The Influence of Inequality on Welfare Generosity

State Level Inequality and Welfare Policy

The effects of economic inequality on American democracy at the national level have drawn considerable attention in the last decade, ¹¹ but research increasingly examines its effect among the states. ¹² State level inequality is an interesting area of focus because citizens may have greater awareness of the effects of more localized inequality than that at the national level. ¹³ Although some studies have found that cutting social spending is correlated with increasingly inequality, those studies do not examine the alternative association that we do here: that increasing income concentration produces programmatic welfare policy retrenchments.

Figure 1 shows that income concentrations at the very top of the income distribution in 1980 and in 2010 in each of the fifty states. All states lie above a line of equality; that is, inequality rose in all states in this thirty-year period. However, there is considerable variation across states in amount of change. Income concentrations in Hawaii, Iowa, Delaware, or Oklahoma are not much higher, whereas those in Wyoming, Connecticut, and New York are.

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Figure 1.

Top 1 Percent Share of Total State Income in 1980 and 2010.

For example, in 1976 in Connecticut the top 1 percent earned a bit less than 10 percent of total state income; by 2010, the top 1 percent earned over 31 percent. In neighboring Rhode Island, the respective shares were 9 percent and 16 percent. In California, the top 1 percent earned about 9 percent of state income in 1976 and about 32 percent in 2010. In neighboring Oregon, the top 1 percent share started at a similar level (8 percent), but increased much less over the ensuing period, to 15 percent. We see similar variations around the country, both across and within all regions.

It is in this context that we investigate the extent to which this rising state level income concentration influences state social welfare programs. Past research has examined whether unequal turnout among social classes influences social policy outputs; we examine whether income concentration affects policies with disproportionate impact on those with modest or low incomes. ¹⁵ Also, unlike previous research, we look not at aggregate distributional outcomes—which are only partially determined by changing social policies themselves—but at indicators that more closely reflect aspects of policies over which legislators and executives have more direct control.

Studies of the unequal political influence of the wealthy have long been a focus of scholarship. ¹⁶ Less well researched are the social policy outputs across political jurisdictions, and positive policy feedback—inequality begetting more inequality—as some “oligarchic theories” of American democracy suggest.

The underlying theory leading to expectations that social transfers will be higher as inequality increases under democratic representation is commonly attributed to Meltzer and Richard. ¹⁷ They suggest that as relative incomes at the top grow faster than those in the middle, the median voter will become more supportive of redistribution. Meltzer and Richard simply assume that the median voter is decisive. Existing oligarchic theories—which are more correctly called “plutocratic” insofar as they suggest rule specifically by or in the interests of the wealthy—do not contest the internal consistency of the median-voter logic. They instead question the assumption of broadly democratic selection and representation under conditions of very high economic inequality. In other words, rather than ask what happens in a representative democracy when income changes, they ask what happens to representative democracy when inequality increases. Median voter models essentially suggest that inequality, given majoritarian democracy, will tend to produce negative feedback (via voting and then transfers); the oligarchy/plutocracy argument questions whether majoritarian democracy really exists in certain contexts (like high inequality). It further suggests (though this seldom explicit) that high and growing inequality leads to positive feedback: rising inequality produces policies that further exacerbate inequality, and deviate further from democratic representation. ¹⁸

Comparative political economists often talk of the “Robin Hood paradox,” the idea that among rich, de jure democracies, more market inequality is associated with less, not more, redistribution. The paradox is sometimes taken as a refutation of the Metzler-Richard model. In fact, it is only paradoxical if one’s starting assumption is a median voter model and no systematic constraints on its operation. Relaxing the equation of democratic selection processes (such as elections with universal suffrage, unregulated press and assembly rights) and representation processes (equal representation or “fair” aggregation of interests in public policy) can also “explain” the paradox. ¹⁹

