Friday, August 25, 2017

Fakers? Not All of Them

It’s a common thing to view welfare recipients as unmotivated. (Personally, I don’t hold that view, but it’s common enough for me to put it in the title of this post).

That has some overlap with lazy, but it isn’t quite the same thing: you could be one without the other, or both.

However, unmotivated could also be a function of background or environment. So it’s possible that if a welfare recipient is unmotivated to get a job, it’s because they were previously unmotivated to get the skills to be gainfully employed.

Whatever. Can we test for this with data from the real world? Manal Dashpande, a recent Ph.D. student from MIT, now on the faculty at the University of Chicago, has been researching this (here is an older draft of her paper, and here is a summary more accessible to undergraduates).

To do work like this, you look for a “natural experiment”. In short, this means that somehow the circumstances of the people you’re interested were changed, and they had to respond to this change, but they weren’t capable of influencing how or when their circumstances were changed.

Deshpande looked at the change in welfare in 1996. There was a “bright line” cutoff that made the natural experiment possible: children were treated differently based on whether or not they turned 18 before or after August 22, 1996. For a particular form of welfare (SSI), prior to that cutoff, if you got it before the cutoff you automatically got it afterwards. After that cutoff, if you got that form of welfare as a child, you had to be reevaluated when you turned 18. About 40% of childhood recipients were denied as adults. The motivation for that was that some conditions, say mild mental retardation, may incur extra expenses in childhood, but don’t affect a person’s ability to get and hold a job.

One comparison Deshpande made was the income performance of people whose benefits were removed at 18 versus three other groups. One was those who stayed on SSI after age 18 (they were not denied benefits at 18). A second were those who applied for the first time as adults but who were denied (you might call those “fakers”). The third were children whose families had received AFDC (that program was replaced by TANF, which we still have), a program targeted at low income families rather than disabled children (you might call these “poor yet able”). Here’s a chart of their income performance:


The “poor yet able” are the red points: their income rose through time. The “fakers” are the purple points: their incomes also rose. In both cases the rise was up to an average of about $15,000 per year in income. That’s not a lot, but since it’s an average, it indicates that some portion of them were able to do better than minimum wage employment.

The people who were retained on SSI are the dark blue dots at the bottom. Their incomes outside of welfare stayed close to zero, but were supplemented by those continued welfare payments.

The light blue dots indicate that welfare reform may have been to aggressive. Children who were denied benefits when they turned 18, on average, had income that never approached those of more advantaged youth. Deshpande estimated the present value of their income loss at $76,000 over the ages of 18 to 34.

Basically, welfare reform was a big tax on some low income people.

Via Marginal Revolution.

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