A Subsidy for Dignity

A successful idea from Europe can make eldercare more affordable—and provide well-paying jobs—as the boomers approach retirement.

Qualified Providers To work, the Dignity Voucher program must operate in the formal sector, and the Belgian case shows that integrating service workers into the social welfare system (Social Security, Medicaid, unemployment insurance, etc.) is key to drawing workers out of the informal sector and protecting them from exploitation. Service workers in the Dignity Voucher program must therefore be qualified providers: qualified by state standards and given all of the rights and responsibilities of employees under federal law. Qualified providers, or service workers, would further be limited to U.S. citizens or legal immigrants. During the initial phase of the program, preference might be given to individuals who have suffered prolonged periods of unemployment during the present recession.

The benefits of Dignity Vouchers or similar service vouchers in the United States would not be limited to new kinds of decent jobs for domestic service workers and access to needed aid for the elderly. In Europe, service-voucher programs have had some success in shrinking black markets in labor by reducing the demand for extra-legal employment. Evaluations of the Belgian voucher model show that a significant portion of the cost of the program to the government—at least 40 percent in the Belgian case—can be directly offset by increased revenues and decreased tax expenditures. These offsets largely depend upon how successful the program is in formalizing gray-market eldercare, and thus increasing income-tax receipts and reducing benefits paid to unemployed or underemployed individuals.

A service voucher program like the Dignity Voucher program that we propose could deter illegal immigration to some degree by reducing the demand for off-the-books labor. The Dignity Voucher program would allow the elderly to pay less than the minimum wage to U.S. citizens and legal immigrants who, thanks to the government subsidy to the service company employer, would be paid above the minimum wage. Paying the mean national caregiver wage would help ensure that government subsidies do not serve to undercut existing caregivers or create a situation in which service workers are unable to earn a living wage and become dependent upon other government aid.

The automation of recipient selection (perhaps using the Social Security Administration) and implementation of the program also reduces administrative costs. For example, the French model seems to lower the costs of being in the formal sector for both workers and recipients. On the supply side, social security contributions of workers in France are calculated automatically with the prepaid CESU card, and on the demand side, the system promotes direct hiring and payment of service workers, potentially lowering costs and hassle for service recipients, who have a free choice in purchasing services.

Tested Abroad, Needed Here

The United States should learn from the success of other nations that have adopted service-voucher programs. Like other countries, the United States must address both unemployment and the challenges presented by an aging population. Claims by politicians, pundits, and policy analysts that a “twofer” policy proposal can solve two problems at the same time should be subject to critical scrutiny.

We believe that our proposal can withstand the test. Increasingly, our economy will be dominated by personal services that cannot be automated or offshored, and a large part of the service economy will be driven by demand for eldercare services generated by the aging baby boomers. This demand is currently being met in part by family caregivers as well as the informal labor market. U.S. businesses lose worker productivity and pay higher health care costs for employees providing caregiving at home, while black-market labor costs local, state, and federal governments tax revenues. Existing respite-care programs for caregivers are inadequate and could be supplemented or replaced by a service-voucher program.

The Dignity Voucher program proposed here should be tested as a pilot program. If it is considered a success, then Congress should consider scaling it up and making it a permanent part of America’s system of social insurance, addressing the previously unmet needs of many elderly Americans for modest personal assistance by a mix of public funding and private provision. The cost of the program would depend on its scale. Some, if not necessarily all, of the costs, could be offset in the federal budget as a whole by savings in unemployment payments or by reductions in tax expenditures for home ownership and health care that disproportionately benefit the affluent. An American service-voucher program could be paid for by a small, dedicated payroll tax, by another dedicated tax like a portion of a federal value-added tax, or by general revenues.

Tested abroad and needed here, service vouchers can provide a new and useful tool in the repertory of American public policy. A service-voucher program of this kind would accomplish multiple goals. It would increase demand for low-wage service sector workers. At the same time, it would provide indirect financial assistance to elderly Americans who are capable of functioning and living in their own homes but need occasional personal assistance that they cannot afford on their own. It would help American families by reducing the burden of supporting their elderly relatives. Finally, it would generate tax revenues, as informal, off-the-books, underpaid labor is replaced by adequately paid labor in the formal labor market. The use of service vouchers to create jobs while helping the elderly is exactly the kind of bold new idea that America desperately needs today.

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