Acemoglu et al. ²⁰ refer to certain violations of the conventional democratic linkage (i.e., that free and fair elections produce equal representation of individual interests in public policymaking) as “elite capture,” and also refer to a variety of ways in which institutional conditions subvert the assumed democratic linkage between choice of leaders and choice of policy. Another mechanism undermining redistribution is social affinity. Lupu and Pontusson ²¹ argue that the social affinity of the middle class for the rich (and against the poor) is important to explain why the middle class does not support redistribution from the rich. They show that middle earners are more likely to side with lower earners where the earnings gap between the middle and rich is high relative to the earnings gap between rich and poor. Iversen and Soskice ²² reconcile the Robin Hood paradox via differences in electoral institutions that cause larger commitment problems between voters in the middle and those on the left. ²³

All of these arguments predict increasing democratic pressures for redistribution in the United States, given the changing structure of inequality over the last thirty years. Based on median voter, social affinity, or even with an electoral institution bias, we should see more economic redistribution over time nationally if democratic representation holds. Meltzer and Richard mechanisms have been explained already. Lupu and Pontusson’s argument predicts that the middle class will be more likely to side with the poor as their incomes converge. Finally, Iversen and Soskice’s argument also implies that the probability of a redistributive alliance between the middle and lower income groups grow over time (given fixed electoral rules) as either middle and lower income groups converge, or middle and wealthy groups diverge. (Both are now decades-long trends.) On the other hand, a pronounced shift away from democratic representation plausibly generates retrenchment in both middle class and poverty programs.

In the United States, the structure of relative inequality has, in fact, moved decisively during the last thirty or forty years. The “typical” household (around the median income) was previously closer to the top than to the bottom, but is now closer to the bottom than to the top. This is displayed clearly in Figure 2 using data from the Congressional Budget Office. ²⁴ Between the late 1970s and late 1980s, median household income was around 3.4 times the average income in the bottom quintile. Median income fell considerably in the 1990s, and then again after 2004. In 2011, it was at the lowest point recorded. Meanwhile the average income in the top quintile was about 2.3 times the median through the early 1980s. By the late 2000s (i.e., even before the Great Recession), the average income in the top quintile was about 3.5 times the median. We see the same pattern in after-tax data, so this shift is not compensated by (real) shifts in federal tax burdens toward higher incomes. ²⁵ We see a similar, but subtler, trend if we compare the median to the average in the neighboring second and fourth quintiles. The ratio of the median to second has remained about the same, while it has become slightly more distant from the fourth quintile.

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Figure 2.

“Social Distance” between Income Strata: Upper and Lower Relative Income Gap, 1979–2011.

The CBO information extends only to 2011, but Saez’s research suggests that the gap between the very top and the middle probably worsened through at least 2014. ²⁶ He estimates that between 1993 and 2014, the top 1 percent reaped 58 percent of all income growth in the country. Moreover, the remaining 42 percent of income growth accrued almost entirely to the next highest 4 percent of earners. Growth in centiles 6–10 was stagnant, and the bottom 90 percent probably lost ground: median household income was flat; real average income fell 6 percent in that period. The upshot is that during the last four decades, middle earners have converged toward lower income groups, and away from higher incomes groups.

Plutocracy in America?

In this section we lay out an argument for how growing inequality at the very top, under conditions of plutocracy, can generate social policy retrenchment. We do not argue that it is logically impossible for a middle income voter to prefer retrenchment under these conditions, or that plutocracy implies that the non-rich have no political influence; but we do hope to show that, echoing Gilens and others, ²⁷ a marked decline in the representativeness of democracy might plausibly produce retrenchment, and is a more consistent and plausible story than one that has middle-income voters independently deciding to abandon redistribution because they are falling further and further behind.

