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INEQUALITY, UNEMPLOYMENT, AND WORK INCENTIVES IN U.S. WELFARE BENEFITS
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Z:\grogger3\ddrive\Duncan\Results\Work Conditioned Welfare\APSA Version\Work Conditioned Welfare 7.doc
Printed On: 08/14/03
1
I
NEQUALITY
,
U
NEMPLOYMENT
,
AND
W
ORK
I
NCENTIVES IN
U.S.
W
ELFARE
B
ENEFITS
D
UNCAN
C.
M
AC
R
AE
DMACRAE
@
UCLA
.
EDU
D
EPARTMENT OF
P
OLITICAL
S
CIENCE
,
UCLA
A
UGUST
2003
A
BSTRACT
:
In recent years, both state and federal welfare policy has shifted towards providing benefits that encourage or are explicitly conditioned on employment. Theory suggests that growing earnings inequality may be partly responsible for this shift in U.S. redistributive policy. To test this hypothesis, this paper examines both time trends in AFDC/TANF benefits over the 1980s and 1990s and state-by-state variation in AFDC/TANF marginal tax rates after welfare reform. I find that states with higher earnings inequality were more likely to reduce benefits and adopted significantly stronger work incentives during the 1990s welfare reforms. States with higher unemployment also adopted stronger work incentives as a part of welfare reform, but did not significantly change benefit levels. This result suggests that both unemployment levels and increasing earnings inequality has had a substantial impact on the basket of welfare policies provided by U.S. states in recent years. Growing inequality also helps to explain why the United States seems to prefer employment-focused programs like the Earned Income Tax Credit over programs like AFDC and why Congress passed a national welfare reform law in the late 1990s that substantially increased the ties between work and benefits.
Prepared for delivery at the 2003 Annual Meeting of the American Political Science Association, August 28 - August 31, 2003. Copyright by the American Political Science Association. Many thanks to Ron Rogowski, Miriam Golden, Jeff Grogger, Peter Thompson, and the participants of the UCLA political economy seminar for helpful comments, advice, and suggestions.
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Z:\grogger3\ddrive\Duncan\Results\Work Conditioned Welfare\APSA Version\Work Conditioned Welfare 7.doc
Printed On: 08/14/03
1
I
NEQUALITY
,
U
NEMPLOYMENT
,
AND
W
ORK
I
NCENTIVES IN
U.S.
W
ELFARE
B
ENEFITS
D
UNCAN
C.
M
AC
R
AE
DMACRAE
@
UCLA
.
EDU
D
EPARTMENT OF
P
OLITICAL
S
CIENCE
,
UCLA
A
UGUST
2003
A
BSTRACT
:
In recent years, both state and federal welfare policy has shifted towards providing benefits that
encourage or are explicitly conditioned on employment. Theory suggests that growing earnings
inequality may be partly responsible for this shift in U.S. redistributive policy. To test this
hypothesis, this paper examines both time trends in AFDC/TANF benefits over the 1980s and
1990s and state-by-state variation in AFDC/TANF marginal tax rates after welfare reform. I find
that states with higher earnings inequality were more likely to reduce benefits and adopted
significantly stronger work incentives during the 1990s welfare reforms. States with higher
unemployment also adopted stronger work incentives as a part of welfare reform, but did not
significantly change benefit levels. This result suggests that both unemployment levels and
increasing earnings inequality has had a substantial impact on the basket of welfare policies provided
by U.S. states in recent years. Growing inequality also helps to explain why the United States seems
to prefer employment-focused programs like the Earned Income Tax Credit over programs like
AFDC and why Congress passed a national welfare reform law in the late 1990s that substantially
increased the ties between work and benefits.
Prepared for delivery at the 2003 Annual Meeting of the American Political Science Association,
August 28 - August 31, 2003. Copyright by the American Political Science Association. Many
thanks to Ron Rogowski, Miriam Golden, Jeff Grogger, Peter Thompson, and the participants of
the UCLA political economy seminar for helpful comments, advice, and suggestions.
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