Welfare may discourage crime more than it discourages work

In recent decades, developed countries have experienced substantial revisions to social assistance programs. In the United States, the Welfare Reform Act of 1996 reduced welfare programs and introduced barriers to enrollment, including work requirements and recertification. Austerity measures enacted in Europe during the Great Recession introduced similar cuts. Cuts to welfare programs have always been motivated by fears that such programs could discourage academic achievement and work – in fact, that they could make people lazy. Studies of the effect of welfare programs on work have yielded mixed results. In general, they find that welfare programs discourage work to some extent, although this often concerns people who would not earn much even in the absence of the programs (e.g. Maestas et al. 2013, Hoynes and Schanzenbach 2012, Garthwaite et al. 2014).

In a new paper (Deshpande and Mueller-Smith 2022), we study the effect of welfare programs on another type of “work”: criminal activity intended to generate income. Using a natural experiment created by the Welfare Reform Act of 1996, we find that removing young adults from the U.S. Supplemental Security Income (SSI) program increases criminal justice involvement, and in particular illicit activities intended to generate income. We estimate that removing a young adult from SSI increases the total number of criminal charges associated with revenue generation (theft, burglary, robbery, drug distribution, prostitution, and fraud) by 60% over the following two decades. This increase in criminal activity results in a 60% increase in the likelihood of being incarcerated in any given year over the same period.

Effects of Supplemental Security Income on Crime

We use a policy change created by the Personal Responsibility and Work Opportunity Act 1996, more commonly known as welfare reform. Among its many restrictions on social welfare programs, the law included a rule that children receiving SSI benefits for a disability had to be reassessed for SSI under the stricter rules for adults when they turned 18. Under the new rule, any child turning 18 after the law was enacted (August 22, 1996) had to be reassessed as an adult. Figure 1 illustrates the natural experiment that we exploit. Most children who turned 18 after August 22, 1996 were reassessed, and many were removed from SSI as adults. In contrast, almost all children who turned 18 before that date escaped the reassessment and were admitted to the adult program.

This rule therefore created an unlucky group of young adults just after the due date who, although not different in health or earning potential than individuals just before the due date, were much more likely to be removed from SSI at age 18. Since the only difference between young adults on either side of the cutoff is their likelihood of being screened and removed, we can compare adult outcomes between the two sides to measure the effect of being removed from SSI at age 18. We focus on two main outcomes: formal employment (also assessed in Deshpande 2016) and criminal justice involvement (new for Deshpande and Mueller-Smith 2022). To measure criminal charges and incarceration, we create the first-ever link between Social Security Administration data and criminal records using data from the Criminal Justice Administrative Records System.

We find that removing SSI at age 18 increases the number of criminal charges by 30%. The bottom panel of Figure 1 shows the large increase in the number of criminal charges at the cutoff date, meaning that young adults who received an exam and were removed from SSI had more criminal charges as a result. Importantly, the increase in charges is almost entirely concentrated in illicit activities that aim to generate revenue – i.e. theft, burglary, robbery, fraud, drug distribution and prostitution. For males, the effects focus on theft, burglary and drug distribution, while for females they focus on theft, fraud (e.g. identity theft) and prostitution. In contrast, there is very little increase in violent crime or other non-revenue-generating crime.

Figure 1 Removing SSIs Increases Criminal Justice Involvement

Remarks: The top figure represents the probability of receiving a medical examination at age 18 and the probability of receiving an unfavorable examination at age 18 (i.e. removed from SSI at age 18 years old). The bottom figure represents the total number of income-generating charges between the ages of 18 and 38. The sample consists of SSI children turning 18 within 18 months of the August 22, 1996 cut-off date who reside in a county covered by CJARS. See Deshpande and Mueller-Smith (2022) for more details.

This finding suggests that many of these young adults are attempting to replace lost SSI income with income from illicit activities. In fact, over the two decades following the removal of SSI, the effect of removing SSI on the likelihood of having a criminal charge associated with generating revenue is about twice as large as the effect of removing of the SSI on the probability of keeping a stable job. Moreover, the effects on criminal activity are very persistent: even as young adults approach the age of 40, the effect of being removed from SSI at age 18 continues to have an effect on the likelihood of facing a criminal charge. Much of the persistence can be explained by the Great Recession, which appears to have amplified the effects of SSI removal.

