The Influence of Inequality on Welfare Generosity

• Published date: 01 March 2017
• Date: 01 March 2017
• Author: Thomas J. Hayes,Lyle Scruggs
• DOI: 10.1177/0032329216683165
• Subject Matter: Articles

Politics & Society

2017, Vol. 45(1) 35 –66

© 2017 SAGE Publications

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DOI: 10.1177/0032329216683165

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Article

The Influence of Inequality

on Welfare Generosity:

Evidence from the US States

Lyle Scruggs and Thomas J. Hayes

University of Connecticut, Storrs

Abstract

This article examines the relationship between income concentration and policy

outputs that determine the generosity of two major state-level safety net programs:

unemployment insurance and cash social assistance. Using a difference in differences

framework, it tests the degree to which the top 1 percent share is associated with

benefit replacement rates for these programs during the period 1978–2010. The

results suggest that higher state income inequality lowers those states’ welfare

benefits significantly in ways consistent with a “plutocracy” hypothesis that has been

suggested in work by scholars such as Bartels, Bonica, Gilens, and Page. The results

are robust to controls for several alternative explanations for benefit generosity,

including citizen ideology, party control of government, fiscal pressure on programs,

state racial heterogeneity, and public opinion liberalism. The results thus support

the notion that growing income concentration at the very top undermines social

protection policies.

Keywords

economic inequality, welfare generosity, plutocracy, top 1 percent, social assistance,

unemployment insurance

Corresponding Author:

Thomas J. Hayes, University of Connecticut, 365 Fairfield Way, U-1024, Storrs CT 06269-1024, USA.

Email: thomas.hayes@uconn.edu

683165PASXXX10.1177/0032329216683165Politics & SocietyScruggs and Hayes

research-article2017

36 Politics & Society 45(1)

The second half of the twentieth century has witnessed the greatest expansion of eco-

nomic prosperity in Western history.1 Yet recently the benefits of this economic expan-

sion have been uneven. Since the late 1970s, economic inequality has increased

dramatically in the United States and other western democracies, becoming particu-

larly more concentrated at the top.2 While scholarship has documented this in the

United States for some time, scholars have more recently begun to examine the ways

in which economic inequality might influence public policy.

One growing body of research has shown that the government tends to be much

more responsive to the interests of very wealthy.3 Some suggest the average citizen

has almost no meaningful influence over the political system, which is instead domi-

nated by economic elites. An implication of these studies is that greater income

concentration shapes policy outputs in ways that are more and more favorable to the

preferences of the rich. How much and how is an outstanding question, as Gilens and

Page point out in their recent paper: “[We] need to learn more about exactly which

economic elites (the ‘merely affluent’? the top 1 percent? the top one-tenth of 1

percent?) have how much impact upon public policy, and to what ends they wield

their influence.”4

Standard models of policymaking under majority rule predict that the median voter

serves as a major check on inequality via redistributive policies.5 According to this

type of model, as inequality increases, the average voter becomes more favorable to

redistribution from the rich, pushing democratically responsive leaders to adopt more

redistributive economic policies. We examine these contrasting predictions by exam-

ining how rising inequality influences the social safety net in the United States.

Such an examination is important. Since the start of Roosevelt’s New Deal, and

especially since Johnson’s Great Society, the social safety net in the United States has

contributed significantly to poverty reduction.6 Social Security and Medicare, for

example, have contributed considerably to reducing poverty rates among the elderly.

In the US federal system, however, states play a large role in addressing poverty and

social policy for the non-elderly. Three of the ways in which state policies play a big

role in assisting the non-elderly who struggle economically are through unemploy-

ment insurance, cash and food assistance (TANF and SNAP, respectively), and

Medicaid. These programs have historically been important in reducing the financial

hardship of the poor and middle class, making state policies central to overall efforts

to address poverty during decades of increasing inequality.

State social policy also provides an opportunity to examine the degree to which the

income concentration influences public policy. It can do so for at least three reasons.

First, new state-level data permit us to track variations in income concentration across

the states over a long period. This provides a large number of cases to examine the

effect of growing inequality on the social safety net, much more than are available in

national level time series. A second important reason to focus on the states as an

important laboratory for study is that US federalism provides much policy autonomy

to political units that have in common many features that cross-national research sug-

gests play an important role in affecting social policy, and the responsiveness of social

policy to rising income inequality.7 The states generally account for about a quarter of

Scruggs and Hayes 37

total public spending on welfare and are integral to spending on all means-tested and

many social insurance programs.8 This has been true since the New Deal, and perhaps

even more true following the passage of the Personal Responsibility and Work

Opportunities Act in 1996.9

Gilens’s research provides a third reason to look at the states.10 His research shows

that the policy views of the wealthy are overrepresented in Washington; but it is less

clear what his results imply about how these findings are affected by increasing

inequality. Is unequal representation sensitive to the amount of economic inequality as

is often inferred, or is it largely unaffected by the growth of income concentration? Is

this unequal representation mainly a feature of national level politics, and thus reme-

died by decentralizing political power; or can we see it at work at the subnational

policy level? His work also suggests that the rich are least overrepresented in matters

of social policy. However, Gilens mainly investigated national program reform pro-

posals from which even the quite well off benefit considerably (Social Security and

Medicare), and not more redistributive policies. State unemployment insurance and

social assistance policies provide some important insights on these questions.

To determine whether the political power of increasingly concentrated wealth pro-

duces welfare state retrenchment and reinforces a “plutocratic” model of American

government, we utilize a unique data set on income shares going to top earners and

new measures of two key aspects of state social policies—unemployment and social

welfare benefit replacement rates. Our results are overwhelmingly consistent with a

“plutocracy hypothesis,” rather than the more middle-voter-centered characterization

of political representation that underlies many democratic politics models. Our use

of “middle” is intentional, since our results do not hinge on the redistributive position

of the critical actor being exactly in the center. The fact is that even a quite “elitist”

notion of a median voter (i.e., much better off than the median) is much closer to the

bottom than to the top of the income distribution compared to a decade or two ago. We

show that it is variation in the economic power of the rich, not merely the better off,

that is important for policy retrenchment.

State Level Inequality and Welfare Policy

The effects of economic inequality on American democracy at the national level have

drawn considerable attention in the last decade,11 but research increasingly examines

its effect among the states.12 State level inequality is an interesting area of focus

because citizens may have greater awareness of the effects of more localized inequal-

ity than that at the national level.13 Although some studies have found that cutting

social spending is correlated with increasingly inequality, those studies do not exam-

ine the alternative association that we do here: that increasing income concentration

produces programmatic welfare policy retrenchments.

Figure 1 shows that income concentrations at the very top of the income distribu-

tion in 1980 and in 2010 in each of the fifty states. All states lie above a line of equal-

ity; that is, inequality rose in all states in this thirty-year period. However, there is

considerable variation across states in amount of change. Income concentrations in