Eduardo Porter had a fantastic article in the NYT last week about the myth that welfare programs make their recipients lazy and entitled. He highlights recent research from a team of MIT and Harvard economists which finds that cash transfer programs in low income countries don’t discourage people from working, and connects this to other studies which find the same result for American welfare programs. In particular, most of the ostensible success of the 1990s welfare reforms were attributable to the strong economy, and poverty increased again with the recessions of the 2000s. Meanwhile, pushing people off welfare probably led to worse outcomes for children who grew up in poverty.
If the evidence base for cash transfers in low income countries is so strong, should we expect to see the same effects in high income countries? My prior on this is that we should, and there seems to be an increasing amount of evidence supporting this position. Aside from the study that Porter mentions on the Mothers’ Pension Program, which took place in the early 20th century, I’ve found two relatively more recent studies that evaluate the use of cash transfers in North America. One looks at a town in Manitoba where poor residents were given basic income grants for four years in the late 1970s. People with no other sources of income were given grants up to 60% of the poverty line, and people with some outside income received smaller grants on a sliding scale (the precise value is not specified in the study). Evelyn Forget analyzed administrative data from the town some years later, and found that grant recipients experienced a range of benefits. They were less likely to be hospitalized for work-related injuries, car accidents, domestic abuse, or mental illness. Children’s test scores increased, even as their dropout rates decreased, and more adults went back for continuing education. While there was a small decrease in hours worked, this mostly came from mothers of young babies and teenagers, who are arguably investing in other types of human capital by raising children or staying in school.
The second study tracks a group of children in North Carolina who were members of the Eastern Band of Cherokee Indians, and whose families began receiving an extra US$4000 per capita each year after a casino was build on their land in the mid-1990s. Researchers found that the grants lowered rates of behavioral and economic problems among treated children, and improved their relationships with their parents. It also increased personality traits that are correlated with financial success later in life, like conscientiousness and agreeableness. (The researchers don’t discuss the grants’ impact on children’s incomes or educational achievement in this paper, although I assume they’ll do in future work if they have the data.)