Journal of Pubhc Economics 48 (1992) 165-183. North-Holland

Understanding welfare stigma: Taxpayer resentment and statistical discrimination

Received Dcccmber 19YO. reviscd version recctved May IYYI

I. Introduction

The term wi/iw .sfi,ymcr rcfcrs to the ncgativc socio-psychological consc-

quencrs or ‘psychic costs’ of being on welfare. Its cxistcncc has been amply

documented, both in surveys of wclfar~ claimants and econometric itnalyscs

of programs.’ It is widely rcgardcd to be of central importnncc in

understanding the impact of welfare programs in their goal of alleviating

Cf,rrl,.s~~l~lJ~,fl~,~, IfI: s. Coa1c. LIcpartmrnl of Economics. Univrr<ity of I’cnnsylvani;l, I’hiladclph~a. PA IY IOJ-62Y7, U.S.A.

*WC arc gr;tteful lo Iwo :rnonymous rcferres. and lo Anne Cuss. David ElIwood. Tom Kane. Glenn Loury. Sh;rron Tennyson. RIchad Zcckhuuser and seminar pxtIcip;~nts 31 Harvard and Princeton for advice. commcnis and encouragcmenl. Financlnl supporl from the John M. Olin Program for the study of Economic Orgamzation and Public Policy at Prlnce1on Universily is also gratefully acknowlcdgcd. None of the above should be held responsible for the product.

‘Rainwdcr (IYX2) provides an ovcrvicw of the survey cvidencc on welfxr stigma. Mofi~ (IYX3) provides an rconomclric test for stigma in the U.S. AFDC program. His resul1s show dclinile cvidencc of 3 sligmu-relalcd disulilily of parlicip;llion.

0047-2727,Y2,505.00 1‘ IYYZ-Elsrvier Science Publishers B.V. All righ1s rescrvcd

166 T. Brsley and S. Coare. L’derrtomfing welfare stigma

poverty. Stigma affects both the decision to take up benefits and the

well-being of those who actually do.

There is a large literature, emanating principally from sociology, that

explores the reasons for welfare stigma. Stigma. it is argued, arises mainly

from negative social attitudes towards welfare claimants. as a consequence of which recipients of benefits are degraded relative to non-recipients.’ Hence.

claimants are treated less favorably than their non-welfare-claiming counter-

parts, and it is this that negatively affects their well-being. The purpose of

this paper is to develop. and then to explore the implications of, two

alternative theories of welfare stigma. Each of them offers an explanation of

why other members of society will posture negatively towards welfare

recipients. Both are equilibrium theories, in that they allow the level of

stigma to be determined endogenously. This has the merit of making the

determinants of stigma precise. We arc therefore able to explore how the

stigma level is influenced by. for example, changes in the level of benetits, the

number of claimants, and taxpayers’ incomes.

Our first theory has its origins in the sociological literature on stigma.

especially the work of GotTman (1963).’ It views stigma as resulting from.

what economists might call, .s~~~~is~ic.trl discrinri,lrrfioff. Society is dccmcd to

value certain individual characteristics such as self-reliance and a willingness

to work hard. Wclfarc claimants arc trcatcd poorly by other mcmbcrs of

society bccausc they arc bclicvcd to possess fcwcr of these dcsirablc

characteristics, on average We offer a way of formalizing this idea as a

moans of cxaniining some of its implications.

This statistical discrimination view sees stigma as dcpcnding solely on the

pcrccivcd personal characteristics of wolfarc claimants. It ignores the fact that

wclfarc programs cost money and have to bc financed by taxation. As

surveys of attitudes to wclfarc claimants rcvcal, the very fact that individuals

are having to pay taxes to finance those who arc on wclfarc is likely to

cngendcr a certain dcyrcc of hostility towards claimants. This rcsentmcnt

may result in taxpayers treating welfare claimants less favorably than others.

irrrqwctiw of their group characteristics. To capture this idea WC develop a

fu.xpuyc’r rr.srn~rmw~ view of welfare stigma. Taxpayers are assumed to care

about the poor to differing degrees, so that some may regard a particular benefit lcvcl as too small while others regard it as excessive. The stigma felt

by those on wclfarc is assumed to be generated by the latter group. These

taxpayers rcscnt welfare claimants and there is a mapping from such

‘Stigma is also sometimes argued IO be induced hy negative self-images. whence individuals lwr their self-esteem bccausc they rrg;~rd themselves as bcmg failures in having IO draw upon public support. II sums unlikely, however, that negdivc: self-imagery could wise indrpendrntly of sociclal attildes.

