Compensation or Retrenchment? The Paradox of Immigration and Public Welfare Spending in the American States

Abstract

By using American state-level data from 1999 to 2008, this article explores how the recent immigrant influx has influenced public welfare spending in the American states. By integrating the race/ethnicity and globalization compensation theory, I hypothesize that immigration will increase welfare spending in states with a bleak job market and exclusive state immigrant welfare policy; in contrast, immigration will decrease welfare spending in states with a good job market and inclusive state immigrant welfare policy. Empirical tests show evidence for both hypotheses, suggesting that the applicability of general political science theories depends on a combination of state policy and economic contexts.

Keywords

immigration public welfare spending globalization compensation race and ethnicity state immigrant welfare policy state labor market condition

The United States has witnessed an increasing number of immigrants over the past four decades, with its foreign-born population quadrupling from 1970 to 2007 (U.S. Census Bureau 1999; 2007). Today, with a 13% foreign-born population, the United States continues to receive roughly 1.25 million immigrants each year. The demographic composition of the post-1970 immigrant influx is quite different from the existing American population, with a majority of the newcomers in this wave from Central and Latin America, and more than a third of them undocumented and relatively low skilled (Passel 2005; see also Card 2009). This immigration wave has caused profound changes to the economic and political landscapes of the United States, including the American welfare state (Xu, Garand, and Zhu 2016; Garand, Xu and Davis 2016).

So far, much of what we know about immigration and the American welfare state is limited by discussions surrounding race and ethnicity (for an example, see Hero and Preuhs 2007). Numerous previous studies have shown that higher proportions of racial minorities such as African Americans are associated with less generous welfare provisions at the state and community levels; an important reason is that white Americans’ perception of blacks being overrepresented in the welfare system lowers their support for welfare (Alesina and Glaeser 2004; Gilens 1996; 1999; Quadagno 1994). Immigration influxes in the United States with a racial overtone have also reduced welfare generosity in American states (Hero and Preuhs 2007).

What previous American politics literature has largely overlooked is the possibility that American workers exposed to immigration might experience job and income losses, and therefore demand more social welfare. Indeed, globalization compensation scholars in comparative political economy (CPE) literature have long suggested that globalization, whether it be trade or international migration, brings workers together from around the globe to compete with one another, causing increased unemployment and income losses for lower-skill workers in developed countries.¹ Consequently, these workers will demand more welfare protection, creating more incentives for democratic governments to spend on welfare (Burgoon 2001; Cameron 1978; Garrett 1995; 1998; Rodrik 1998; Schmitt and Starke 2011).

An intriguing question remains unanswered: how do the race/ethnicity theory and the globalization compensation theory interact with each other to explain immigration’s impact on the American welfare state? On one hand, race/ethnicity theory suggests a negative association between immigration and welfare spending because Americans fear immigrants will abuse welfare. On the other hand, globalization compensation theory predicts immigration will increase welfare spending because immigrant-induced job and income losses boost public demand for welfare compensation. In this article, I argue that whether or not the two theories are applicable to a particular context depends on two important conditions: whether immigrants are entitled to welfare benefits in a certain state and whether immigrants will cause job losses among domestic workers. I take advantage of the wide variation in U.S. state policies and labor market conditions to explore how these two seemingly opposite theories work together to explain the effect of immigration on public welfare spending.

I argue that immigration has a positive effect on welfare spending in states with a bleak job market (i.e., job markets with an already high unemployment rates) and exclusive immigrant welfare policy (i.e., state welfare policies that largely exclude immigrants as welfare recipients). This is because in states with an already bleak job market, immigrant labor will likely hurt domestic workers’ job prospects, leading to more demand for welfare compensation; however, immigrant-induced antiwelfare backlash is low because immigrants are largely excluded from the welfare system. With high levels of demand for welfare compensation and low levels of antiwelfare backlash, welfare spending should grow.

In contrast, immigration should have a negative effect on welfare spending in states with a good job market (i.e., job markets with low unemployment rates) and inclusive immigrant welfare policy (i.e., state welfare policies that include immigrants as welfare recipients). This is because good labor markets in these states are better equipped to absorb immigrant workers without affecting domestic workers’ job prospects, and as a result, citizens’ demand for additional welfare compensation is low. However, immigrants taking welfare resources is a real concern for citizens, resulting in high levels of immigrant-induced antiwelfare backlash. With a low demand and high backlash against welfare, welfare spending will likely roll back.

To test these hypotheses, I utilize American state-level data during 1999–2008 to explore both the unconditional and conditional effects of immigration on welfare spending. Empirical evidence shows strong support for my hypotheses. The findings suggest that immigration, as a complicated social phenomenon, does not have an identical impact on the social welfare system across space and time; instead, how it affects the welfare state is dependent upon specific state political and economic contexts.

The structure of the article is as follows. In the next section, I discuss the implications of both race/ethnicity theory and globalization compensation theory on the immigration–welfare relationship. In the section “State Policy and Labor Market Condition as Moderators,” I propose that state immigrant welfare policy and labor market condition together make up important state environments that determine which theory prevails in a particular state context, based on which, I develop some original hypotheses. The section “Data and Method” introduces data and methods that are utilized to test the hypotheses. The section “Results” presents major findings, and the last section offers some concluding remarks.