First, not only have the wealthy long been more likely to participate in politics and exercise significant political power relative to their numbers, ²⁸ but they have become, increasingly likely to be active in important political activities in the United States. Bonica et al. ²⁹ show, for example, that donations by the top .01 percent of earners account for over 40 percent of all campaign contributions in 2012 (up from about 20 percent in the 1980s). ³⁰ Of course, not all of this is directed specifically at reducing welfare benefits, or directly furthering economic interests of the very rich; but even rich, liberal donors (who compose an increasingly important part of the Democratic Party constituency) are typically not noted for championing income transfers to the poor and middle class. Income concentration drives donations by rich Republicans more than by rich Democrats; and corresponds to a sizable, conservative shift in the voting records of Republican lawmakers since the mid-1970s that is not matched by cycles in public mood. ³¹

Second, the ideological leanings of the rich tend to be more anti-welfare than the middle class and poor, even when all groups are skeptical of welfare programs. ³² Bonica, Rosenthal, and Rothman ³³ found a very close correlation between income and partisanship among American physicians, a generally high earning group. Page, Bartels, and Seawright ³⁴ find the very wealthy have a much more conservative ideological outlook on taxation, regulation, and, most especially, social welfare. Kuo and McCarty ³⁵ find that Democratic donors were more likely to support cuts in social spending (such as the Simpson Bowles plan) than non-donor Republicans. Gilens ³⁶ draws on a wide variety of policy issues from taxes to foreign policy and finds large opinion differences between income groups. Scholzman, Brady, and Verba ³⁷ also show that higher SES is associated with less support for issues like expanding access to health insurance. Studies in social psychology also suggest that increasing relative economic well-being is associated with less prosocial behavior, ³⁸ increased narcissism and entitlement, ³⁹ and lower empathy. ⁴⁰ Thus, not simply pocketbook but also psychological motivations might make the wealthy more likely to support welfare retrenchment.

Nationally representative surveys support such findings, most specifically related to government spending on programs meant to provide benefits to those struggling economically. Figure 3 shows information from two national opinion polls that demonstrate that rich and poor generally disagree sharply on welfare policies. The opinion item on welfare is from the General Social Survey (GSS) cumulative file (1972–2008) while the items for unemployment benefit spending and government spending are from the 2006 International Social Survey Programme (ISSP) survey on the role of government. Each question was recoded to the dichotomous “support” or “oppose” (exact question wording can be found in Appendix A). The figure displays net opposition (oppose minus support) by income group for spending in each area so that positive values in the figure indicate majority opposition while negative values indicate majority support. ⁴¹ The figure shows increasing opposition to spending on each safety net program as individual incomes increase. While welfare and government spending in general may be unpopular, they are more unpopular as household income increases. Notably, there is net support for unemployment benefits for all but the highest income group.

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Figure 3.

Net Opposition to Social Safety Net Spending by Income Group.

One objection to the results in Figure 3 and many national surveys is that they do not really differentiate the wealthy from the upper middle class. A typical top household income category ($150,000) includes more than 10 percent of households today. The top 1 percent starts at over $400,000. ⁴² Two surveys (in 2010 and 2014) conducted by the ABC/Washington Post provide a top income category of $250,000. Each contains a question about support for extending the duration unemployment benefits in the wake of the Great Recession. ⁴³ Figure 4 shows that opposition to benefit extension increased noticeably at very high incomes. Unsurprisingly, net opposition is higher among Republicans on this issue, but rises among high income Democrats in 2010 and 2014.

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Figure 4.

Opposition to Unemployment Benefit Extension by Income Level and Political Party Identification, 2010 and 2014.