‘For olher related sociological discussions of stigma. xc Ma~za and Miller (1976). Waxman (19X3). and Spckrr ( 19SJ).

T. &dry ad S. Coare. Understanding welfare sligma 167

resentment into welfare stigma. We assume. moreover, that the amount of

resentment felt by any individual is an increasing function of the difference between the actual benefit level and that which he regards to be desirable. In

what follows this is shown to have rather different implications from the more conventional statistical discrimination view.

Having developed the two theories and derived their basic predictions. we

turn to their implications for policy. A commonly stated policy objective is to reform welfare programs to reduce stigma. A prerequisite for this is some understanding of the relationship between program design and stigma. We

therefore examine what our two theories imply about this relationship. We

find that, under both views, improved targeting and workfare will reduce welfare stigma.

The remainder of the paper is organized as follows. The next section

develops a simple model which provides a framework for developing the two theories. Section 3 formalizes the statistical discrimination view and develops its predictions. Section 4 introduces the taxpayer resentment view of stigma.

Its implications arc derived, and then compared and contrasted with those of the statistical discrimination view. In section 5 we turn to the implications of

the two theories for the relationship between welfare stigma and program

design. Concluding remarks and some suggestions for further research arc contained in section 6.

2. The basic model

Our aim is to provide the simplest possible framework in which to exposit the two thoorics. WC consider an economy with two classes: the rich and the

poor. Out of ;I total population of size N, n individuals arc poor. The poor are themselves divided into two types. A fraction ;’ of them (the ‘needy’)

cannot work, i.e. face a wage of zero, while a fraction I --y (the ‘non-needy’) can work at ;I wage of tr) if they so choose. The N ---II rich individuals each

have an income of J. The rich are assumed to cart about the consumption of the needy poor.

The idea is that they feel some compassion for them because they have no opportunity to earn income.’ Dsnoting the consumption level of a needy poor individual as c,,, a rich person with consumption c has utility

II(C) - /l”;‘P(C”), (3.1)

whcrc 11 is a weight rcprcscnting his dcgrcc of concern about the needy poor, ny is the number of needy poor, and P( .) is a measure of poverty or distress

‘This is simllur. in sprat, IO the approach taken in Zcckhauscr ( 1971).

JPF H

which is smooth. decreasing, and convex. We shall assumed that p varies

continuously over the population on R,, with distribution function G(j1). This captures the idea that the rich vary in their attitudes towards the poor.

The function u( .) is assumed to be increasing, smooth. and strictly concave.

The government operates a welfare system.5 A welfare payment of

b~(0.m) is offered to any poor individual who is not working. a state which

we assume can be verified precisely. While the government can observe each

individual’s employment status. however, it is unable to observe any

particular poor individual’s opportunities. i.e. whether or not he is needy.6

The welfare program is financed by a tax of T=mhl( N --PI) on each rich

individual. where nt denotes the total number of poor on welfare. The benefit

level is assumed to be the product of a political process which we do not

model. For our purposes, therefore. h is an exogenous variable.

Poor individuals who choose to work, supply one unit of labor and obtain

utility

I’( (0) - 0. (‘2)

Hcrc 0 rcprescnts the disutility of labor which varies over poor individuals.

For simplicity, it is assumed to be uniformly distributed on the interval

[0, 11. WC assume also that the function I%( .) is increasing, smooth. strictly

conc;~ve and that I.( .) tends to minus infinity as the consumption of the poor

goes to zero. The last assumption captures the i&a that sonic positive lcvcl

of consumption is ncccssary for survival.

