Do Welfare Programs Help You or Hold You Back? - YouTube

Welfare programs provide assistance to those in need, and are a central part of

government services. Yet they have been at the center of a long-standing debate.

While supporters defend them as a vital lifeline for vulnerable populations,

critics argue they act as a crutch by perpetuating dependency and preventing

recipients from achieving self-sufficiency. So which is it? Do

welfare programs help you or hold you back? This paper sheds light on this

question by studying the Supplemental Security Income program. SSI is the

largest cash welfare program in the US, and pays around fifty billion dollars

each year to eight million individuals of which 1.3 million are children.

Recipients qualify for benefits if they can provide evidence of a disability

that prevents them from working or inhibits their performance in school.

Mirroring the broader welfare debate, critics argue that this discourages

children and young adults from pursuing educational and professional success

because doing so would jeopardize their SSI eligibility. This suggests that

removing individuals from the program could actually improve their outcomes in

the long-run by freeing them of these perverse incentives. To investigate this,

the author studies individuals who qualify for SSI as children, but who were

removed from the program at age 18 due to a failure to qualify under the adult

standards. Because of differences in how disability is defined for adults versus

children, approximately 40% of SSI children lose their benefits at this

juncture. Note that individuals who are removed at age 18 are likely to differ

systematically from those who successfully requalify for the program as

adults. Thus, a simple comparison between

these groups conflates the causal impact of being removed from SSI with the

effects of these underlying differences. To overcome this obstacle, the author

exploits a policy change enacted as part of welfare reform in 1996. Prior to that

point, SSI children rarely underwent a medical review at age 18, and even

those that did were allowed to continue on the program as adults as long as they

did not demonstrate any medical improvement. After 1996, however, all

children were required to undergo an age 18 review and only those satisfying the

stricter adult disability standard were allowed to continue on the program.

Crucially, these stricter requirements only applied to children with an 18th

birthday after August 22, 1996, the date on which welfare reform was enacted. This

figure illustrates the effect of this policy change. The x-axis shows the date

of the child's 18th birthday with the vertical line drawn at the August 22,

1996 cutoff. Each point represents the fraction of children with a birthday in

the corresponding week who received an age 18 review. For those who turned 18

before the cutoff, the probability of receiving a review was essentially zero.

On the other side, however, nearly 90% of children with an 18th birthday after the

cutoff did receive a review. Correspondingly, there is also a sharp

increase in the probability of being removed from SSI. Despite the fact that

these two groups are unlikely to differ systematically in any way except for the

fact that their birthdays happen to fall just on either side of this cutoff,

individuals to the right (call this the Treatment group) were 39 percentage

points more likely to receive an unfavorable review and be removed from

the program relative to individuals just on the left

(call this the Control group). This figure shows the probability of being enrolled

in SSI for individuals in the Treatment group relative to the Control. Prior to

turning 18, there is no measurable difference between the two groups, and

this persists up to two years after the child's 18th birthday due to

administrative lags. At that point, however, the gap in enrollment balloons

as Treatment individuals are kicked off the program. Over time, this gap gradually

shrinks as Control individuals subsequently leave the program for other

reasons. So what happens to these treated individuals? Does being removed from SSI

allow them to flourish in the long-term as they are freed from the program's

constraints? In short, the answer is no. This figure mirrors the previous one and

shows how income evolves for the Treatment group relative to the Control

group in the years following their 18th birthday. As expected, average SSI income

declines sharply as individuals are removed from the program, and the author

does find a compensating increase in employment earnings. This indicates that,

in response to losing their SSI benefits, individuals are, in fact, working more.

However, the magnitude of this increase is dwarfed by the loss in SSI benefits.

On average, individuals who are removed from the program are able to recover

just one third of their lost SSI income. On net, and after aggregating with all

other observable income, total income falls substantially as a result of being

removed from the program. To put this more concretely, the author finds that: on

average, individuals who lose their benefits increase their annual

employment earnings by $3,000. The average loss in SSI income, however, is

$7,800 and, overall, there is a decline in total

observed income of $5,700. Over the 16 years following

removal from the program, this amounts to a loss of $76,000 in

present discounted terms. Moreover, the author also finds that SSI

removal leads to a substantial increase in income volatility. This suggests that

SSI and other welfare programs increase the well-being of their recipients not

just by providing an additional source of income, but also by providing a stable

and guaranteed source of income that is not subject to unforeseen shocks such as

reductions in hours or job loss. So, in conclusion, this paper finds no evidence

that SSI holds recipients back from self-sufficiency, or that revoking their

benefits would lead to higher income in the long-run.

Instead, removal leads to a large decline in income and removes the insurance

provided by a stable income. In this context, it does not appear to be the

case that welfare inhibits success. As always, you can check out the full paper

along with its references to other related research. These include papers

studying the labor supply effects of other welfare programs including

disability insurance, Medicaid, and food stamps, as well as a literature on

earnings and household income volatility in the US.