Immigration and Welfare Spending in the United States

Race and ethnicity theory is perhaps the most recognized framework for understanding how immigration influences the welfare state, according to which immigration increases diversity, erodes social solidarity and, as a result, should reduce public welfare spending (Agrawal 2008; Borjas and Trejo 1990; Hainmuller and Hiscox 2010; Hero and Preuhs 2007; Nannestad 2007). In addition to the race/ethnicity theory, globalization compensation theory could also shed light on the discussion of immigration and welfare, which suggests that immigration could result in economic risks and increase the incentives for governments to spend more on welfare compensation.

Race/Ethnicity Theory

Scholars have long associated racial/ethnic diversity with downward pressures on the welfare state (Alesina and Glaeser 2004; Banting and Kymlicka 2004; Gilens 1999; Habyarimana et al. 2007; Hero and Preuhs 2007). For instance, in the United States, scholars argue that an important reason why Americans dislike welfare is because they believe that blacks disproportionally benefit from the welfare system (Gilens 1996; 1999; Luttmer 2001; Quadagno 1994). Empirical evidence has shown that U.S. communities, cities, and states with higher levels of racial diversity have lower levels of public support for welfare and less generous public goods provisions (Alesina, Baqir, and Easterly 1999; Alesina and Glaeser 2004; Luttmer 2001). Similar evidence has also been found in countries and regions outside the United States, such as Europe, Kenya, and Uganda (Alesina and Glaeser 2004; Habyarimana et al. 2007; T. Miguel 1999; E. Miguel and Gugerty 2005). Racial diversity has a downward pressure on the welfare state because individuals tend to be less altruistic to people who look different from themselves. Therefore, they are not likely to support public goods that benefit people from a different racial or ethnic group (Gilens 1996; 1999). Another mechanism, arguably, is through politicians’ manipulation (Alesina and Glaeser 2004). To gain support from the majority group, politicians can strategically sabotage certain minority groups, frame them as undeserving, and propose policies that could potentially marginalize these groups (Alesina and Glaeser 2004; Foster 2008; Schram, Soss, and Fording 2003).

Immigration fits both of these explanations. Because immigrants often “look,” “act,” and “sound” differently from native-born citizens, and therefore they are easily recognized as members of an out-group.² As one of the marginalized groups, immigrants are often used as a target in political games. As many immigrants are noncitizens without voting rights and political representation, their ability to oppose legislation is limited. For instance, in 1996, Congress passed legislation to bar immigrants from all federal-funded welfare programs in the first five years after their arrival as they were accused of having abused the American welfare system.³ Today, it is not rare for politicians and activists who oppose immigration reform to frame immigrants as hurting the economy by taking away jobs from Americans, increasing financial burdens of the government, and increasing crime, illiteracy, and interethnic conflicts. Research has shown that the general public indeed considers immigrants as the least deserving among all welfare recipients, and this pattern has been found to be universal across men and women, individuals with different ages, education, income levels, and even cultures (Appelbaum 2001; van Oorschot 1998; 2006).⁴

Considering the facts that immigrants are easily recognized as part of an out-group and that they are often framed and perceived as undeserving, it is fair to say that immigrant influxes could decrease the general public’s support for public goods. Indeed, Garand et al. (2016) show that Americans with negative opinions about immigrants are significantly less likely to support public welfare spending. Such lowered public support for welfare will very likely result in the retrenchment of government welfare spending in the long run (Erikson, MacKuen, and Stimson 2002; Page and Shapiro 1983; Stimson, Mackuen, and Erikson 1995).

Globalization Compensation Theory

Globalization compensation theory in the CPE literature offers well-established reasons for one to expect an opposite relationship between immigration and public welfare spending. Numerous previous studies find a positive association between globalization and the size of government spending because vulnerable individuals exposed to global competition will face growing economic insecurities and demand additional welfare compensation (Boix 2004; Burgoon 2001; Garrett 1998; Hays, Ehrlich, and Peinhardt 2002; Wood 1994). Empirical evidence shows that in democratic countries, citizens’ demand for welfare protection incurred by increasing global risks indeed results in more government spending on welfare (Cusack, Iversen, and Rehm 2006).

Immigration is an important component of globalization, and just like other globalization phenomenon such as trade, immigration brings workers in developed countries into direct competition with workers from less-developed countries. In the United States, many immigrants from developing countries tend to have lower levels of skills compared with average American workers (Borjas 1994).⁵ When they arrive to the United States, they tend to concentrate in low-wage occupations and increase the supply of low-skill labor, leading to potential job losses and wage reductions for low-skill domestic workers (Borjas 1994; Hanson 2004). For instance, from 1998 to 2000, immigrants reduced the average annual salary of native-born Americans without a high school degree by 7.4% (Borjas 2004). American labor markets with the strongest immigrant presence are found to have experienced the steepest decline in the wages of native-born low-skill workers (Topel 1994). These low-skill American workers whose jobs and incomes are affected by immigrant labor will demand more welfare protection, creating incentives for governments to spend more on welfare.

State Policy and Labor Market Condition as Moderators

Whereas race/ethnicity theory predicts a negative relationship between immigration and welfare spending, globalization compensation theory suggests a positive one. Which theory is more applicable to a particular context depends on whether or not the condition for each theory is met. The key condition for race/ethnicity theory is the general public’s fear that immigrants will rely heavily on welfare, but the condition for compensation theory is job losses and wage reductions among domestic workers caused by immigrant labor. These conditions, as key to the applicability of the two theories, do not always exist in specific state contexts. For instance, residents in states that largely exclude immigrants from their welfare system may not fear immigrants’ reliance on welfare as much; states with a labor market in need of labor may be able to absorb immigrant workers without affecting domestic workers’ conditions, and hence, the compensation theory may not apply. Therefore, I argue that state immigrant welfare policies and labor market conditions could together determine the applicability of these two competing theories in specific state contexts.

