Z:\grogger3\ddrive\Duncan\Results\Work Conditioned Welfare\APSA Version\Work Conditioned Welfare 7.doc
Printed On: 08/14/03
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measures reported in Table 2, earnings inequality for men increased by 15.3 percent between the
early 1980s and the late 1990s. Inequality for women increased by 13.5 percent over the same
period.
This relationship between increasing inequality and reforms to welfare also holds in the
cross-sectional relationship between states. States with higher levels of earnings inequality
implemented stronger work incentives as a part of welfare reform in the U.S.
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One way to examine
this relationship is to simply rank states according to the level of work incentives they implemented
under welfare reform, and then divide the sample into three equally sized groups. Following this
approach, I find that only 20 percent of the states with the lowest level of work incentives have
higher than the median level of inequality. By contrast, 56.3% of states with moderate levels of
work incentives have high inequality and 75% of the states with the highest levels of work incentives
have higher than a median level of inequality.
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S
OME
T
HEORETICAL
E
XPECTATIONS ABOUT
R
ELATIONSHIP BETWEEN
I
NEQUALITY AND
W
ORK
I
NCENTIVES
To understand how inequality might affect a welfare recipient's decision to work, and
therefore the behavior of state and national policymakers, consider a currently unemployed welfare
recipient who has a choice about whether she wishes to work or not. This recipient's decision to
work depends on how much additional utility she can gain by working. If we hold the benefits
provided by social assistance programs constant, the welfare recipient will have to work
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I will discuss how this measure of work incentives was constructed in more detail later. But in general, higher values of
this measure indicate that when states were free to adopt their own policy as a part of welfare reform, they set up benefit
schemes that contained more incentives to work. Lower values of this index mean that state programs tax benefits more
heavily as the recipient begins to earn income, producing fewer incentives to work
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Based on Theil measure of Inequality. The difference between the lowest and the highest group is significant at the .01
level.
Convention