The final element of our argument is that policymakers (in America at least) overweight the interests of higher economic strata. In other words, not only do interests and psychology of greater wealth appear to reduce support for social welfare programs going to the middle and lower ends of the distribution, but the wealthy carry considerably more weight with elected politicians. This result is due, among other things, to dependence on individual financing to run for office. Gilens and Bartels both show convincingly that the rich are much more likely to see their preferences represented in policy decisions. ⁴⁵ Rigby and Wright also conclude that economic policy outcomes are more responsive to the preferences of the rich than the poor in the states. ⁴⁶ Gilens concludes that the representational biases are so stark that they “call into question the very democratic character of our society.” ⁴⁷ Barber finds that politician’s votes in the US Senate are much more closely correlated with the ideological preferences of (rich) donors than with those of the voters. ⁴⁸ Gilens and Page clearly expresses a disconnect between America’s electoral and representative democracy:

Americans do enjoy many features central to democratic governance, such as regular elections, freedom of speech and association, and a widespread (if still contested) franchise. But we believe that if policymaking is dominated by powerful business organizations and a small number of affluent Americans, then America’s claims to being a democratic society are seriously threatened. ⁴⁹

To paraphrase Schattschneider, increasing inequality appears to be increasing the historically upper class accent of American politics. ⁵⁰

But how does this shift in influence result in cuts to social welfare and unemployment insurance? Increasing income concentration mobilizes more wealthy individuals—the rich themselves—who have increasing relative power over the electoral fates of politicians and the ear of politicians in office. Holding total income fixed, an increase in income concentration shifts resources away from middle class or poor voters who are (empirically) much more likely to support strong unemployment or welfare protection presumably out of both self-interest and “fellow feeling” for the plight of the poor and middle class, to individuals who tend to be less empathetic in general, have less economic interest in supporting such policies, and accrue to people (the poor and middle class) to whom they are increasingly socially disconnected. Given the existing evidence that relative poverty tends to reduce participation among the poor, rising inequality shifts the political agenda in the direction of less social protection, while reducing the participation of those most likely to vote for more social protection. After the election, growing inequality further favors the interests of those with concentrated income. The evidence suggests that this class skew exists for partisans of both major political parties, even though supporters of one party (Republicans) tend to be more anti-welfare independent of their income. ⁵¹

Hypotheses

As the earlier reference to Schattschneider makes clear, the idea of class bias in representation in America has historic roots. But Schattschneider’s era was one of declining inequality. The contemporary question is: what are the implications of rising inequality? We hypothesize that it will tend to produce social welfare retrenchment: the percentage of income going to the top 1 percent leads states to reduce the generosity of welfare and unemployment benefits. We label this the plutocracy hypothesis. As inequality rises, the interests of the rich become (more) separated from those of the non-rich. But it is also the case that increasing inequality depresses participation by and representation of the poor and middle class. ⁵² More than one study finds this specifically for turnout and preference representation in US state elections. ⁵³ Depressed participation at the bottom implies that the median voter may actually get richer as social inequality rises, thus blocking the negative feedback effects assumed in the full turnout Metzler-Richard model. Some research implies that this scenario is more likely in the US case, because the party system has no viable political parties on the far left (or right), and that it may shift the terms of the policy competition to differences among those with higher incomes. If we add that electoral competition in the US is particularly dependent on fund raising from large, wealthy donors, more concentration of income at the very top makes candidates for office (from both parties) more beholden to economic preferences of the (increasingly) wealthy.

The alternative, the democracy hypothesis, predicts that states will increase welfare or unemployment insurance programs as the concentration of income increases at the top. The precise mechanism underlying the democracy hypothesis is not specified, but, as we discussed, several different theoretical mechanisms point toward expanding social protection in recent decades given functioning representative institutions.

Data and Methods

Our data set encompasses annual information on individual US states from 1978 to 2010. All variables used in the analyses are described and summarized in Appendix B, Tables B1 and B2. Looking at variation within US states allows us to control for confounding factors that frequently confound estimates of the effects of inequality on redistribution and welfare state policy outputs in cross-national research. Inequality is high in the United States by the standards of most rich countries, but there is also considerable variation among the states. Unemployment and social assistance benefits also vary considerably, though not as much as they do internationally.

