How Costly is Welfare Stigma? Separating Psychological Costs from Time Costs

Abstract

This paper empirically decomposes the costs of welfare participation using a model of labor supply and participation in multiple welfare programs. Prior estimates of the cost of welfare participation have not differentiated psychological costs, or stigma, from the effort required to become eligible and maintain eligibility (time costs). The relative size of these two costs has implications for policy. We find that psychological costs are at least as large as the time costs associated with participation in food assistance programs. In addition, we find that the incidence of psychological costs is inconsistent with these costs acting as an effective screening mechanism.

Keywords: Program Participation, Welfare Stigma, Labor Supply, Structural Estimation

JEL Classification: I3, J2