State Immigrant Welfare Policy

American states vary from one another in how generously they include immigrants in their social welfare system. The 1996 Personal Responsibility and Work Opportunities Reconciliation Act (PRWORA) barred immigrants entering the United States after 1996 from all federal-funded welfare benefits but allowed states to provide immigrants welfare benefits by using their own state funds. Following this federal reform, American states adopted different immigrant welfare policies, with some generously including immigrants in the social safety net but others less so. For example, right after the reform, five states (California, Connecticut, Maine, Minnesota, and Washington) decided to include all legal immigrants in all major welfare programs during and after the five-year ban by using their own state funds. However, states such as Alabama, Mississippi, and Texas decided to exclude all post-PRWORA immigrants from their social safety net, without providing any welfare either during or after the five-year ban. Other states stood in between these two extremes by offering some (but not other) types of welfare benefits to certain (but not all) types of immigrants.

Race/ethnicity theory suggests a negative effect of immigration on welfare spending because the public fears immigrants abuse the welfare resource pool designed for citizens. This negative effect should be more pronounced in states that generously include immigrants in the welfare system. In these states, more immigrants are eligible for various welfare benefits; native-born residents could learn from their daily experience, that is, conversing with their immigrant acquaintances and reading or watching local news, about the fact that many immigrants in their states are using social welfare. As a result, the public will likely push their state governments to cut back welfare. In contrast, race/ethnicity theory should be less applicable in states that largely exclude immigrants from their social welfare programs. In these states, very few immigrants are eligible to participate in any welfare programs; therefore the backlash against the social welfare system due to immigrants should be smaller.⁶

State Labor Market Conditions

Another important state context that conditions the immigration–welfare relationship is the state labor market condition. In the past two decades, the overall American job market experienced high volatility, and American states had vastly different experiences in their labor market conditions. For instance, labor markets in states such as Michigan, Alaska, Mississippi, and California were hit hard by the recent recessions, resulting in an average unemployment rate of 6.3% or even higher for the past two decades (Bureau of Labor Statistics [BLS] 2014). Yet labor markets in states such as South Dakota, North Dakota, and Nebraska were relatively promising, and their average unemployment rates stayed below 3.4% for the past two decades (BLS 2014).

According to the globalization compensation theory, immigration increases welfare spending because citizens experiencing job and income losses will demand more social welfare protection. This positive effect of immigration on welfare spending should be attenuated in states with a promising job market because good labor markets are better equipped to absorb immigrant workers into the labor force without affecting native-born workers’ job prospects. Therefore, domestic workers will less likely demand additional welfare compensation. Yet states with an already high level of unemployment will be limited in their ability to absorb immigrant labor without affecting low-skill American workers. In these states, the influx of immigrant workers will increase the supply of low-skill labor and worsen domestic workers’ economic conditions. As a result, American workers who experience job or income losses will demand more welfare compensation, creating an incentive for governments to increase welfare spending. Indeed, using survey data, Burgoon, Koster, and Van Egmond (2012) find that individuals working in jobs with more competition from immigrants increase their support for government welfare spending to protect themselves from such risks and insecurities.

Both state immigrant welfare policy and labor market conditions moderate immigration’s effect on welfare spending. These two contextual factors combine to make up the state environment that determines the applicability of the two theories. Whereas the race/ethnicity theory predicts the backlash against welfare and should be more applicable in states where most immigrants are eligible for welfare, the compensation theory predicts demand for welfare and should be more applicable in states where unemployment is high and jobs are scarce. If we categorize state environments into four scenarios based on these two state contextual factors, we can easily tell under which scenario race/ethnicity or compensation theory is most applicable. As Table 1 shows, there are four categories of state environments: (1) states with a bleak job market and inclusive immigrant welfare policy, (2) states with a bleak job market and exclusive immigrant welfare policy, (3) states with a good job market and inclusive immigrant welfare policy, and (4) states with a good job market and exclusive immigrant welfare policy.

Table 1.

Combinations of State Immigrant Welfare Policy and Labor Market Condition as State Contexts.

		State immigrant welfare policy
		Inclusive	Exclusive
Labor market condition	Bad	(1) High demand for welfare Strong backlash against welfare (e.g., California 2002–2004) (Expected null finding)	(2) High demand for welfare Weak backlash against welfare (e.g., Mississippi 2005–2008; Texas 2003) (Expected positive effect)
Labor market condition	Good	(3) Low demand for welfare Strong backlash against welfare (e.g., Hawaii 2005–2007; New Hampshire and Nebraska 1998) (Expected negative effect)	(4) Low demand for welfare Weak backlash against welfare (e.g., South Dakota 2000) (Expected null finding)

In states with a bleak job market and exclusive immigrant welfare policy (i.e., scenario (2) in Table 1), when immigration increases, the demand for more welfare spending should be high because with high unemployment rates domestic workers’ job prospects will be more likely hurt by immigrants; however, the backlash against welfare spending should be low because immigrants are excluded from the welfare system in these states. Therefore, in these states, welfare spending will most likely expand due to high demand but little backlash, and we should expect a positive relationship between immigration and welfare spending.

Hypothesis 1: Immigration should lead to an increase in welfare spending in states with a bleak job market and exclusive immigrant welfare policy.

