The Role of Welfare in Family Income Inequality: 1968-2016

Area of Science:

• Socioeconomics
• Public Policy Analysis
• Social Welfare Research

Background:

• U.S. families with children have experienced rising income inequality over recent decades.
• This trend coincides with substantial reforms in federal welfare policy, particularly concerning benefit restructuring and redistribution.
• Changes in welfare policy may significantly impact income inequality dynamics.

Purpose of the Study:

• To investigate changes in income inequality and the redistributive effects of welfare income and in-kind benefits.
• To analyze how these changes varied across states with differing welfare policy approaches.
• To assess the impact of the 1996 welfare reform on income inequality reduction.

Main Methods:

• Utilized data from the 1968-2016 March Supplement to the Current Population Survey (N = 1,192,244 families with children).
• Merged survey data with historical Supplemental Poverty Measure data.
• Analyzed trends in income inequality and the redistributive effects of various welfare components.

Main Results:

• Cash income from welfare became less effective in reducing income inequality post-1996 reform.
• The share of income from cash welfare decreased and became less concentrated among needy families.
• Tax and in-kind benefits reduced inequality until the Great Recession; redistributive effects of welfare income declined universally.

Conclusions:

• The 1996 welfare reform diminished the role of cash welfare in mitigating income inequality.
• The findings support the 'race to the bottom' hypothesis, indicating a widespread decline in welfare's redistributive capacity.
• State-specific welfare policy approaches did not insulate against the observed reduction in redistributive effects.