Welfare Digest | Welfare Reform's Success Holds Up 30 Years Later

Romina Boccia and Tyler Turman of Cato.

"Welfare Reform's Success Holds Up 30 Years Later. The positive effects of the 1996 welfare reforms on work and poverty still hold three decades later, argues AEI scholar Scott Winship. At a recent House Work & Welfare Subcommittee hearing, Chairman Darin LaHood (R-IL) noted that the law replaced “an open-ended 'no strings attached' cash entitlement” with a program that “included work requirements, time limits, enforced the principle of work in exchange for benefits, and capped federal funding for benefits.” In his testimony before the committee, Winship pointed out that child poverty fell by roughly half to more than three-quarters between 1996 to 2022. As Winship says, earnings among families with children since welfare reform have grown so large, that “if the entire safety net disappeared tomorrow, the child poverty rate would still be lower than in 1993.” Winship credits part of this to the employment gains after welfare reform, especially among single mothers, which rose so dramatically that they have “never returned to pre-[reform] levels. Even in the depths of the Great Recession, single mothers were more likely to be employed than they had ever been before 1995.” To read more about the impacts of welfare reform, including how states circumvented the law’s spending constraints by shifting beneficiaries off TANF and onto other, open-ended entitlements, read the statement we submitted for this hearing here." 

 

 

Labor's share of income

From Labor’s Share of GDP: Wrong Answers to a Wrong Question By Alan Reynolds. 

"Jason Furman and Peter Orszag found “the decline in the labor share of income is not due to an increase in the share of income going to productive capital—which has largely been stable—but instead is due to the increased share of income going to housing capital.” Depreciation and government, they noted, also gained an increased share (i.e., grew faster than labor income.)" 

Workers do not receive shares of GDP – they receive shares of personal or household income.  

Contrary to popular confusion, dividing employee compensation (wages and benefits) by GDP does not measure how a capitalist private economy (e.g., “superstar firms”) divides income between labor and capital. Most obviously, the government makes up a huge share of GDP, including nonmarket goods like defense and public schools. Nonprofits also account for a lot of GDP, with no obvious payout to labor or capital. Less obviously, depreciation makes up another huge share of GDP, including wear and tear on public highways and bridges as well as private equipment, homes, and buildings. The “imputed rent on owner-occupied homes” is another large piece of GDP. Asking if labor is getting a fair share of defense, depreciation and imputed rent is a truly foolish question. Net private factor income would be a better gauge than GDP, for the purpose at hand, but still flawed. The ratio of compensation to GDP uses the wrong numerator as well as an untenable denominator. Labor income must add the labor of self-employed proprietors.  

When people say “labor’s share is falling,” they surely mean income people receive from work has not kept up with income people (often the same people) receive from property: dividends, interest, and rent. But, that crude Piketty-Marx labor/capital dichotomy ignores another increasingly important source of personal income: namely, government transfer payments from taxpayers to those entitled to cash and in-kind benefits."

"labor’s share of household income is highest in deep recessions (77.5% in 1982, 76.2% in 2009) and lowest at cyclical peaks (70.6% in 2000, 68.3% in 2007). The higher labor share in recessions does not mean recessions are good for workers, of course, but that they are even worse for business and investors. Those who equate a higher labor share of income (e.g., during recessions) with higher real income for workers are making a basic and very large mistake." 

"labor’s somewhat smaller share of income is not because of any sustained rise of capital income or capital gains. It is because of a sustained rise in the share of income from transfer payments and a sustained fall in the labor force participation rate."

"Labor’s share of personal income fell mainly because the share devoted to government transfer payments rose. Labor’s share of GDP fell for other reasons (rising shares going to housing, government, and depreciation), but it is a fundamentally misconstrued statistic used to rationalize irresponsible remedies to an illusory problem of “monopolies.”"" 

From The Labor Share Fell. So What? by Alex Tabarrok.

"I have also plotted total compensation to labor (in real terms) in the graph above and far from shrinking it is higher than ever and growing. Moreover the right axis is logged so you can also see that outside of recessions the growth rate of labor compensation looks quite steady (similar slope over time). (Labor compensation per member of the labor force is noisier but looks similar)."