Dependent Variables

The main dependent variables are posttax benefit replacement rates for a notional individual. ⁵⁴ The replacement rate is the ratio of (after tax) benefit to (after tax) average wage in each state. An advantage of using program replacement rates over spending levels is that the latter track the joint outcome of both policy rules and demand. They are less subject to the control of policymakers (e.g., because macroeconomic shocks may increase or lower demand for benefit). Program replacement rates are widely thought to function as a superior gauge of policymakers’ intentions. ⁵⁵

Unemployment Insurance Replacement Rate (UIRR). We calculate this rate based on the benefit due to a qualified single individual earning the average wage net of federal and state taxes. ⁵⁶

U I R R = n e t u n e m p l o y m e n t i n s u r a n c e b e n e f i t s t a t e − y e a r % n e t a v e r a g e w a g e s t a t e − y e a r

State unemployment insurance (UI) provides weekly benefits to the qualified unemployed. Information used to compute the benefit comes primarily from tables published by the Department of Labor’s Employment and Training Administration, entitled “Significant Provisions of State Unemployment Insurance Laws.” ⁵⁷ We compute a weekly benefit for a single worker in each state earning the monthly average covered wage in the state during the two years preceding unemployment. Average wage in each state is taken from the Employment and Training Administration’s Unemployment Insurance Financial Data Handbook. ⁵⁸ State and federal taxes and employee FICA (Social Security and Medicare) contributions are computed on tax rules for each state (starting in 1977) from TaxSim 9.0. ⁵⁹ Benefits are usually payable for up twenty-six weeks, so we double the benefits to facilitate the tax computations. Net unemployment benefit replacement rates vary considerably, from a low of 28 percent of the state’s average wage (Alaska 1980 and Indiana 1991) to over 80 percent (Oregon mid 1980s). The overall distribution of replacement rates in the data set is single-peaked, and slightly left skewed. Nationally, the percentage of the labor force covered by UI is very high (over 90 percent of civilian employment). There is some variation in coverage across states, but these differences are relatively small, as coverage conditions are largely determined at the national level. There is considerably more variation in the recipiency rate (beneficiaries/total unemployed). Recipiency varies less within states than across them over long periods. ⁶⁰

Social Assistance benefit replacement rate (SARR). We combine benefits from Temporary Aid for Needy Families (TANF), formerly Aid to Families with Dependent Children (AFDC), and benefit entitlements from the Supplemental Nutritional Assistance Program (SNAP), formerly Food Stamps, to compute a social assistance benefit for a family of three—for example, single mother and two children—with no other income. We combine AFDC/TANF and SNAP because recipients of AFDC/SNAP are almost always automatically qualified for SNAP. Furthermore, Moffitt, Ribar, and Wilhelm used AFDC/TANF plus SNAP since the former rates are set based on known information about national SNAP benefits. ⁶¹

As with UIRR, the state’s average net-of-tax wage is the denominator. We assess taxes on benefits and wages as if the recipient household has one adult and two children, and receives only benefits (or wages) for the entire year. ⁶²

S A R R = ( S N A P + T A N F b e n e f i t ) s t a t e − y e a r % n e t a v e r a g e w a g e ( s i n g l e p a r e n t , t w o c h i l d r e n ) s t a t e − y e a r

The benefits data used in these calculations come from published and unpublished information from the US Department of Health and Human Services, and the Urban Institute’s Welfare Rules Databook.

Statistical Methods

The estimation data set consists of information on fifty states measured annually over thirty-two years: 1978–2010. Our data structure is best characterized as cross-sectional time series (TSCS), rather than traditional panel data, because we have a moderate number of observations per unit. ⁷⁵ We use a first difference specification, and estimate the models with what is essentially a difference in difference approach. It is reasonable to expect changes in inequality to impact programs on a regular basis: benefit amounts and tax provisions to pay for them are frequently changed on an annual, or even semi annual basis, often to adjust (or not) for purchasing power or wage growth. ⁷⁶ Estimates of inequality effects on unemployment benefits using non-differenced data, for example, fixed effects on levels, suggest even larger and more precise negative impacts than are reported here.

