The (Lack of) Anticipatory Effects of the Social Safety Net on Human Capital Investment

Joint Applied Micro Seminar

The (Lack of) Anticipatory Effects of the Social Safety Net on Human Capital Investment
Manasi Deshpande and Rebecca Dizon-Ross

Abstract
How does the expectation of government benefits in adulthood affect human capital investments in childhood? In a simple economic model, expected future benefits decrease childhood human capital investments through income and substitution effects. Experts we surveyed also predicted a large decrease. We test this prediction by conducting a randomized controlled trial with families of children who receive Supplemental Security Income (SSI), a cash welfare program for children and adults with disabilities. The vast majority of parents whose children receive SSI overestimate the likelihood that their child will receive SSI benefits in adulthood. We provide randomly-selected families with information on the predicted likelihood that their child will receive SSI benefits in adulthood and use this randomized information shock to identify the effect of expectations about future benefits. We find that reducing the expectation that children will receive benefits in adulthood does not increase investments in children’s human capital. This zero effect is precisely estimated, and we strongly reject the null hypothesis from our expert survey. Potential explanations for the zero effect include parents increasing their own work effort, financial or time constraints preventing further investment, and non-financial goals influencing investment decisions.