The Decline of Welfare Benefits in the US: The Role of Wage Inequality

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Abstract
Welfare benefits in the US have experiences a much-studies secular decline since the mid-1970s We explore a new hypothesis for this decline related to the increase in wage inequality in the labor market and the decline of real wages at the bottom of the market and the decline of real wages at the bottom of the distribution: we posit that voters prefer benefits which are tied to low-skilled wages We test the hypothesis using a 1969-1992 panel of low-skilled wages We test the hypothesis using a 1969-1992 panel of state-level data An additional contribution of our analysis is the use of General Social Survey data on voter preferences for welfare which we combine with Current Population Survey data to determine the voter in each state who has the median preferred welfare benefit level Our analysis reveals considerable evidence in support of a role for declining real wages in the decline of welfare benefits
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