In contrast, when states with a good job market and inclusive immigrant welfare policy (i.e., scenario (3) in Table 1) witness increased immigration, the demand for more welfare spending should be low because their labor markets are more likely to absorb immigrant labor without affecting domestic workers, yet immigrant-induced backlash against welfare should be high because many immigrants can use welfare in these states. With low levels of demand and high levels of backlash, states will likely cut welfare spending, and immigration is expected to have a negative effect on welfare spending.

Hypothesis 2: Immigration should lead to a decrease in welfare spending in states with a good job market and inclusive immigrant welfare policy.

In the other two scenarios (i.e., scenarios (1) and (4) in Table 1), the demand for more welfare and the backlash against welfare counter each other; thus, there should be no clear indication whether or not welfare spending will decrease or increase. For instance, in states with a bleak job market and inclusive immigrant welfare policy, the demand for additional welfare is high because domestic low-skill workers are more likely to be affected by competition from immigrant labor in a job market with scarce jobs. At the same time, the immigrant-induced backlash against welfare is also high because many immigrants are eligible for social welfare. Therefore, immigration should not have a clear effect on welfare spending, with high levels of demand and high levels of backlash. In states with a good job market and exclusive immigrant welfare policy, the demand for more welfare spending is low because domestic workers are less likely to demand more welfare compensation with a good job market, and the backlash against welfare is also low because most immigrants are excluded from the welfare system; therefore, immigration should not have a clear effect on welfare spending either.

Hypothesis 3: Immigration should not have a clear effect on welfare spending in states with a bleak job market and inclusive immigrant welfare policy or states with a good job market and exclusive immigrant welfare policy.

Data and Method

To assess these hypotheses, I utilize pooled cross-sectional time-series (CSTS) data from 1999 to 2008. Broadly considered, I estimate state government welfare spending as a function of immigration, state immigrant welfare policy, state labor market conditions, the interactions between immigration and the two state contextual variables, as well as a set of socioeconomic control variables suggested by previous literature. Below, I present variable specifications and modeling choices. Appendix A includes detailed data sources of all variables, and Appendix B includes descriptive statistics of all variables.

Dependent Variable

Public welfare spending

Previously, both public welfare spending and Aid to Families with Dependent Children/Temporary Assistance for Needy Families (AFDC/TANF) cash benefit level were commonly used as measurements for social welfare at the American state level. Whereas TANF/AFDC benefit level is typically used as an indicator of state welfare generosity, public welfare spending is used to capture the overall state welfare effort (Matsubayashi and Rocha 2012, 604). Public welfare spending better serves the purpose of hypotheses testing in this article for two reasons. First, TANF cash benefit level is a policy-based measure that rarely changes over time. For example, in the examined 10-year period, 21 states never changed their TANF cash benefit level for a family of 3, and another 16 states only adjusted their benefit level once. Yet public welfare spending not only varies across states but also changes annually within a state. Using a dependent variable that is largely invariant does not suit panel data analyses, especially the dynamic error correction models (ECMs).⁷ Second, TANF cash benefit level for a family of three only captures the generosity of one aspect of welfare compensation, and overlooks other types of compensation such as unemployment benefits and medical assistance for the poor. Yet welfare spending used in this article is a broader definition of welfare expenditures, and actually includes benefits and expenditure paid under welfare programs such as TANF, Old Age Assistance, Medicaid, as well as other need-based welfare programs. Given that the core theory of this article argues that governments are motivated to compensate more because of the increasing needs from vulnerable citizens, public welfare spending is a more appropriate measure because it captures a wide range of need-based welfare programs.

Because of these advantages, I use the percentage of state government welfare spending in gross state product (GSP) as a measure of the dependent variable.⁸ I divide the total amount of federal and state dollars spent on major welfare programs by GSP so that the measure for the overall size of the state public welfare system is comparable across states and over time. Data on public welfare spending and GSP are both collected from State and Local Government Finance, Census Bureau. State government welfare spending contains the total amount of dollars—whether it be federal or state dollars—being spent on welfare programs administered by each state government.⁹ Figure 1 shows the percentage of welfare spending in all American states in two years—1999 and 2008. As one can see, states vary greatly from one another in their redistribution efforts. In 2008, welfare expenditure in Vermont was up to 5.5% of its GSP, whereas in Colorado only an equivalent of 1.9% of its GSP was spent on public welfare. Among all American states, New Mexico experienced the greatest increase (from 2.3% in 1999 to 5.2% in 2008), whereas North Dakota actually experienced a decrease from 1999 to 2008 (from 2.9% in 1999 to 2.7% in 2008).

Figure 1.

Public welfare spending as a percent of GSP in 50 states in 1999 and 2008.

Independent Variables

Foreign-born population

I use the percentage of foreign-born population in the total state population as a measure of immigration. Foreign-born population in this case includes legal permanent residents, temporary legal foreign-born aliens, undocumented immigrants, and naturalized citizens. Figure 2 shows the percentage of foreign-born population in 50 states in 1999 and 2008. As one can see, California had the highest percentage of foreign-born population in both 1999 and 2008 (i.e., 30.4% in 1999 and 33.5% in 2008). West Virginia had the lowest percentage of foreign-born population in both years (1.1% in 1999 and 2009). Data on foreign-born population are collected from Current Population Survey (CPS).¹⁰

Figure 2.

Foreign-born population as a percent of total state population in 50 states in 1999 and 2008.