"In short, the data are consistent—not proof of, but consistent with—a story in which capital has become more productive, raising output. More productive capital also raises the demand for labor, so while more of the new output goes to capital in the first instance, the pie is growing and labor’s absolute compensation has grown with it."

Comment from Scott Sumner

"People often assume that if labor's share is falling then capital's share is rising. That is not always true, as GDI also includes depreciation and indirect business taxes, both of which have been rising as a share of GDI. So capital's share has risen by considerably less than labor's share has fallen.

Matt Rognlie showed that much of the rise in capital income has been the implicit rent on owner-occupied housing, which is not what most people think of when they hear "capital income". Another part of the rise is labor income being reclassified as capital income for tax purposes."

BLS Overstates Drop in Labor Share by David Henderson. 

"The underlying assumptions about "proprietor income" are biasing the labor share calculations. The calculation of labor share involve adding compensation received by employees to "proprietor income," which is the labor income received by those who run their own business. However, proprietor income is conceptually tough to measure, because someone who owns their own business can receive both "labor income," as if the person was an employee of their own business, and "capital income," as the owner of the business. In the real world, these two types of payments are jumbled together. To address this issue, the Bureau of Labor Statistics has assumed that the hourly labor compensation of proprietors is the same as that of employees. However, if the labor income of proprietors is actually rising over time, then this assumption means that the labor share is understated. One study finds that about one-third of the observed decline in labor share is due to this assumption that the hourly labor compensation of proprietors is the same as that of employees, rather than using an alternative method that tries to estimate the capital income of proprietors directly. (bold and italics in original)"

Labor’s share of income in the very long run is pretty stable by Scott Sumner.

"It seems silly to focus on gross domestic income, which includes depreciation and indirect taxes.  If we subtract them out we get the more conventional measure of national income, the way most people envision the concept.  And using that measure the labor’s share has been amazingly stable, rising from 68.0% in 1965 to 68.1% in 2015. Capital’s share fell from 32.0% to 31.9%.  No change in 50 years! Is that too good to be true?  Yes, for instance in 1990 labor’s share was 72.4%, so it’s just a coincidence. But it does suggest that labor’s share in the very long run is pretty stable."

Domestic Energy Shipments Are Breaking Records Under the Jones Act Waiver

By Colin Grabow of Cato.

"The Jones Act is a de facto tax on Americans trading with one another. By requiring domestic waterborne commerce to use vessels that cost far more to build and operate than their international counterparts, the law raises shipping costs. That’s a real burden given the significance of transportation in a country as vast as the United States and helps explain why relatively little freight moves by water.

Conversely, economic logic holds that lowering these costs will expand commerce, which is exactly what has happened since the Trump administration issued a Jones Act waiver for energy and fertilizer shipments in March. Freed from the law’s constraints, domestic fuel shipments have surged to unprecedented levels.

PADD 5 Receipts Nearly Set a Record in Five and a Half Months

One of the most dramatic examples of this increase has been to the West Coast, Alaska, and Hawaii, collectively known as PADD 5. According to a recent Energy Information Administration analysis, waterborne shipments of crude oil and petroleum products from the Gulf Coast to PADD 5 in April and May 2026 were more than four times their level in the same months of 2025. April’s volume was more than double the previous monthly record, and shipments remained elevated in May. 

That increase has been sustained. US Maritime Administration (MARAD) data show that in less than six months, waiver shipments have already exceeded the Jones Act fleet’s annual total in every year from 2000 through 2025, with one exception. Only 2024 remains narrowly ahead (by 2.2 percent), and it appears on the verge of being surpassed." 

Jet fuel: More jet fuel has been moved to PADD 5 under the waiver than in the preceding 35 years combined (1990–2025). 

Gasoline blend stock and alkylate: More gasoline blending components and alkylate have been moved into PADD 5 than the Jones Act fleet moved from 2010 through 2025 combined. 