Poor individuals who do not work and claim wclfarc may fact hostility

from other members of society which gives rise to ‘stigma’. The prccisc

dctcrminants of this stigma will bc discussed in the following sections. For

now, wc Ict s dcnota an index of stigma and assume that those on wclfarc

obtain utility

r(h) - s. (3.3)

This formulation embodies the simplifying assumption that aII poor indivi-

duals incur the same psychic cost of being on welfare.’ Needy poor individuals have no choice but to go on welfare and obtain

‘Note I~;I[ we arc nob considering a reciprocal program. such as unemployment insurance, where indivduals arc ;rltcrn;ltively reclpwnts and financers ;11 different dares.

“This implies that while individu;ds cannot ‘char the system by simultnnrously working ad cl;timing wrlfarr. they may ‘exploit’ the sydrn by forgoing work in order IO claim bcncfirs.

‘There is no reason IO suppose Ihal individu:ds will experience the same psychic coct oC being on wclf;lre. I’rcciscly how an indlvidunl will fed ahou~ his poor lreatmsnt by others wll dcpcnd on his own self-cstocm. his own Mings ahout bong on wclf;rre. and his own dcsircs 10 IX ;~ccp~ed hy others in sl,ciety. These things are alI Ilkdy IO be highly individual spwilic.

utility c(b) -s.’ A non-needy individual has more options. He can work and

obtain utility c(o)-0 or, since the government cannot observe individuals’

opportunities. he can decide to go on welfare. He will then obtain utility

r(b) --s. We can thus define a critical 8, satisfying

L’(W) - tj = c(b) - s, (2.4)

as the level of disutility from work that equates the utility from working with

that from going on welfare. All those individuals for whom 0 exceeds (5 prefer

not to work. The number of poor on welfare will therefore be given by

m=n(y+(l-~)(I-~)). (2.5)

This has two components: all of the needy poor - the ‘deserving recipients’ -

and that fraction of the non-needy poor with disutilities greater than fi - the

‘undeserving recipients’.’ It is straightforward to check that 0 is decreasing

in h and increasing in (I) and s. Hence. a rise in welfare benefits increases the

number on welfare, while an increase in welfare stigma or the wage of the

working poor dccreascs it.‘”

Using this model. we arc able to calculate how many poor individuals will

bc on wclfarc for any given bcnctit lcvcl h and stigma level s. WC can also

calculate the distribution of utility levels among the rich - a rich individual

with dcgrcc of concern 11 will obtain utility

1r(y -trh/( N - )I)) - pi’l’(b). (7.6)

WC close the model by making prccisc how the lcvcl of stigma is dctcrmincd

and WC turn to this in (he next Iwo sections.

3. ‘I’he statistical discrimination view

The lirst theory we develop has its origins in the sociological litcraturc on

stigma, particularly the work of Hoffman (1963). His concern is with stigma

“Our assumplion Ihat ~(0) = - x implies thlrr it is ncvcr qximal {or un individu;tl IO neither work nor go on welfxc. This seems plausible when individu;tls have no other souvx of income. If they did have other sources of income or savings. then some mdy prefer IO forgo the bencfit to avoid being stimatid and stigma would an;lct take up rates among the ntxdy poor as well as the non-nerdy.

“The terms ‘deserving’ and ‘undcscrving’ arc nol man! lo be conslrurd normatively - they are merely summary terms for Ihr atli!udcs of t;lrpayrrs.

‘“Thts formuhltion assumes both that (II and the opportunilirs of Ihe ncrdy poor are indcpendrnt of the number ol non-needy poor who claim welfare. WC imagine a world in which (:I is instirulionally delrrmmcd and needy individuals are those who cannot prolitably lill these jobs. This may bc bccausr they lack the necessary skills or because they are disabled in some unobservabls way (e.g. bad backs).

170 T. Brslep and S. Come, L’ndrrsranding wlJLre sigma

in more general contexts. Rather than defme ‘stigma’ as the costs arising

from being poorly regarded by others in society. he defines ‘a stigma’ as an

attribute that gives rise to such negative views:

While the stranger is present before us, evidence can arise of his

possessing an attribute that makes him different from others in the

category of persons available for him to be. and of a less desirable kind - in the extreme, a person who is quite thoroughly bad, or dangerous,

or weak. He is thus reduced in our minds from a whole and usual

person to a tainted, discounted one. Such an attribute is a stigma

(page 3).