State immigrant welfare policy

The state immigrant welfare policy variable captures the inclusivity of a state’s immigrant welfare policy. To create this measure, I consider whether or not each state provides different types of immigrants (i.e., legal permanent residents, refugees, asylees, battered immigrants, nonqualified or undocumented aliens) TANF cash assistance before and after the five-year ban set by the federal government. The online supplemental information includes a discussion of the eight policy aspects being considered for this immigrant welfare policy variable and their coding schemes. Data on all eight policy aspects are collected from surveying various documents and the Urban Institute Welfare Rules Database (The Urban Institute 2014; Tumlin, Zimmermann, and Ost 1999; Zimmermann and Tumlin 1999). I code each of the eight policy aspects as 1 if the state government provides assistance to this type of immigrants and 0 otherwise, and then generate an additive score and a factor score based on these eight policy aspects. The additive score is correlated with the factor score at a .99 level. For simplicity reasons, I use the additive score as the measure for this variable, which ranges from 0 to 8, with a higher value indicating a more generous/inclusive state immigrant welfare policy and a lower value indicating a more restrictive/exclusive immigrant welfare policy.

State labor market condition

I use the state unemployment rate as a measure of the labor market condition for the state years. States with lower unemployment rates are considered to have better job prospects than states with higher unemployment rates. From 1999 to 2008, state-level unemployment rates ranged from 2.2% to 8.3%. I consider any state years with an unemployment rate of 3.2% or lower as having a good job market and those with an unemployment rate of 6.2% or higher as having a bleak job market. The same criterion is used for both the marginal effect figure (Figure 3) and the predicted value figure (Figure 4). Data on unemployment rates are collected from BLS.

Figure 3.

Marginal effect of immigration on change in welfare spending conditional on state immigrant welfare policy: (a) states with bleak job markets and (b) states with good job markets.

Figure 4.

Comparing immigrants’ effect on change in public welfare spending in states with different contexts: (a) states with a bleak job market and inclusive policy, (b) states with a bleak job market and exclusive policy, (c) states with a good job market and inclusive policy, and (d) states with a good job market and exclusive policy.

To capture the conditional effects of state immigrant welfare policy and state labor market condition on the relationship between immigration and welfare spending, I also include the following two-way and three-way interaction terms in the model: Foreign-born population × State immigrant welfare policy, Foreign-born population × State labor market condition, and Foreign-born population × State immigrant welfare policy × State labor market condition. State labor market condition × State immigrant welfare policy is excluded from the model because the theory only suggests conditional effects of the contextual variables on the relationship between immigration and welfare spending but does not suggest a conditional effect between the two contextual variables themselves.

Control Variables

State government ideology

The power resource theory (PRT) argues that countries with strong left parties who represent working and middle classes’ interests will have a more generous welfare state (Bradley et al. 2003; Huber et al. 2006; Huber and Stephens 2001; Korpi 1978; Stephens 1976). Based on this theory, I use state government liberalism created by Berry et al. (1998) as the measure of state government ideology. This measure is based on the weighted ideological orientation of state-level legislators and the governor, and ranges from 0 to 100, with higher values indicating a more liberal state government. Previous studies have successfully used this measure to test the PRT in the American states (see Kelly and Witko 2012).

Mass liberalism

I also control for mass liberalism because voters’ liberal–conservative orientation could also affect the overall welfare generosity (Erikson, Wright, and McIver 1993). I use the measure created by Pacheco (2011), the share of voters who identify with a liberal ideological orientation, as the indicator of mass liberalism.

Union density

According to the PRT, labor unions are another organization that represents the working class’s interests. Therefore, I argue that stronger labor unions will contribute to a more generous welfare state. I include a union density variable, which measures the percent of nonagricultural wage and salary employees (including public-sector employees) who are union members, and the data are collected by Hirsch (2012) from the BLS and the CPS.

Black population

Scholars argue that states with large black populations tend to have lower levels of public spending (Brown 1995; Fellowes and Rowe 2004; Hero and Preuhs 2007; Soss et al. 2001). Therefore, I include the percentage of African Americans among the total state population as a control variable.

Female labor force participation

Nielsen and Alderson (1997) and Treas (1987) show that female labor force participation can equalize family incomes. When women, especially women from lower-income families, join the labor force, families’ reliance and demand for means-tested welfare programs will be reduced. In other words, female labor force participation should have a negative effect on public welfare spending. Data on female labor force participation are collected from the Statistics Abstract of the Census Bureau.

Real per capita income and income growth

According to Wagner (1877; see also Lowery and Berry 1983), economic affluence explains government spending growth, in that governments in richer states spend more. Following Burgoon (2001) and Rudra and Haggard (2005), I include both real per capita income and real per capita income growth rate as control variables, and expect that both of them have a positive long-term effect on public welfare spending. Data on these two variables are collected from the Bureau of Economic Analysis.

Income inequality and % poor

According to Moene and Wallerstein (2001), income inequality is an important determinant for redistribution. Low-income individuals are also more likely to demand more welfare spending. Therefore, I include state-level income inequality and % state population under the poverty line as a control variable and expect both variables to have a positive effect on welfare spending.

