The Value of Studying Public Assistance Use

Ari Fenn, Researcher
May 12, 2021

Studying public assistance use gives policymakers a better way to understand tradeoffs between differing priorities. Public assistance programs are designed to mitigate the harmful effects of poverty. These programs can take the form of conditional cash transfer and in-kind programs. In the United States, the main cash transfer program is Temporary Assistance for Needy Families (TANF), colloquially known as "welfare." This program is part federally and part state-funded and is administered at the state level.

This funding model results from the 1996 Federal Personal Responsibility and Work Opportunity Act (PRWORA), commonly referred to as "welfare reform." Additionally, this legislation introduced lifetime benefit limits and work or work training requirements for recipients of TANF. In-kind programs include Supplemental Nutrition Assistance Program (SNAP), commonly referred to as "food stamps," and Medicaid, which covers medical needs. While these programs are designed to help the neediest, the mix of federal and state funding puts these programs at odds with other state budget priorities.

The majority of quantitative research that addresses public assistance use at the individual level comes in three main varieties.

• Some studies aim to interpret incentives and behavior.
• Some studies focus on expanding the understanding of post-use well-being.
• Finally, some studies address the exit patterns of public assistance users. The focus of the majority of the research is on TANF use.

Incentives and behavior

Most economics research studies how income limits, benefit phase-out, and lifetime benefit limits create incentives for people to change their behavior marginally. For example, Agostinelli et al. (2020) recently analyzed publicly available data, such as from the Current Population Survey, and showed that behavioral disincentives result from "generous" policies. These studies are concerned with the labor supply effects of public assistance. These studies look at how potential recipients may alter work hours to collect public assistance and earn some income.

The underlying theory is that the potential recipients maximize their well-being and find themselves better-off with some "unearned income" from public assistance and additional leisure time. They compare this group of "unearned income" recipients to those with the same or slightly more income "earned" through work but less leisure time. Early studies exploited the effect of the Federal Personal Responsibility and Work Opportunity Act, while later studies used state-level differences in income limits and lifetime benefit limits to estimate labor supply effects.

Well-being

Research understanding what happens after public assistance use focuses on TANF recipients' well-being to determine what happens when they stop receiving transfers and if they are better off overall. These studies compare wages, employment, and consumption, and use of in-kind programs pre- and post-TANF use. Some of these studies rely on administrative data and combine earnings data with other public assistance programs such as SNAP or Medicaid; others rely on longitudinal surveys of recipients. For example, Meyer and Wu (2018) address this issue using five transfer programs and find different poverty-reducing effects depending on population and public assistance programs used.

Overall, these studies had found that past recipients of public assistance can be better off when post-tax transfers, such as Earned Income Tax Credit, are counted as part of their income. In this case, any savings to a state government are shifted to costs to the Federal Government. Additionally, these studies acknowledge that well-being is a broader concept than just income and consumption, as these may only tell part of the story of post-use well-being.

Exiting

There is limited literature on what contributes to the duration of public assistance use. These studies tend to test if the job training programs that count towards eligibility are associated with an exit from public assistance before lifetime benefits are exhausted. For example, London (2006) found that TANF recipients who graduate from community college are less likely to use public assistance five years after graduation.

Other studies evaluate if any recipients completed education while receiving benefits is associated with an earlier exit from public assistance. These studies combine public assistance, education, and training administrative data sets as this type of data can exploit the timing of education and public assistance exit. These studies' main findings show that completing post-secondary programs is associated with an earlier exit from the public assistance programs. Additionally, some research found a decreased return to public assistance programs if the initial exit occurred before the benefits were exhausted.

Conclusion

Researchers and policymakers interested in understanding public assistance and the nexus between costs and well-being have several paths to choose. If the main research goal is understanding how income and asset limits benefit phase-outs, then studying how lifetime benefits affect behavior is the most promising route. Understanding if there are gains or losses to well-being after public assistance use, then looking at studies that address post-use income and consumption should be most useful.

Otherwise, if the goal is to reduce the use of public assistance or potentially keep people from needing public assistance in the first place, policymakers should look to studies that address exit behavior. Policymakers could also look if investments in education and training have long-term labor market benefits.

Overall, understanding public assistance use presents researchers and policymakers the opportunity to address well-being and both short and long-term budget tradeoffs.

References

Agostinelli, F., Borghesan, E., & Sorrenti, G. (2020). Welfare, Workfare and Labor Supply: A Unified Ex Post and Ex Ante Evaluation (No. 2020-083).

London, R. A. (2006). The role of post-secondary education in welfare recipients' paths to self-sufficiency. The Journal of Higher Education, 77(3), 472-496.

Meyer, B. D., & Wu, D. (2018). The poverty reduction of social security and means-tested transfers. ILR Review, 71(5), 1106-1153.