Does parents’ depending on welfare create welfare dependency in their children? It’s an important question, but there is very little evidence out there on it. A new paper by Gordon Dahl, Andreas Kostol, and Magne Mogstad looks at the important of “family welfare cultures,” examining whether or not the consumption of welfare by the parents actually increases the participation of children in welfare programs. The authors use data from the Norwegian disability-insurance system. And there does seem to be a causal relationship between one generation’s getting welfare and the next’s getting it too (holding equal other circumstances — they looked at people who had their cases heard by judges with varying degrees of leniency). Here is a good summary:
Their findings indicate that if parents become welfare dependents, the likelihood of their children eventually becoming welfare recipients also increases. Specifically, when parents are awarded DI, the likelihood that one of their adult children will participate in DI rises by 5 percentage points over the next five years, and 11 percentage points over the next decade. These findings suggest that a more stringent screening policy for DI benefits would not only reduce payouts to current applicants, but would also have long-run effects on participation rates and program costs. The results underscore how important accounting for intergenerational effects can be when making projections of how participation rates and program costs may be affected by program reforms.
(The whole paper is here.)
If other evidence supports the same conclusion, it’s an important lesson for us in the U.S. In recent years, there have been a lot of articles and stories about the Social Security Disability Insurance program and the increase in enrollees and benefits. According to the latest Trustees’ Report data, SSDI’s trust fund will be insolvent by 2016, leaving no doubt about the fact that the program is highly dysfunctional and isn’t financially sound.
Moreover, a report by Senator Tom Coburn on benefit decisions showed that the program’s process for determining who is disabled or not is so bad as many as 25 percent of the decisions could be wrongly decided. Given the above article, these mistakes may not only increase the number of people on the rolls today, but also the number of people on them tomorrow.