Method

I utilize cross-section-time-series panel data analyses to explore the multivariate relationship between immigration and state-level welfare expenditure. The panel unit root analyses show that the dependent variable, state government public welfare expenditure, is nonstationary. The Westerlund error correction–based panel cointegration tests show that cointegration between the dependent variable and the core independent variables is detected (Persyn and Westerlund 2008; Westerlund 2007). Considering that the dependent variable is nonstationary and that cointegration is diagnosed, I use the dynamic model specification—ECM—to model the first-order change in public welfare spending as a function of lagged welfare spending, a lagged term and a first-order difference term of all the independent variables and control variables (Banerjee et al. 1993; De Boef 2001; De Boef and Keele 2008). In addition, I apply panel-corrected standard errors (PCSEs) to correct both cross-state heterogeneity and contemporaneous correlation (Beck 2001; Beck and Katz 1996). A detailed data diagnosis can be found in the online supplemental information.

Results

I estimate two models to explore the unconditional and conditional effects of immigration on public welfare. Table 2 Model 1 presents the base model, in which I only include the key independent variable and all the control variables, whereas Model 2 also includes all the interactions.

Table 2.

Immigration, State Immigrant Policy, State Labor Markets, and Welfare Spending in American States, 1999–2008.

	Model 1		Model 2
	Coefficient	SE	Coefficient	SE
Welfare spending_{t − 1}	−.037	(.025)	−.035	(.024)
Δ foreign-born population	.007	(.014)	.011	(.016)
Foreign-born population_{t − 1}	−.005*	(.002)	−.035	(.022)
Δ unemployment rate	.042*	(.017)	.050**	(.018)
Unemployment rate_{t − 1}	.008	(.012)	−.018	(.038)
Δ foreign-born population × Δ unemployment rate			−.016	(.038)
Foreign-born population_{t − 1} × Unemployment rate_{t − 1}			.008^†	(.004)
Δ state immigrant welfare policies	−.000	(.008)	.005	(.010)
State immigrant welfare policies_{t − 1}	−.002	(.006)	.007	(.008)
Δ foreign-born population × Δ state policies			−.006	(.011)
Foreign-born population_{t − 1} × State policies_{t − 1}			.002	(.003)
Δ foreign-born population × Δ unemployment rate × State policies_{t − 1}			.001	(.007)
Foreign-born population_{t − 1} × Unemployment rate_{t − 1} × State policies_{t − 1}			−.001	(.001)
Δ state government ideology	−.000	(.001)	−.000	(.007)
State government ideology_{t − 1}	.001*	(.000)	.001^†	(.000)
Δ mass liberalism	.008	(.007)	.008	(.007)
Mass liberalism_{t − 1}	.011^†	(.006)	.012^†	(.006)
Δ union density	.008	(.010)	.007	(.010)
Union density_{t − 1}	−.001	(.002)	−.001	(.002)
Δ female labor force participation	−.009	(.009)	−.009	(.009)
Female labor force participation_{t − 1}	−.002	(.004)	−.005	(.004)
Δ % black	.038	(.055)	.042	(.057)
% black_{t − 1}	−.000	(.001)	.001	(.001)
Δ real per capita income	.258**	(.092)	.242**	(.085)
Real per capita income_{t − 1}	−.007*	(.003)	−.009**	(.004)
Δ per capita growth	−.104**	(.034)	−.098**	(.032)
Per capita growth_{t − 1}	−.103**	(.035)	−.095**	(.032)
Δ income inequality	−.153	(.560)	−.089	(.512)
Income inequality_{t − 1}	−.103	(.720)	−.408	(.729)
Δ poverty	.008	(.008)	.006	(.008)
Poverty_{t − 1}	.010	(.006)	.006	(.006)
Constant	.497	(.396)	.758^†	(.423)
N	441		441
R ²	.1319		.1490
Wald χ²	115.19		137.63

Significance levels: ^†.10 level. *.05 level. **.01 level. ***.001 level.

As one can see, in Model 1, foreign-born population_{t − 1} (b = −.005, SE = .002) has a negative and significant effect on the dependent variable, which indicates that foreign-born population has a significant long-term effect. This long-term effect of foreign-born population, according to De Boef and Keele (2008), is reflected by the coefficients of foreign-born population_{t − 1} (b = −.005, SE = .002) and welfare spending_{t − 1} (b = −.037, SE = .025), and I calculate it as −.14.¹¹ After controlling for other factors, a 1-unit increase (i.e., one percentage point increase) in foreign-born population stocks will result in a decrease in public welfare spending by 0.14 units (i.e., 0.14 percentage point) in the long run.

In Model 2, I added all the interaction terms, including four two-way interactions between immigration and the state contextual variables and two three-way interactions. As one can see in this model, the coefficients of two independent variables including an interaction term (i.e., Δ unemployment rate, Foreign-born population_{t − 1} × Unemployment rate_{t − 1}) achieved statistical significance. Because coefficients in an interaction model are difficult for direct interpretation, I use Figure 3 to show the marginal effects of immigration on change of welfare spending conditional on the two state contextual variables (Brambor, Clark, and Golder 2006). Figure 3a shows the marginal effect of immigration in states with bleak job markets, and here, I define bleak job markets as state years with unemployment rates of 6.2% or higher.¹² Among states with bleak job markets, we observe that immigration has a positive marginal effect in states also with exclusive immigrant welfare policies, and the positive effect is statistically significant when a state has an immigrant policy index smaller than 1.2. This observation shows support for Hypothesis 1, which postulates that immigration should lead to an increase in welfare spending in states with a bleak job market and exclusive immigrant welfare policy because public demand for welfare spending in these states is high but antiwelfare backlash is low. We also observe that the positive marginal effect is attenuated once states adopt more inclusive immigrant welfare policies. When the immigrant welfare policy index is larger than 1.2, the marginal effect of immigration cannot be differentiated from 0.