The combined theoretical model is of the basic form:

Δ Y it = β j ∑ Δ X it - 1 + ε i t

We use a one-year lag of the right-hand side variables in order to reduce the prospect of reciprocal effects of policy (benefit cuts) on top income shares such as those suggested in Kelly and Witko. ⁷⁷ (Lagged election year is a dummy variable = 1 if there was an election two years prior, because with only a few exceptions, new governments take power in the year after the election). Finally, in estimating the parameters of the models, we allow for clustering of errors within panels and for the possibility of different national trends in unemployment and welfare replacement rates with fixed state effects. ⁷⁸

Results

We begin with the basic relationship between welfare generosity and inequality, as measured by the percent of income going to the top 1 percent. Figure 5 shows the bivariate relationship between the level of income going to the top 1 percent and each of our measures of state welfare benefit generosity. The results show a clear negative correlation between inequality and benefit generosity. This negative correlation squares precisely with the prediction of the oligarchy hypothesis, but runs counter to the democracy hypothesis.

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Figure 5.

Bivariate Relationship between Top Income Share and State Welfare Generosity.

Of course, we are ultimately interested in the relationship taking into account other factors that might also be causing changes in benefit generosity. Table 1 shows four sets of estimates. The first two have annual change in state unemployment insurance replacement rate as the dependent variable; the second two have change in the social assistance (TANF + SNAP) replacement rate as a dependent variable.

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Table 1.

Fixed Effects Regression for Program Replacement Rates.

	∆ Unemployment InsuranceReplacement Rate (UIRR)		∆ Social AssistanceBenefit Rate (SARR)
∆ Top 1 t-1	−.103**	−.134**	−.212***	−.0839***
	(.0466)	(.0637)	(.0263)	(.0208)
Unemployment Benefits First Taxed (1987)	−6.250***	−6.232***
	(.414)	(.439)
∆ Ideology t-1		.0144		.00170
		(.0141)		(.00561)
∆ State GOP Control t-1		−.0259		−.170
		(.196)		(.102)
∆ Gubernatorial Election t-2		−.327**		−.269***
		(.144)		(.0783)
∆ Per Capita Income (log) t-1		−.878		2.592*
		(2.711)		(1.350)
∆ % Nonwhite t-1		.110*		−.136***
		(.0633)		(.0432)
∆ Population over 65 t-1		−.928**		.329
		(.420)		(.208)
∆ Unionization Rate t-1		−.00987		−.0466
		(.0396)		(.0305)
∆ Fiscal Pressure t-1		−.174		.0683
		(.228)		(.652)
Welfare Reform (1996)			−.838***	−.855***
			(.107)	(.108)
Constant	.0913***	.218**	−.367***	−.481***
	(.0170)	(.102)	(.00617)	(.0460)
Observations	1650	1470	1650	1470

Note: Standard errors in parentheses; *p < .10, **p < .05, ***p < .01.

Source: Authors’ data; see Appendix Table B1.

For unemployment, the estimates suggest that a one point increase in the top 1 percent income share in a state is associated with a .10 to .13 point decrease in the state’s UI benefit in the next year. The effect is larger (i.e., more negative) once we account for other factors that affect the benefit. ⁷⁹ The impact of rising income concentration on social assistance benefits also suggests that more inequality means more retrenchment in benefit rates for the neediest families. A one point increase in the income concentration at the top is associated with a .08 point decrease in social assistance replace in the full models. ⁸⁰

Other results in Table 1 also support previous research on the causes of welfare state retrenchment. The introduction of UI benefit taxation was associated with a reduction in replacement rates of over six points. This suggests that the states did not compensate for the imposition of federal benefit taxation starting in 1987. Other results in Column 2 of Table 1 suggest that unemployment benefit cuts are more likely after elections, following increases in the nonwhite population, and following increases in the over sixty-five population share.

