The Social Safety Net Paradox: How Policy Interventions Widen Racial Wealth Inequality

• In Event: Inequality, Poverty, and Mobility Section Roundtables
  In Refereed Roundtable (60 minute): 9. Wealth Inequality

Abstract

Racial disparities in wealth remain large and persistent in the United States. Existing research has primarily focused on income and poverty, with less attention given to how social policy affects wealth. This paper examines whether variation in state safety-net generosity produces statistically significant returns to household wealth. I link longitudinal household wealth data from the Panel Study of Income Dynamics (PSID) to the Brookings Institution’s State Safety Net Database, which provides simulated measures of annual state generosity in cash and food benefits. Restricting the population to households that were ever eligible for these benefits, based on a household’s reported annual income, I then use a reduced-form instrumental variables model to estimate the relationship between safety-net generosity and wealth, and estimate whether there are heterogeneous treatment effects for Black and White households.

This study finds two main patterns. First, greater safety-net generosity (ITT) is positively associated with wealth and statistically significant in all models for households that are eligible. Secondly, Black and White households saw differential returns to wealth. Though these differences in coefficients were not consistently statistically significant, many cases were marginally statistically significant, and the magnitude of the estimated difference is alarming. This research highlights the persistence of racial inequality in race-neutral policy interventions through potential heterogeneous treatment effects across racial populations. As a result, though expansions in welfare-state policies produce wealth returns for households, they may contribute to the widening of American racial wealth disparities.

Author

• Kristen Ukeomah, Brown University