Figure 3b shows the marginal effect of immigration in states with good job markets, and here, I define good job markets as state years with unemployment rates at 3.2% or lower. As one can see, immigration has a negative marginal effect on change in welfare spending, and this negative effect is statistically significant when states have an immigrant welfare policy index larger than 2.3. In other words, states with good job markets and inclusive (or even moderately inclusive) immigrant welfare policies will actively cut welfare spending. Figure 3b shows strong support for Hypothesis 2, which suggests that immigration should lead to a decrease in welfare spending in states with a good job market and inclusive immigrant welfare policy because the demand for welfare is low, but the backlash against welfare is high.

To further gauge the effect of immigration on welfare spending in different state environments, I use the Clarify program (Tomz, Wittenberg, and King 2003) to simulate the predicted change in welfare spending and show the results in Figure 4. I drew four separate figures to reflect immigration’s effect on welfare spending in four different contexts reflecting the categorization in Table 1. Figure 4a–4d, respectively, shows the predicted change in welfare spending across a full range of foreign-born population_{t − 1} in four different contexts corresponding to state environments A, B, C, and D in Table 1.¹³

For example, Figure 4b shows the effect of immigration on change in welfare spending in Type B states, that is, states with a bleak job market and exclusive policy. Again, according to Hypothesis 1, foreign-born population should have a positive effect on welfare spending in these states, because public demand for welfare spending in these states is high but antiwelfare backlash is low. As one can see in Figure 4b, in these states, the predicted change in welfare spending is positive, indicating that these states will expand welfare spending in the face of immigration. When Type B states have a small foreign-born population, they will only increase welfare spending at a very moderate rate. For example, predicted change in welfare spending is only about 0.13 percentage points when Type B states have a foreign-born population that is close to 0. However, with increases in immigration, Type B states will more aggressively expand welfare spending. For instance, predicted change in welfare spending is 0.5 percentage points when Type B states’ foreign-born population is about 34% of the total state population. The confidence intervals (CIs) of the two predicted values do not overlap, suggesting that the welfare expansion rate for states with 34% foreign-born population is significantly higher than states with nearly 0% foreign-born population. This finding shows empirical support for Hypothesis 1. Immigration influxes are thought to cause a public outcry for more welfare compensation due to increased competition in an already bleak job market, but at the same time, the public resentment against welfare is low due to the fact that immigrants are largely excluded from the welfare system in these states.

Figure 4c shows the effect of immigration on welfare spending in Type C states, or in other words, states with a relatively promising job market and inclusive policy. According to Hypothesis 2, foreign-born population should have a negative effect on welfare spending in Type C states, because the immigrant-induced public demand for welfare compensation is low and the immigration-induced antiwelfare backlash is high in these states. As one can see from Figure 4c, when Type C states have almost no immigrants, they will moderately increase welfare spending. The predicted change in welfare spending is about 0.2 percentage points when foreign-born population is close to 0. Yet if Type C states experience an increasing number of immigrants, they will reduce their efforts to expand welfare spending. When their foreign-born population exceeds 12%, Type C states will stop expanding welfare spending,¹⁴ and when the immigrant population exceeds 30%, Type C states will begin cutting welfare spending. When foreign-born population approaches 34%, state governments will cut welfare spending by 0.15 percentage points. The CIs for high and low levels of immigration do not overlap, indicating that predicted values of change in welfare spending are significantly different from one another. Taken together, evidence shown in Figure 4c also offers support for Hypothesis 2.

Turning to Figure 4a and 4d, although both Type A and D states see a negative association between immigration and change in welfare spending, the calculated difference in the dependent variable between high- and low-level foreign-born population environments for Type A states is 0.093 with a CI of [−0.079, 0.259]. Because 0 crosses the CI, we are confident that immigration does not have a significant effect in this type of state environment. By the same token, I calculate the difference in the predicted values of change in welfare spending for high- and low-level immigration environments for Type D states as 0.357 with a CI of [−0.241, 0.859]. Again, because zero crosses the CI, immigration does not have a significant effect on welfare spending in Type D states either.¹⁵ The patterns found in Figure 4a and 4d are consistent with my theoretical speculation in Hypothesis 3 that immigration does not have a clear influence on welfare spending in these two state environments because the demand for more welfare and backlash against welfare counter each other.

Among the control variables, both state government ideology_{t − 1} (b = .001, SE = .000) and mass liberalism_{t − 1} (b = .012, SE = .006) have a positive and significant long-run effect on the dependent variable, indicating that states with a more liberal state government or liberal mass will increase their efforts to expand welfare spending in the long run. Both findings are consistent with the PRT. Whereas real per capita income has a positive short-term effect and negative long-term effect, per capita growth has a negative short- and long-term effect on change in welfare spending.

Discussion

This article explores how immigration could have complex implications on the development of the American welfare state. In contrast to the common view that immigration is harmful for the welfare state, this article provides an alternative perspective that immigrants might spur individual economic insecurities resulting in the state governments spending more on welfare compensation. Furthermore, although the race/ethnicity theory and globalization compensation theory predict opposite relationships between immigration and welfare spending, I argue that it is the state contexts such as state immigrant welfare policies and state labor market conditions that may combine to determine which theory is applicable.