Other results in Column 4 of Table 1 suggest that faster income growth, and increases in the nonwhite population are associated with large social assistance replacement rate cuts. Moreover, despite provisions to prevent benefit cuts following the Welfare Reform Act’s implementation, there was a sizable decline in benefits on implementation: the first year of welfare reform (b =−.85, p < .001), log of income growth (b = 2.6, p < .061), and the share of the nonwhite population (b = −.136, p < .003). All of these effects are in the expected direction; that is, welfare reform, income and a larger share of racial minorities results in larger cuts to social assistance, and faster income growth leads to increased benefits.

As checks on the robustness of the results (available on request), we also estimated the models with controls for (lagged difference of) the pretax Gini coefficient and the income share of the ninety to ninety-nine percentiles of the distribution. The resulting estimates for top 1 percent were largely identical to those reported here. This provides some reassurance that Top 1 is identifying a correlation between retrenchment and income concentration among the rich, and not simply picking up the general increase in inequality. ⁸¹

Discussion and Conclusion

Our analysis suggests that the pattern of changing social protection benefits at the state level is responsive to changes in the concentration of income at the top of the income distribution in ways that contradict the general assumption of democratic representation. Over the last several decades, faster growth in income concentration has tended to lead to faster retrenchment, despite the fact that various “democratic” models predict increasing redistribution due to the increase in and changing structure of inequality. An important reason for this is that wealthier individuals of both political parties are more opposed to social welfare programs. Although politicians have always relied more on donations from wealthier individuals, the increasing reliance on fundraising and donations from an increasingly lopsided income distribution drives politicians to retrenching policies of regressive redistribution. Our findings are consistent with a growing body of research that suggests that representation in America may have veered quite far from the ideal of one-person, one-vote in recent years.

This study makes several unique contributions to this literature. First, we show that developments at the state level, for specific policy outputs over which state politicians exercise significant political control follow a pattern of overrepresentation of the interests of the very wealthy. Second, unlike results estimated on cross-sectional models or pooled models that fail to adjust for country fixed effects, we show that larger changes in inequality at the top are negatively associated with subsequent changes in benefits, even after taking into account partisan, demographic, budgetary or macro-economic conditions that also affect such programs. Third, our paper focused on an important, if under explored, feature of state welfare policy: the income replacement rates for welfare assistance and for unemployment insurance. Unlike budgetary outcomes like spending levels or spending per person which typically are not directly controllable by policymakers, replacement rates are closer to policy “outputs” and under more direct political control from year to year.

Our research contributes to the literature on US state welfare policy by focusing on the effect that state level policies can have on individuals as well as the intentions of policymakers. Replacement rates have decreased over time and it is necessary to investigate the reasons, especially as incomes remain stagnant for many Americans. Our findings suggest that state-level inequality influences the declining replacement rates and that plutocratic tendencies of the American political economy may be a contributing factor.

Our analysis provides some initial answers to why and how economic elites may exercise their oversided influence on policy. But our research remains circumstantial. For example, while we can conclude that it is specifically income concentration at the very top, and not, say, overall or in the top quintile, that is linked to program cuts, we cannot say whether the connection is based on an even smaller concentration among the wealthy. We also lack information about specific instances of retrenchment that we can positively confirm are due to more concentrated income. For example, one implication of our research is that if increasing concentration of income is important to policy influence, given increasing inequality, we should expect to see increasing evidence of misrepresentation.

The extent to which the wealthy have unequal influence over the political system is a key concern in evaluating the degree of de facto democracy in a given nation. ⁸² Additional research should also consider ways to ameliorate political inequality so that it does not reinforce growing economic inequality of opportunity. State governments have become increasingly important for welfare and unemployment policies for a large number of struggling citizens, and it is important that policy reflects a more democratic balance.