Thursday, August 1, 2013

Having a parent on welfare CAUSES an increase in an adult child's likelihood of being on welfare

Strong intergenerational correlations in various types of welfare use have fueled a long standing debate over whether welfare dependency in one generation causes welfare dependency in the next generation. Some claim a culture has developed in which welfare use reinforces itself through the family, because parents on welfare provide information about the program to their children, reduce the stigma of participation, or invest differentially in child development. Others argue the determinants of poverty or poor health are correlated across generations, so that children's welfare participation is associated with, but not caused by, parental welfare use. However, there is little empirical evidence to sort out these claims. In this paper, we investigate the existence and importance of family welfare cultures in the context of Norway's disability insurance (DI) system. To overcome the challenge of correlated unobservables across generations, we take advantage of random assignment of judges to DI applicants whose cases are initially denied. Some appeal judges are systematically more lenient, which leads to random variation in the probability a parent will be allowed DI. Using this exogenous variation, we find strong evidence that welfare use in one generation causes welfare use in the next generation: when a parent is allowed DI, their adult child's participation over the next five years increases by 6 percentage points. This effect grows over time, rising to 12 percentage points after ten years. ...

Since our baseline sample consists of children who are age-eligible for DI (at least 18 years old), our estimates cannot be attributed to differential parental investments during childhood. Our results are also not driven by differential investments as young adults, since the intergenerational relationship remains strong even when we exclude children who live at home or focus on children who are least 25 years of age.
--Gordon Dahl, Andreas Kostol, and Magne Mogstad, "Family Welfare Cultures," on transmitting the culture of poverty. HT: Joachim Voth