Handing Money to the Poor Is Never Enough: The Impact of Marginalization-Related Diminished Returns

Recent US studies such as Baby's First Years have again demonstrated that unconditional cash transfers and guaranteed income do not lead to significant improvements in the health, economic status, and well-being of individuals living in poverty. In this perspective article we review the emerging literature on this topic and offer explanations for the observed outcomes. We then apply the theory and empirical evidence on marginalization-related diminished returns (MDRs) also called minorities diminished returns (MDRs) to elucidate the weak or null effects of cash transfers in the lives of marginalized populations. According to the MDR theory, marginalization not only reduces access to resources but also reduces their utility. Individuals who experience long-term poverty and marginalization exhibit smaller than expected benefits from new resources, such as cash, in adulthood. This is due to the deeply entrenched structural barriers and systemic discrimination that persist throughout their lives. The existing literature suggests that socioeconomic changes in adulthood have limited impact on the health and well-being of populations that have been raised in poverty. This is because the advantages of increased socioeconomic status (SES) are often undermined by ongoing marginalization and limited access to supportive resources and opportunities. As a result, simply providing cash transfers is insufficient to create substantial and lasting improvements in the lives of those living in poverty. To address these challenges, we recommend a multifaceted approach that includes childhood poverty prevention, interventions aimed at reducing marginalization, and comprehensive multi-sector strategies. By focusing on early intervention and addressing the root causes of poverty and marginalization, we can create more effective and sustainable solutions to improve health and well-being among disadvantaged populations. This holistic approach recognizes the complexity of poverty and the necessity of addressing both immediate needs and long-term structural barriers to achieve meaningful change.