An individual possessing ‘a stigma’ will find himself treated differently by

other members of society:

Those who have dealings with him fail to accord him the respect and

regard which the uncontaminated aspects of his social identity have led

them to anticipate extending, and have led him to anticipate receiving

(page 8).

This can impost significant psychic costs on the individual. It may also.

Goffman argues, Icad to certain behavioral and psychological rcsponscs. and

much of his work is dcvotcd to identifying thcsc.”

Goffman dcfincs three classes of stigma, tho second of which is most

rclcvant for our purposes. This consists of

hlc~rtislrc~.s 04‘ idiriclutrl chrcu.lcr pcrcoivcd as weak will, domineering or

unnatural passions, trcachcrous and rigid bclicfs, and dishonesty. thcsc

being irljhwl from a known record of, for oxamplc. mental disorder.

imprisonment, . . , uncmploymcnt, suicidal attempts, and radical politi-

cal behavior (emphasis adtlcd) (page 4).

This definition provides the key to understanding the sociological view of

wclfarc stigma. Society is assumed to value particular individual charactcris-

tics, such as self-rcliancc and a willingness to work hard, and welfare

claimants arc pcrccivcd to lack them. Hence, if it is known that an individual

is on wclfarc, other individuals will infer that this individual will likely possess some blemish of character. This forms the basis for less favorublc

trcatmcnt and hence gives rise to ‘stigma’ as WC have dctincd it.

This need not imply that, in a world of perfect information, all welfare

“lndividu;ds possessing ‘;I srlgma’ may respond behaviorally by cumoutlaguing thrir stigma. signalling other redeeming ch;lractrristics they possess. avoiding interactions with ‘normnls’. and so on. The psychological responses include a loss ol self-rqwct and. possibly. adoption of altitudes consistent with the normals’ expectations. While clearly important. we do not deal wl!h the responses ol wrlfarc claimants IO stigma in our model. We come back IO this issue in our sugg:estwns for future rcscarch.

T. Brsley und S. Coarc. Cdersrclndm~ wrl]Lre srigma 171

claimants would be regarded unfavorably. The view allows for a distinction

between deserving and undeserving recipients. The deserving are those whose decision to claim welfare does not stem from a lack of socially valuable

characteristics. The disabled and those who are genuinely involuntary unemployed might fall into this category. By contrast, the undeserving poor are welfare claimants whose reason for claiming can be directly attributed to

blemishes of individual character. This might include those who are unem-

ployed as a consequence of laziness. alcoholism, drug addiction, etc. It is

precisely because the undeserving cannot be distinguished from the deserving that they impose a ‘reputational externality’ on them, i.e. they reduce the

social esteem of all welfare claimants. Hence. their presence (real or perceived) on the welfare roles tarnrbhes the act of claiming welfare and results in the poor treatment of all recipients.

This view of welfare stigma can be modeled within our framework by

regarding the disutility of labor as representing the characteristic on the basis of which social judgments are based. i.e. work is judged to bc a merit good

and those with high disutilities of labor are regarded as being ‘lazy’. Hence, it is the non-needy individuals who choose to go on welfare because they have high disutilitics of labor who cause the hostility towards the claimant group as a wholo.” To make this prccisc. Ict (7 denote the avcragc disutility of

labor among the poor, ix. tJ=s/, (IdO. and Ict 0, dcnotc the average disutility

of an undcscrving claimant. ix. (Jy=fJ OdO/( I -fi). Clearly, 0” cxcccds (7. Since

the avcragc disutility of a dcscrving claimant is simply the population (or social) norm Cr.‘-’ that of all wclfarc claimants is given by

(J,(h,.s)=n(J+(I -X)0”, (3.1)

whcrc n is used to dcnotc the fraction of wclfarc claimants who arc dcscrving, i.e. n - t~y/rrt. If n < I. then (7, exceeds (7.

