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The Decline of Welfare Benefits in the US: The Role of Wage Inequality

  • Robert Moffitt
  • David Ribar
  • Mark Wilhelm

Welfare benefits in the US have experiences a much-studies 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 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 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 The Johns Hopkins University,Department of Economics in its series Economics Working Paper Archive with number 373.

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Date of creation: Jun 1998
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Handle: RePEc:jhu:papers:373
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  1. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
  2. 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.
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  12. Moffitt, Robert, 1993. "Identification and estimation of dynamic models with a time series of repeated cross-sections," Journal of Econometrics, Elsevier, vol. 59(1-2), pages 99-123, September.
  13. Edward M. Gramlich & Henry J. Aaron & Michael C. Lovell, 1982. "An Econometric Examination of the New Federalism," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 13(2), pages 327-370.
  14. Moffitt, Robert A., 1984. "The effects of grants-in-aid on state and local expenditures : The case of AFDC," Journal of Public Economics, Elsevier, vol. 23(3), pages 279-305, April.
  15. Walter W. McMahon, 1991. "Geographical Cost of Living Differences: An Update," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 19(3), pages 426-450.
  16. Johnson, William R, 1988. "Income Redistribution in a Federal System," American Economic Review, American Economic Association, vol. 78(3), pages 570-73, June.
  17. 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.
  18. 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.
  19. Shroder, Mark, 1995. "Games the States Don't Play: Welfare Benefits and the Theory of Fiscal Federalism," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 183-91, February.
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