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The Decline of Welfare Benefits in the U.S.: The Role of Wage Inequality

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Author Info
Robert Moffitt
David Ribar
Mark Wilhelm

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Abstract

Welfare benefits in the U.S. have experienced a much-studied secular decline since the mid-1970s. We explore a new hypothesis for this decline related to the increase in wage inequality in the labor market and the decline of real wages at the bottom of the distribution: we posit that voters prefer benefits which are tied to low-skilled wages. We test the hypothesis using a 1969-1992 panel of state-level data. An additional contribution of" our analysis is the use of General Social Survey data on voter preferences for welfare which we combine with Current Population Survey data to determine the voter in each state who has the median preferred welfare benefit level. Our analysis reveals considerable evidence in support of a role for declining real wages in the decline of welfare benefits.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5774.

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Date of creation: Apr 1999
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Handle: RePEc:nbr:nberwo:5774

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Find related papers by JEL classification:
H72 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Budget and Expenditures
I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Holtz-Eakin, Douglas, 1992. " Elections and Aggregation: Interpreting Econometric Analyses of Local Governments," Public Choice, Springer, vol. 74(1), pages 17-42, July.
  2. Bergstrom, Theodore C & Rubinfeld, Daniel L & Shapiro, Perry, 1982. "Micro-Based Estimates of Demand Functions for Local School Expenditures," Econometrica, Econometric Society, vol. 50(5), pages 1183-1205, September. [Downloadable!] (restricted)
    Other versions:
  3. Atkinson, A B, 1987. "On the Measurement of Poverty," Econometrica, Econometric Society, vol. 55(4), pages 749-64, July. [Downloadable!] (restricted)
  4. Levy, Frank & Murnane, Richard J, 1992. "U.S. Earnings Levels and Earnings Inequality: A Review of Recent Trends and Proposed Explanations," Journal of Economic Literature, American Economic Association, vol. 30(3), pages 1333-81, September. [Downloadable!] (restricted)
  5. Orr, Larry L, 1976. "Income Transfers as a Public Good: An Application to AFDC," American Economic Review, American Economic Association, vol. 66(3), pages 359-71, June. [Downloadable!] (restricted)
  6. David M. Cutler & Douglas W. Elmendorf & Richard J. Zeckhauser, 1993. "Demographic Characteristics and the Public Bundle," NBER Working Papers 4283, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Atkinson, A.B., 1987. "Income maintenance and social insurance," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 2, chapter 13, pages 779-908 Elsevier. [Downloadable!] (restricted)
  8. Topel, Robert H, 1994. "Regional Labor Markets and the Determinants of Wage Inequality," American Economic Review, American Economic Association, vol. 84(2), pages 17-22, May. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Thomas J. Nechyba, 1999. "Social Approval, Values, and AFDC: A Re-Examination of the Illegitimacy Debate," NBER Working Papers 7240, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Erwin Tiongson & Luiz de Mello, 2003. "Income Inequality and Redistributive Government Spending," IMF Working Papers 03/14, International Monetary Fund. [Downloadable!]
  3. Erzo F.P. Luttmer, 1999. "Group Loyalty and the Taste for Redistribution," Working Papers 9902, Harris School of Public Policy Studies, University of Chicago. [Downloadable!]
    Other versions:
  4. Wei-Yin Hu, 1999. "Marriage and Economic Incentives: Evidence from a Welfare Experiment," JCPR Working Papers 83, Northwestern University/University of Chicago Joint Center for Poverty Research.
  5. Christina M. Fong, 2003. "Emphatic Responsiveness: Evidence from a Randomized Experiment on Giving to Welfare Recipients," Framed Field Experiments 0026, The Field Experiments Website. [Downloadable!]
  6. Smith, Mark W, 1999. "Should we expect a race to the bottom in welfare benefits? Evidence from a multistate panel, 1979-1995," MPRA Paper 10125, University Library of Munich, Germany. [Downloadable!]
  7. Aaron Yelowitz, 1997. "Why Did the SSI-Disabled Program Grow So Much? Disentangling the Effect of Medicaid," NBER Working Papers 6139, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  8. Robert A. Moffitt, 1999. "Demographic Change and Public Assistance Programs," NBER Working Papers 6995, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Jo Thori Lind, 2005. "Why is there so little redistribution?," Nordic Journal of Political Economy, Nordic Journal of Political Economy, vol. 31, pages 111-125. [Downloadable!]
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