Pursuing this intcrprctation. it stems reasonable to suppose that the level

of wclfarc stigma will be an increasing function of the diffcrcncc bctwccn oW and (7.” The larger is this difference, the larger will be the discrepancy between the average disutility of labor among welfare claimants and the

“In it model which allowed ‘wclbrc cheats’ (i.e. individuals who both work and claim bcnclits) wclLrr claimants might also be stigmatized as being dishonest. Those non-needy indivitluds who choose lo conceal their cmploymcnt SIRIUS and claim hcnclits bccausc they have a low drgrcs of honesty would then bc imposing an cxtcrnality on the other claimants.

“WC arc implicitly assuming hcrc that the avcr~gc disutility of labor among the rich is the same 3s that of the poor.

‘*This assumes that stigma is ‘rational’ in the scnsc that it is related to rrue rather than just pcrccivcd di&renccs in the characteristics of welfare claimants. This may bc toG strong. The work of Goiding and Middlcton (1982) makes clear not only that the media plllys an important role in influencing pcrccptions. but also that individuals sometimes possess prejudices which seem totally unrclatcd IO the facts. For our qualitative results to be valid. however. all we really ncd is that there bc a monotonic relationship bctwccn the truth and individuals’ perceptions.

social norm. and hence the greater grounds for thinking that welfare

claimants are significantly lazier. We therefore define the equilibrium level of

welfare stigma to be that which satisfies the equation

s*=g(&Jh.s*)-6). (3.‘)

where g( .) is some smooth. increasing function satisfying g(O)=O. The

function g maps the differences in group characteristics into the index of

stigma and will be regarded as exogenous in our analysis. Subsumed into this

function is the precise relationship between perceived differences of welfare

claimants, the level of hostility this gives rise to, and the psychic cost this

hostility generates.”

Eq. (3.2) provides a way of closing the model that we introduced in section

2. Given a benefit level h, and values of the other exogenous variables. it can

be solved for the equilibrium level of welfare stigma. Together with h, s* will

dcterminc the equilibrium number of welfare claimants and the tax on rich

individuals. Endogenizing the level of stigma is the key achievement of the

model. it allows us to address questions concerning the behavior of stigma.

for cxamplc as a function of the level of general economic activity and the

design of wclfarc programs.

We turn now to cxplorinp the main implications of the statistical

discrimination view of wclfarc stigma. In particular. wc arc intcrestcd in

seeing how the stigma lcvcl changes with variations in the cxogcnous

variables. 1 Icncc, wc calculate partial dcrivativcs of the function s*( .), defined

implicitly by cq. (3.2). WC should first point out. howcvcr, that while an

equilibrium of the statistical discrimination model always exists. it may not

be unique. This is bccausc (1, - the avcragc laziness of wclfarc claimants -

may actually be increasing in stigma. To see this differentiate (3.1) to lind

that

f’l~,/f’.S = ( I - 7r)fV”/f?S + (0 - il,)c7n/,?s. (3.3)

A rise in stigma deters non-needy individuals from claiming. thereby

increasing the fraction of claimants who are dcscrving. Thus ~‘n/~~.s is positive

and, since 0” exceeds 0, we have a negative second term. At the same time,

however, the non-needy individuals who Icave wclfarc because of the rise in stigma have lower disutilities of labor than the average. Hence, the average

“In some rcspwts this makes our model incomplete. We are principally modeling the broad dsterminanls of the level of hoslllily uhich the rest of society brings to bear on weKtre recipients. A more complete model would. in particular. explain precisely how this hostility i; manifesrrd and the cffec~ this has on welfare claimants. The function g( ‘) is a ‘black box’ representing this. We arc implicitly holding the relationship between non-welfare claimants’ hostility and the psychic COSIS it gcnrr;ltes fired in the ensuing analysis.

T. Brslry and S. Coure. L‘derstunrlin~ welfare stIRma 173

disutility of labor among those undeserving individuals still on welfare

increases, i.e. Sd,/Ss is positive. It follows that the first term in (3.3) is

positive. Thus. if n is small. then c’~,/Ss may be positive. If g’Sg,/c’s exceeds

one, then. as the reader can easily verify, there may be multiple equilibria.