Empirical evidence based on data from the American states from 1999 to 2008 shows that immigration leads to reduced efforts at welfare expansion in states with a good job market and inclusive immigrant welfare policy. Presumably, this is because good job markets can absorb immigrant labor without affecting domestic workers’ employment, and as a result, immigrant-induced public demand for welfare compensation will be low. However, the racial/ethnic backlash against social welfare will be high because many immigrants are eligible for various welfare benefits. In contrast, states with a bleak job market and exclusive immigrant welfare policy will accelerate their pace of welfare expansion, potentially because in these states, the immigrant-induced public demand for welfare is high due to increased labor market risks. This is caused by immigration, and the immigration-induced backlash against welfare is low considering that immigrants are excluded from the welfare system.

These findings have a few important implications for future research on immigration and welfare in the United States. First, this article provides support for the race/ethnicity theory. In an important study, Hero and Preuhs (2007) find that states with a large immigrant population and inclusive immigrant welfare policy experience a rollback in their TANF cash benefit level. Although their study focuses on the maximum TANF cash benefit and this study focuses on the overall size of the public welfare spending, both articles provide evidence to the powerful role of race and ethnicity in American politics.

Second, findings in this article suggest that the impact of globalization on the American welfare state is understudied. Although the CPE literature has long suggested the impact of globalization on the welfare state, previous studies on the American welfare state have downplayed the influence of globalization factors such as trade, foreign investment, and immigration. This article is one of the first research efforts demonstrating that globalization factors could influence the development of the American welfare state. Considering that 1999–2008 was in between a major economic boom (i.e., the dot-come boom) and the Great recession, most American states only experienced moderate levels of unemployment rates. Although only a few dozen state years examined in this article fit the two hypothesized conditions, many more states could fit these criteria during economic downturns or booms. Therefore, findings from this article have much broader implications for the development of the American welfare state. More than anything, this article suggests future research consider the potential economic implications as well as the racial overtone of immigration on welfare spending (Lieske 2012).

Third, immigration, as a complex social phenomenon, will likely not have a monotonic impact on the political and social landscape of the American states. When there are multiple mechanisms through which immigration can influence the American welfare state, scholars are encouraged to consider which mechanism works the best under a certain specific state contexts. As a first step, this article presents some preliminary empirical evidence that state policies and labor market conditions could form state environments that condition the relationship between immigration and welfare spending. Future research is encouraged to verify findings of this article and to explore other possible state contexts that matter.

Fourth, findings of this article speak to “the rational public” thesis, or at least a rational politics thesis. Facing the large immigration influxes, state publics have to weigh their gains and losses in this game. On one hand, they demand more welfare protection against economic risks and insecurities incurred by immigrants. On the other hand, the public considers immigrants as the most undeserving welfare recipients and is generally unwilling to provide welfare benefits to the newcomers. Despite the two contradictory outlooks of welfare, the American public seems, at least from the evidence shown in this article, to be good at weighing their priorities. If their own employment opportunities are threatened by immigrant workers and they know that immigrants are excluded in the social welfare system in their states, they seem to have successfully pushed their states to expand welfare spending. On the other hand, if their job prospects are not threatened by immigrant workers but immigrants in their states are heavily relying on the welfare system, they will urge the states to reduce their efforts on welfare expansion.

This article has some limitations that are worth noting. First, due to data limitation, the state immigrant welfare policy variable is only based upon immigrants’ eligibility for one major welfare program, TANF. Given that TANF is the major means-tested welfare program and that states are most likely consistent with their generosity to immigrants when making other welfare policies, it is reasonable to speculate that this policy variable based on TANF has high levels of validity. However, this article could benefit from a more comprehensive policy variable based on immigrant eligibility for various welfare programs such as Medicaid, food stamps, and Supplemental Security Income (SSI). Second, state contextual variables such as the state immigrant welfare policy are treated as exogenous. Although similar models are used in previous research (Hero and Preuhs 2007), third-variable problems could still be a potential issue in this type of analysis. Last but not the least, theories in this article primarily focus on explaining how immigration influences public preferences of welfare but largely overlooks the supply side of the story. In other words, the mechanism through which governments respond to public preferences is not closely studied in this article.¹⁶ Although existing studies on globalization compensation theory have commonly used theories based on public demand for spending to predict and test actual spending (Burgoon 2001; Garrett 2001; Garrett and Mitchell 2001), readers of the article should still caution the gap between the theories and empirical tests as a limitation of the study.

Footnotes

Appendix

Appendix B

Descriptive Statistics of Key Variables.

Variables	Number of observation	M	SD	Minimum	Maximum
Welfare spending	441	2.83	0.89	1.18	5.51
Foreign-born population	441	9.00	7.09	0.69	33.77
Unemployment rate	441	4.83	1.16	2.20	8.30
State immigrant welfare policy	441	5.17	2.11	0	8
State government ideology	441	50.43	27.92	0.00	97.81
Mass liberalism	441	20.68	3.89	10.46	33.17
Union density	441	11.61	5.66	2.30	26.90
Female labor force participation	441	60.98	4.24	47.7	71.2
% black	441	10.36	9.61	0.32	37.21
Real per capita income	441	35.50	3.61	28.31	46.63
Per capita growth	441	0.99	2.28	−4.67	16.57
Income inequality	441	0.41	0.02	0.35	0.47
% poor	441	11.68	3.06	4.50	22.60

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

Supplemental Material

Supplemental Material for this paper can be found at

Notes

Author Biography

Ping Xu is an Assistant Professor of Political Science at the University of Rhode Island. Her research interests include political economy, globalization, income inequality, the welfare state, and Chinese politics. Her research has been published in the American Journal of Political Science, Policy Studies Journal, American Politics Research, State Politics and Policy Quarterly, and The China Quarterly among others.

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