The increase in criminal charges resulting from the removal of SSI has real consequences both for young adults removed from SSI and for society. For young adults, the probability of incarceration in any given year increases from 5% to 8%, a 60% increase, due to the removal of SSI. There is substantial evidence that incarceration and having a criminal record have adverse consequences for future outcomes (Aizer and Doyle 2015, Mueller-Smith 2015, Mueller-Smith and Schnepel 2021, Agan et al. 2021, Augustine et al. 2021). In terms of the societal implications, we calculate that the costs of enforcement and incarceration nearly eliminate the savings to the government from lower spending on SSI benefits. Moreover, the cost to victims of increased criminal activity (Binder and Ketel 2022) is staggering: $85,600 per SSI removal, based on our calculations using conservative assumptions.

Implications for social policy

What do the effects of withdrawing young adults from SSI tell us about cash welfare effects more generally? Admittedly, young adults leaving the SSI constitute a specific population: they had handicaps in their childhood and come from poor families. But other factors suggest the findings may be generalizable to programs like the expanded child tax credit or a universal basic income. Like the programs on offer, SSI provides a large cash benefit to low-income households. The population of SSI recipients who are withdrawn from SSI is more similar to the general population than the average SSI recipient. Additionally, we find effects of removing SSIs on criminal justice involvement in every observable subgroup. Our results are consistent with other research suggesting that income affects participation in criminal justice (Akee 2008).

More generally, the results question the historical focus of social policy on work discouragement. We show that while the SSI does discourage formal employment among young adults, its much larger effect is to discourage criminal activity. For these young adults, maintaining stable employment in the formal labor market may not be possible, whether or not they receive SSI benefits. There may not be enough jobs to absorb them into the labor market, or they may have insufficient skills to compete for employment. Many instead turn to criminal activity to recover lost income after being removed from SSI, with staggering consequences for their own lives and for society as a whole.

References

Agan, A, J Doleac and A Harvey (2021), “Misdemeanor Prosecution”, Working Paper.

Aizer, A and JJ Doyle (2015), “Juvenile Incarceration, Human Capital, and Future Crime: Evidence from Randomly Assigned Judges”, The Quarterly Journal of Economics 130(2): 759–803 (see also Vox column here).

Akee, R (2008), ‘Parents’ incomes and children’s outcomes’, Vox Talk, 3 October.

Augustine, E, J Lacoe, S Raphael and A Skog (2021), “The Impact of Felony Diversion in San Francisco”, Working Paper.

Bindler, A and N Ketel (2022), “The Profound Consequences of Becoming a Victim of Crime”, VoxEU.org, 6 February.

Deshpande, M (2016), “Does well-being inhibit success? The long-term effects of removing low-income youth from disability rolls, American Economic Review 106(11): 3300–3330.

Deshpande, M and M Mueller-Smith (2022), “Does well-being prevent crime? Criminal Justice Outcomes of Youth Removed from SSI,” The Quarterly Journal of Economics.

Garthwaite, C, T Gross and MJ Notowidigdo (2014), “Public Health Insurance, Labor Supply, and Employment Lock”, Economics Quarterly Review 129(2): 653–696.

Hoynes, HW and DW Schanzenbach (2012), “Work Incentives and the Food Stamp Program”, Journal of Public Economics 96(1): 151–162.

Maestas, N, K Mullen and A Strand (2013), “Does the Disability Insurance Receipt Discourage Work? Using Examiner Assignment to Estimate Causal Effects of SSDI Reception”, American Economic Review 103(5): 1797–1829.

Mueller-Smith, M (2015), “The Criminal and Labor Market Impacts of Incarceration”, working paper.

Mueller-Smith, M and K Schnepel (2021), “Diversion in the criminal justice system”, Review of economic studies 88(2): 883–936.

Maria D. Ervin