The existence of multiple equilibria creates significant problems in under-

taking comparative static analyses. Without a well-specified model of the

dynamics of adjustment to a new equilibrium, one cannot be sure which of

the equilibria will be reached after a small parameter change. To avoid these

difficulties we henceforth restrict our attention to ranges of the parameter

values for which $?~~/A is less than one.

We begin our comparative static analysis with the effect on welfare stigma

of an increase in benefit levels. Intuitively. one might expect an increase in

benefit levels to increase stigma because it will attract more non-needy

individuals into the program. Using (3.2) we obtain:

Provided that the denominator is positive. the sign of this expression

dcpcnds on C(~,/C%. Note that it is not ncccssnrily true that the average

disutility of’ labor among wclfarc claimants is increasing in the bcncfits level,

i.e. ii(S,/c% may bc ncgativc. From (3. I ) we have

A rise in bcncfits incrcascs the numhcr of undcscrving claimants and rcduccs

the fraction of dcscrving claimants, so that the second term in (3.5) is

positive. On the other hand, the first term is ncgativc - a higher level of bcncfits attracts individuals to welfare who have lower disutilitics of labor on

avcragc. It is not possible to say a priori which of’ these two effects will

dominate. This ambiguity means that WC arc unable to detcrminc the sign of

a change in stigma following iIn incrcasc in benefit levels unambiguously.

This ambiguity can be rcsolvcd if the fraction of non-needy individuals on

wclfarc [i.e. (I -O)] is small enough. To bc more prccisc, we can use our

definitions of n and u’, to show that’”

‘“To set this. nok first that (7= I,‘? and thar il,=( I + /J),‘Z. By dctinition (I, = d7+( I -n)i7,. However. n=y/(~+(I -;‘I( I -d)) and thus

~I=[;‘L7+(I-;.)(I-(o~),2],‘(i’+(I-~)(l -0)).

Ddkrcm~inting wth rcrpxt IO h. WC obkn:

fv_jc’h1 -(I -;)rl,[(~+(l -;‘)(I -ri))n-(~n+(l -;.)(l-r7~):~)j,~(,+(l-~)(l-a))~.

Using the fact that (7 = I,‘?. WC’ can write this as

fv./r’h= -(I -~,f7,[D-O-(l -;)D’,,],~(~+(l -i’)(l -4))‘.

The result in (3.6) nwv followc after noting that (1, = -o’(h).

t?d,,‘c’b=( I -‘i)o’(b)[(d-B)-( I -y)d’/Z],#(y+( I -y)( I--&)‘, (3.6)

which is positive (negative) as 8 is greater (smaller) than (1 -y’,‘),‘( 1-y). A

better grasp on this condition can be obtained by considering the case in

which y=O.l. i.e. IO percent of the poor are needy. In this case, the critical value of 0 is 0.75. i.e. if less than 25 percent of the non-needy poor claim

welfare. then a rise in the benefit level increases the average disutility of labor

among welfare claimants. This establishes that under the slaristical discrimi-

nation ciew an increase in benefits increases we&ire stipu provided lhut

d>(l-7’ * )/(1-y). When 0 is only slightly smaller than (1 -7’ ‘)/(1-y), welfare stigma will actually be decreasing in the benefit level.”

Since a change in the income of the rich or a change in the number of poor has no effect on the average disutility of labor among welfare claimants

we can conclude immediately that under l/w statistical discrimination vie\%

weljirre stigmu is unq&cted by chcmges in the income of the rich and ckcqqtls in

the number of poor. This is a significant point. The statistical discrimination view implies that stigma should depend or~l_~ on the characteristics of welfare

claimants. It is therefore independent of the tax burden of the program and

how well off taxpayers arc.

