Issue Brief Four: The Distribution and Evolution of the Social Safety
Net and Social Insurance Benefits from 1990 to 2014
Today, the Office of Economic Policy at the Treasury
Department released the fourth in a series of briefs exploring the economic
security of American households. This brief focuses on the distribution of benefits from the social safety net and
social insurance programs and how that distribution has changed since 1990.
The social safety net is largely defined as those programs
that help protect individuals and households from negative economic
shocks. As a result, eligibility for the
social safety net programs is generally restricted to those whose incomes fall
below certain threshold amounts and whose assets do not exceed certain amounts. While there are many programs that aim to
protect individuals against negative economic shocks, in this brief, we focus
on the following programs: Supplemental Nutrition Assistance Program (SNAP),
Temporary Assistance for Needy Families (TANF), Medicaid, Supplemental Security
Income (SSI), and the Earned Income Tax Credit (EITC).
Social insurance provides individuals with protection
against economic risks, with benefits linked to certain triggers. Social insurance is provided to all
individuals regardless of their income or wealth, although the benefit amounts
may be tied to past work experience, income, or wealth. Social Security (retirement, survivor, and
disability), Medicare, and Unemployment Insurance are the most well-known
social insurance programs.
Over the past 25 years, there have been significant changes
in the provision and distribution of benefits from safety net and social
insurance programs. Some of these
changes have been designed to reduce the work disincentives inherent in many
programs, while other changes have expanded eligibility for benefits to
individuals above the very bottom end of the income distribution. The past 25 years have also seen important
changes in demographics and labor force participation patterns. Together, these changes have important
implications for which individuals and households are eligible to receive
benefits, the distribution of benefits by income, how much in benefits
households receive, and the labor force participation of eligible individuals.
During the period from 1990 to 2014, among non-elderly
households, the poorest households, households with children under the age of
18, and households with a disabled individual received the largest average
benefits from the social safety net and social insurance programs.
Elderly households and households with a disabled individual
have experienced relatively little change in the distribution of benefits since
1990, but non-elderly non-disabled households with children under the age of 18
have experienced large changes in the distribution of benefits. These changes reflect the fact that the
receipt of benefits for these households has become increasingly tied to their
ability to find employment. As a result,
non-disabled households with children just above the very bottom of the income
distribution – in the second, third, and fourth deciles – have seen the largest
growth in the average total benefits (see the figure below). While tying the receipt of benefits to
employment reduces the disincentive effects of these programs on willingness to
work, it may also reduce the ability of the safety net to respond to adverse
macroeconomic conditions. In particular,
during periods of elevated unemployment, the safety net may be less effective
in preventing individuals and households from falling into poverty. This limitation should be considered when
designing the discretionary policy response to future macroeconomic shocks.
While the social safety net and social insurance programs
have historically provided benefits to households with children and disabled
households, non-elderly non-disabled households without children under age 18 have
traditionally received few benefits. This
continues to be true such that, across the income distribution, non-disabled
households without children receive far less from the social safety net and
social insurance programs than any other group (see the figure below). As a result, in the event of a negative
income shock, there exists only a limited social safety net to prevent these
households from falling into poverty. One
reason that non-disabled households without children are less likely to receive
benefits as income increases is that fewer of the social safety net and social
insurance programs are available to households in this group. For example, the EITC provides material
benefits to households with children in the bottom third of the income
distribution, while the EITC provides very little benefit to non-disabled households
without children. Moreover, non-disabled
households without children have less access to cash welfare and SNAP.
Overall, though, the social safety and social insurance
programs provide critical support to vulnerable American households. Moreover, according to the most
comprehensive measures of poverty currently available, poverty in the United
States would be significantly higher in the absence of these programs. In addition, these programs have contributed
to a material reduction in the incidence of poverty since the late 1960s, when
many of the social safety net programs were created.
Karen Dynan is the Assistant Secretary of Economic Policy at the Department of the Treasury.