Supplemental Security Income (SSI) for Low-Income Youth
Introduction
The US Supplemental Security Income (SSI) program is a federal social program that provides cash payments and Medicaid eligibility to low-income children, adults with disabilities, and the elderly. After three decades of expansion, SSI has become the largest nonwork-based cash welfare program in the United States, providing $50 billion each year to 8 million individuals, including 1.3 million children. Transfer amounts depend on assets and income. The federal maximum monthly transfer was $733 per month ($8,796 per year) in 2016, and most states provide a small supplement.
Deshpande (2016) computes the MVPF of transfers to youth with disabilities through SSI by taking advantage of a policy change under the Personal Responsibility and Work Opportunity Act (PRWORA, also known simply as “welfare reform”). PRWORA established stricter criteria for remaining in the program when recipient youth reach age 18. The stricter requirements applied to children with an 18th birthday after the date PRWORA was enacted (August 22, 1996), and the number of youth who remain in the program when turning 18 years old dropped sharply after the reform. The author uses this discontinuity to implement a regression discontinuity design (RD). Youth removed from the program increase their earnings modestly but experience a large drop in observed income levels. Removed youth only increase their annual earnings by $3,000 on average, recovering just one-third of the lost SSI income and leading to large reductions in observed lifetime income. The author finds no evidence that SSI holds most recipients back from self-sufficiency. The author also finds that because stable SSI payments are less volatile that earnings, SSI may increase the welfare of its recipients through income stabilization efforts.
Future work has expanded upon the analysis described here to incorporate the impact of this program on crime. For information on the MVPF of SSI income with crime impacts incorporated, see here.
MVPF = 0.9
Net Cost
To compute costs, the author considers the mechanical costs, the fiscal externality imposed on the government due to reduced earnings, and the fiscal externality from expenditures on other social programs. The author finds that the removal of SSI at age 18 decreases annual SSI benefits (the mechanical cost) by $7,900, increases earnings by $3,000 per year, and reduces disability insurance benefit expenditures by $600.
Assuming a tax rate of 10 percent, the fiscal externality of SSI from reduced earnings is $300 in tax revenue. For each dollar transferred, the government faces a negative fiscal externality of ($300+$600)/$7,900 = 0.11, which gives a total cost of $1+$0.11 = $1.11 for each dollar transferred.
Willingness to Pay
The baseline MVPF calculation assumes recipients value SSI like cash earnings and their WTP for each dollar transferred is a dollar. However, the author also argues that SSI transfers reduce income volatility among recipients. If recipients are risk averse and value the stability of SSI payments, the author estimates that a dollar of stable income through SSI is worth $1.15 in earnings.
MVPF Summary
In the baseline case where recipients value SSI like cash earnings (each dollar of SSI equals a dollar of earnings), the MVPF $1/ $1.11 = 0.9.
The author also considers a specification in which the recipients obtain an insurance value from the predictability of SSI income, which leads to a willingness to pay of $1.15 for every $1 of benefits. This in turn implies an MVPF of $1.01.
References
Deshpande, Manasi (2016). “Does Welfare Inhibit Success? The Long-Term Effects of Removing Low-Income Youth from the Disability Rolls.” American Economic Review, 106(11), 3300-3330. DOI: https://doi.org/10.1257/aer.20151129
Policy Features
- Category
- Social Insurance
- Sub-Category
- DI/SSI
- Beneficiary Type(s)
- Children and Youth
- Average Age
- 18
- Country of Implementation
- United States
- Year of Implementation
- 1996
- Empirical Method
- Regression Discontinuity
- Research Type
- Primary
- Peer Reviewed
- Yes
- MVPF Publication Link
- www.aeaweb.org/articles?id=10.1257/aer.20151129