Poverty and Cash Transfers

Academics and activists who advocate a policy of large cash transfers to combat poverty should pay attention to what happens to individual lower-income people who suddenly receive large cash transfers; for example, NFL players (from the Freakonomics podcast):

 If you follow sports even a little bit, you’ve heard many, many stories about the former multi-million-dollar superstar who’s lost everything. In a recent academic paper, the researchers Kyle Carlson, Joshua Kim, Annamaria Lusardi, and Colin Camerer analyzed financial data from all NFL draftees from 1996 to 2003. The median career length of these players was six years – which, the authors note, “will provide an NFL player with more earnings than an average college graduate will get in an entire lifetime, plus a modest pension.” And yet, the researchers found, roughly one in six players went bankrupt within 12 years of retirement — a much higher bankruptcy rate than the average person, who’s also earning a lot less money.

Even more sobering: the risk of bankruptcy doesn’t decline even for athletes who make more money and have longer careers.

Smaller transfers (like Mike Bloomberg’s personally financed cash transfer program in NYC) produce effects on some outcomes, not on others:

Family Rewards transferred over $8,700, on average, to families during the three-year period. As of spring 2013, it had had some positive effects on some outcomes, but left other outcomes unchanged. For example, the program:

  • Reduced current poverty and material hardship, including hunger and some housing-related hardships, although those effects weakened after the cash transfers ended
  • Helped parents increase savings and reduce reliance on families and friends for cash loans
  • Did not improve school outcomes overall for elementary or middle school students, perhaps in part because, for these children, the program rewarded attendance (which was already high) and standardized test scores (rather than more immediate performance such as good report card grades)
  • Had few effects on school outcomes for high school students overall, but substantially increased graduation rates and other outcomes for students who entered high school as proficient readers
  • Did not increase families’ use of preventive medical care, which was already high, and had few effects on health outcomes
  • Substantially increased families’ receipt of preventive dental care
  • Increased the likelihood of self-reported full-time employment but did not increase employment in or earnings from jobs covered by the unemployment insurance system.

Some might argue that the effects of transfers on a cohort or community are more important than the effects on individuals, especially in evaluating the prospects for future transfer programs. The evidence here suggests perhaps more mixed prospects than the conditional cash transfer program evaluated through Opportunity NYC.  American Indian groups with income from casino gambling have increased labor outcomes and reduced mortality, but increased violent and property crime and bankruptcy.     Missouri Counties which switched earlier to EBT cards instead of checks that could be cashed had larger reductions in crime (Male winners of Section 8 vouchers, which are fungible with cash, are similarly much more likely to be arrested for violent crimes.) If you believe that single motherhood is an important mediator of large-scale changes in violent crime , note that increases in cash welfare definitely disincentivize marriage.

While SSI-Disability is certainly an imperfect analogy to a universal basic income or other cash transfer program, the rate of SSI receipt is perhaps the best predictor of a county’s white middle-aged mortality rate. And while it’s no surprise that adult recipients work less, it is also true that equally-disabled children whose households received more years of transfer payments before they reach 18 as a result of policy changes have worse labor market outcomes as adults.

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