her to move.

Medicaid, the most important federal benefit for many low-income families, is a particularly strong barrier to relocation. Medicaid recipients must close out their existing Medicaid account before they are permitted to apply for a new account in their new state. Furthermore, state benefits and eligibility requirements differ significantly across the states. The job garden of Texas, for example, covers fewer services and has much tighter eligibility standards than do most of the states in the Northeast and Midwest.

State and local involvement in and administration of these programs are too ingrained to change, but the federal government might encourage mobility by adopting a version of the Medicaid expansion scheme from the Affordable Care Act. The ACA promised to pay 100 percent of the cost of new enrollees for three years in states that expanded their Medicaid programs to include all people living in households at 138 percent of below of the federal poverty line. The federal government could make a similar promise: it could pay 100 percent of the costs of federally supported but state-awarded benefit programs for up to two years if that person moves to a new state with a vibrant job market to search for work.

Under this plan, the person would be eligible for this guarantee if they registered with the state’s UI office (although they may not be eligible for UI benefits, depending on their recent work history) and complied with all the job search and job-acceptance requirements applicable to that state’s UI population. They would not have to reapply for these benefits until they had been continuously employed at least 20 hours a week for three months. If they obtain that work and remain eligible for some benefits under the new state’s guidelines, the federal 100 percent payment promise would vanish and the normal state funding formula for the benefit in question would apply.

One could argue it is simply cruel to incentivize people to move from places where they may have rich networks of friends and family. One could contend that building systems of these sorts, especially a viable national jobs database, is beyond the scope of federal government competency. One could say that the “all carrots, no sticks” approach proposed herein is too lenient toward program recipients. One could argue that some of the incentives would cost too much or encourage people who really need such assistance to game the system so they qualify.

All of the objections have their merit, but they must be weighed against the simple fact that low-skilled Americans do not move to job-rich environments due to economic pressure. There is a long line of research that shows this, but a recent study by Brian Cadena of the University of Colorado, Boulder, and Brian Kovak of Carnegie Mellon University shows it quite starkly. They found that while native-born Americans with at least some college education moved when jobs disappeared, native-born Americans with only a high-school degree or less did not. According to their paper, “a 10 percentage point decline in local employment from 2006 to 2010 led to a 4.6 percentage point relative decline in the local population, compared with no measurable supply response among less-skilled (high school degree or less) natives.” (Emphasis added). They found nearly identical results when looking at changes in local-level employment in 2000-2006, a period which also included a period of employment loss followed by employment gains.

Tellingly, Cadena and Kovak found that low-skilled Mexican-born workers did move in response to local labor-market downturns. Less-skilled Mexican men, for example, “responded even more strongly than highly skilled natives, with a 10 percentage point larger employment decline driving a 5.7 percentage point decline in population.” While they theorized there were many reasons Mexican-born low-skilled workers were much more economically mobile than similarly skilled men, two potential explanations stand out.

First, “they are less likely to be eligible for Unemployment Insurance (UI) and other social safety net programs,” in part because “[m]ore than half of Mexican-born immigrants are in the US without authorization” and thus are ineligible for these programs. Second, Mexican workers tend to move to communities with significant Mexican-born communities. The authors say these “networks provide information about local labor market conditions and lower moving costs, thereby increasing the probability that a move across labor markets will result in a favorable employment outcome.” Information and incentives drive Mexican-born immigration, while the lack of those two factors keeps similarly skilled native-born people in place, on public assistance and away from the real opportunities American free enterprise creates.

Either political party can make these reforms a priority, but there are particular political factors at play for Republicans. Most Republicans recognize that the party suffers from a long-standing empathy gap. A recent poll found that Americans were five times as likely to say Republicans were not compassionate as those who say it is, as columnist Tim Montgomerie has noted. Indeed, Republican presidential candidate Mitt Romney lost to President Obama by a massive sixty-three-point margin among those Americans who said the most important characteristic for a President is that he “cares about people like me.”

So far, most Republicans efforts to address this perception have done so by offering ideas about helping the poor rise out of poverty. But their solutions tend to be either warmed-over Republican rhetoric (cutting entitlements and taxes will help the economy, which will help the poor) or process-based reforms like Ryan’s and Rubio’s idea for block grants. Not only will the latter proposal likely unintentionally keep people trapped in job deserts, it is also likely to be perceived by benefit recipients asuncompassionate because it takes away a concrete benefit they value, replacing it with only the promise that states will enact programs they value as much.

A twenty-first-century Homestead Act addresses the GOP’s empathy gap. By offering carrots rather than sticks, it shows that Republicans are not heartless ogres whose main purpose is to take things away from needy people. By offering subsidies for moving without providing “pay-fors” up front, it shows that Republicans value people’s lives over other people’s money (while likely saving lots of money in the long term). Most importantly, it shows that the modern GOP is in sync with its roots and with the eternal American ideal that democratic government ought to offer those who need it a hand up in life.

Henry Olsen is a Senior Fellow at the Ethics and Public Policy Center.

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