Finished gasoline: The waiver has seen more finished gasoline moved to the West Coast than the Jones Act fleet has moved in the last eight years combined."

"East Coast-bound shipments topped 1.2 million barrels a day in April, which was the highest monthly figure on record and about 11 percent above anything seen pre-waiver."

"In 2017, the CEO of Overseas Shipholding Group, a major Jones Act tanker operator, admitted to the Financial Times that the law was suppressing domestic oil flows: “If there was not a Jones Act, then there probably would be more movements of crude oil from Texas to Philadelphia.”" 

The Milei Miracle, Part V

By Dan Mitchell.

"The world’s worst-performing economy for 100 years has – in a remarkably short period of time – become an amazing case study of economic liberalization.

Thanks to President Javier Milei, Argentina is now enjoying an economic miracle.

In Part V of this series (previous versions here, here, here, and here), we’re going to illustrate Milei’s accomplishments with a series of tweets.

Today’s column will focus on bad things that are falling (a future column will highlight good things that are rising).

We’ll start with falling poverty.

Next we have falling debt.

And falling deficits.

By the way, all this progress occurred because of spending restraint. Milei is not making the mistake of higher taxes.

Anyhow, with better fiscal policy, this understandably leads to falling country risk.

Next, let’s look at falling bureaucracy.

And we’ll close with falling inflation.

Javier Milei is easily the world’s best leader.

A steroid version of Reagan and Thatcher."

Median Family Income for Married Couples With Children Is Probably Higher Than You Think

By Jeremy Horpedahl.

"In 2024, median income for married couples with children at home was $143,400 in the US. That’s an almost 80 percent real (inflation-adjusted) increase since 1974, the first year Census reports comparable data. Is there some selection bias in who chooses to get married and have kids? Yes. Has there been an increase in dual-income families? Yes, but probably much less than you think (the median family of this type already had two earners by the late 1970s).

With those caveats, this is still pretty impressive:"

 

The Contribution of High-Skilled Immigrants to Innovation in the United States

By Shai Bernstein, Rebecca Diamond, Abhisit Jiranaphawiboon, Timothy McQuade & Beatriz Pousada. In the American Economic Review.

"Abstract

We characterize the contribution of immigrants to US innovation. Leveraging new data, we use age of SSN assignment to identify immigrant status. Immigrants represent 16 percent of inventors, but authored 23 percent of patents. Immigrant inventors contribute to knowledge diffusion across borders. They disproportionately rely on foreign technologies and inventor collaborations. Using variation from premature inventor deaths, we find immigrant inventors create stronger innovation productivity spillovers on their collaborators, as compared to US-born inventors. A simple model implies immigrants are responsible for 32 percent of aggregate innovation, over half of which is due to human capital externalities on US-born collaborators."

Reflections on Americans’ Net Worth

By Bryan Caplan. Excerpt:

"I’ve been an economics professor for almost 30 years, but I don’t think I’ve ever before seen anything like the table below. I knew that claims that “58% of Americans can’t afford a $1,000 car repair” were laughable clickbait. I knew that — measured by income — the middle class is disappearing… by becoming upper-middle class. But only recently did I start to fully appreciate the chasm between populist pessimism and actual data on Americans’ net worth. From the 2022 Survey of Consumer Finances: 

 

"Main reflections:

1. Economists have long known that inequality is relatively low for consumption, medium for income, and high for wealth. What they rarely emphasize, however, is how much wealth depends on age. The richest Americans aged 65-69 are worth about 30x as much as the richest Americans aged 18-24.

2. Net worth is very high in absolute terms. The median is over six figures by the mid-30s. Americans at the 75th percentile are millionaires by their mid-50s. Americans at the 90th percentile are millionaires by around 40. Claims about middle-class, middle-aged Americans who “can’t afford” eggs or gas or beef are nonsense.

3. The most sensible argument for worrying about trade deficits is that we’re “living beyond our means.” Trade deficits represent borrowing, and we can’t keep borrowing forever. But given Americans’ extraordinary net worth, the most sensible argument for worrying is still senseless. After 50 years of unbroken trade deficits, we’re wealthier than ever."