The wapc of the working poor does alter the stigma level since it changes

the number of undcscrving claimants on welfare. It acts in a similar manner

to a reduction in benclit levels - increasing the fraction of dcscrving

claimants and raising the average disutility of labor among the group of

undeserving individuals who remain on welfare. A similar argument to that

used above to sign the cfi’cct of a change in benefits on stigma can be used to

verify that irrrcler lhe .slc~li.slicd rli.sc.rinrirlirtion view wel/ilre slipnfl will dccrcusc

when the wqe of the poor incren.sc.s i/‘ fi > ( I - y”‘)/( I -;f). Once again, this

result is reversed for values of Ij which lie just below our critical value.

Stigma is also affected by changes in the fraction of the poor who arc

needy. From (3.2) wc have

?.s*/+ =,~‘~?tJ,/~7;,/[ I -.~(c'tJ,/t%]. (3.7)

Provided the denominator is positive, this has the same sign as ?(J,/?y. We

can use (3.1) to show that AS,/ c’~=((J-~U)~7n/P~, which is negative since the

fraction of dcscrving claimants is increasing in 7. Hcncc. to summarize, under tlw .stc~ti.sticcrl di.scrimirlat ion view sligmcl dcc*reu.se.s when the jkction oj’ lhr

poor W/IO clre needy increcl.st,.s. There is a simple intuitive argument to this efTcct. The larger the fraction of the poor who arc needy, the larger the

“It is straightforward to verify that ?fl I /c’s is positive (ncgarivc) as Cf is smaller (grcatrr) than (I -7 ’ ‘1 (I -7). Thus. Tar parametrr values such that d is only slightly smaller than ( I - 7”‘):( I - 7). g’c’t7,,‘t’s will be less than one.

T. 6esle.v and S. Cuare. L;n&rstanding welfure srigmo 175

fraction of welfare claimants who are deserving and hence the lower is

stigma.

This completes our analysis of the comparative static properties of the

statistical discrimination view. They seem worth understanding since they

help to make clear the determinants of the level of welfare stigma. Later in

the paper we will develop some further predictions of the model concerning

the design of welfare programs. Before we do this, however, we shall analyze

a rather different view of what generates welfare stigma.

4. The taxpayer resentment view

The statistical discrimination view of welfare stigma is intuitively appeal-

ing. Moreover. it is consonant with surveys of attitudes to welfare claimants

(and the poor more generally) which do suggest they are regarded as

deficient in socially desirable characteristics.” Nonetheless. we do not feel

that it captures the whole story. It ignores the fact that welfare programs

cost money and have to be financed by taxation. The fact that individuals

arc having to pay taxes to linancc those on welfare is likely to engcndcr a

ccrtuin rcscntmcnt toward claimants and this could help to explain why

taxpayers might treat w&arc claimants less favorably than others, irrcspcc-

tivc of their group characteristics. To capture this idea, we develop an

altcrnativc taxpayer rcscntmcnt view of welfare stigma. While to fix ideas we

will present this view as a substitute theory for that prcscntcd in the previous

section, it is probably bcttcr to regard the two views as complcmcntary, with

each capturing some part of the process by which welfare stigma is

gcncratcd.‘”

The starting point for our taxpayer rcscntmcnt view is the observation

that, while the level of’ wclfrlrc benefits is chosen by the government. each

rich individual will have his own idea of what it should be. A rich individual

with a dcgrcc of concern for the needy poor measured by p would, if he were

in a position to do so, choose a ICVL’I of’ benefits

(4.1)

Hence, only those individuals with welfare weight fi, such that

‘“Ser. once ag;Cn. the rvidcnce cited in Rainwater (1982). ‘%rveys of 3rtiludes lo wclf~c claimanls often rcvectl il combination ol laxpaycr resentment

and statistical discrimination. The book by Golding and Middleton contains some excellent examples among them the following quote from the notable British columnist. Lynda-Lee Porter: ‘Our bronzed. healthy. young hedonislic army of self-unemployed arc holidaying by the sa al our expense this year and. yes I do rcscnt il. I rruznl working lo support the idle loafers who have a laugh a~ our cxpensivcly generous system which allows them IO get away with leyalisrd plunder’ (page 106).

176 T. fkdey and S. Coate. b’nderstandin~ wrlfure rriymu

6*(ji,s)=b. (4.2)

will be happy with the prevailing benefit level. The remaining taxpayers fall

into two groups. Those for whom 11 is larger than 6 will regard the level of

welfare benefits as too parsimonious, in contrast to those with jf less than ji

who will view it as too generous.

