The Cross-Cohort Distribution of Government Non-Retirement Transfers and its Impact on Working and Earning

Abstract

Gokhale examines whether federal non-retirement transfers in the US, such as unemployment insurance, education and training subsidies and child-care benefits, exert mainly “defensive”, “offensive”, or “regressive” economic effects on recipients; that is, whether they aim at supporting the needy and those experiencing bad economic outcomes (“defensive”), at improving the functioning of the economy and markets (“offensive”), or rather end up worsening future economic outcomes for recipients (“regressive”). For this purpose Gokhale constructs a dataset of cohort averages of earnings, labour-force participation, demographic characteristics and receipts of federal non-retirement transfers, spanning the years 1988-2001. The analysis bears on the ongoing debate on Social Security: if such transfers, which have more than doubled since the early Sixties from 1.9 to 4.2 per cent of GDP, fulfilled a significant offensive role, then Social Security surpluses could constitute an effective storage technology, expanding economic output and the future tax base to meet the government’s future Social Security obligations. However, the results provide little support to the idea that federal non retirement transfers improve the functioning of labour markets and of the economy. The transfers appear to play a predominantly defensives role.