Z:\grogger3\ddrive\Duncan\Results\Work Conditioned Welfare\APSA Version\Work Conditioned Welfare 7.doc
Printed On: 08/14/03
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The evidence suggests that the recent trend towards work incentives in welfare benefits is at
least partly a function of unemployment and increasing earnings inequality. States with high levels
of unemployment significantly reduced the effective tax rates on welfare recipients’ earnings during
the 1990s. But the strongest evidence relates to the relationship between inequality and work
incentives. Increasing inequality led states to both reduce welfare benefits and enact stronger work
incentives during welfare reform. I argue that this occurred because falling real wages at the bottom
end of the income distribution can create disincentives to work among low-wage welfare recipients,
leading policymakers to be more concerned about whether recipients will find jobs if they can do so
as inequality increases. And, more generally, the median voter may demand less redistribution as
inequality increases because she becomes less like the median welfare recipient. Increasing income
inequality, therefore, helps to explain why U.S. welfare reforms in the late 1990s substantially
increased the connection between work and benefits, and why employment-focused programs like
the EITC have become so popular.
T
HE
I
NCREASING
R
OLE OF
W
ORK
-C
ONDITIONED
B
ENEFITS
Reforms to state assistance programs in the 1990s radically altered the way that the
government delivers welfare benefits in the United States. One of the most fundamental changes is
the increase in the degree to which the receipt of welfare benefits is linked to employment. For
decades, American entitlement programs provided benefits without regard to the recipients'
employment status. For example, Aid to Families with Dependent Children (AFDC) -- which was
for years the largest welfare program in the U.S. -- provided cash transfers to single mothers with
children who earned less than a certain income threshold. But policymakers criticized AFDC
because the structure of the program created adverse incentives and could lead to long-term
Convention