The stigma felt by those on welfare is assumed to be generated by those

taxpayers who regard the welfare benefit as excessive. More specitically we

assume that this group of taxpayers TYSUI~S welfare claimants and thus treats

them less favorably than other individuals in society. It seems natural to

suppose that the level of an individual taxpayer’s resentment is increasing in

the discrepancy between actual benelit levels and the level that he regards to

be appropriate. Taking this idea further, let r(jc,s, h) represent the resentment

felt by an individual with concern parameter 11. denoted as a function of s

and h. We assume that

r(jf,s. h) =II(I,-h*(jL.s)). (4.2)

where the function /I( .) is smooth, incrcasinp, and satisfies II(O) = 0. We will

suppose that the hiphcr an individual taxpayer’s rcscntmcnt the grcatcr his

hostility towards wclfarc claimants and hcncc that welfare stigma is an

incrcnsing function of aggregate taxpayer rcscntmcnt. Moreover, we choose

units so that s and r arc mcasurcd on the same scale. Thus WC dclinc the

equilibrium lcvcl of wclfarc stigma, s *, to bc that which satisfies the cquation

s*=(N-lI)jr(jf.S*,h)d(~(jo. (4.4) 0

This equation provides an altcrnativc way of closing the model. Again. it will

tell us the equilibrium lcvcl of welfare stigma for given values of the

cxogcnous variables. It is straightforward to verify that, in contrast to the

statistical discrimination view, this equation has a unique solution.

Before wc dcvclop some implications of this view, scvcral remarks about

the general approach arc in order. First, note that the resentment and

consequent hostility toward wetfare claimants that WC are describing is the

product of an emotion rather than a calculated attempt to reduce the wcll-

being of welfare recipients. This is to be contrasted with a model in which

individuals gcncratc stigma strategically, i.c. choose stigma lcvcls in an

attempt to reduce their tax bills. The tatter seems implausible since it is unlikely that any particular individual could unilaterally affect the level of

social stigma no matter how hard hc tried.

Second. WC have assumed that taxpayers with il>fi do not affect the level

7Y Besley und S. Come. Udcrsranding we//are strgmn 177

of welfare stigma. While these individuals will likely feel some sympathy for

welfare claimants and may treat them more favorably than others, it seems

unlikely that they will offset the effects of the hostility from resenting

taxpayers. After all. there is a natural asymmetry arising from the fact that

those who believe that the poor are given too little can. if they wish,

contribute to charitable organizations. while those who believe that they are

given too much have no means of reducing the benefit level. In any case,

extending the model to allow those with p>@ to offset the resentment of

those taxpayers who regard benefits as excessive, would not alter the

structure of the model in any fundamental way.

A third issue concerns why those taxpayers who regard benefit levels as

excessive resent welfare claimants at all. After all, their anger might better be

focused on the government. Our approach does not preclude the possibility

that resenting taxpayers will exert political pressure for benefit reductions.

All that we require is that such pressure does not diffuse all the resentment

that taxpayers feel.

Finally. referring to (7.1). it is clear that the welfare of the needy poor is

like a public good in the utility functions of the rich. This idea is in tune

with the literature beginning with Thurow (1971). The tax system that WC

envisage here dots not tax the rich in a manner that is scnsitivc to their

valuations of the welfare of the needy poor and hcncc, while mirroring what

we see in reality. will not bc an optimal method of finance. The elimination

of wolfarc stigma would rcquirc the govcrnmcnt to use a tax system that

levied taxes on each rich individual according to his or her 11. This would be

like having each individual buy the good poor support at his/her Lindahl

price

We arc now ready to cxplorc the comparative static properties of the

taxpayer resentment model of welfare stigma. We begin by considering how

the level of wclfarc stigma depends on the level of welfare payments. From

(4.4) we obtain:

Cls*/~b=(N--n)j~~dG(~~) I-(N-,&,dC(/I) 0 0 1

(4.5)

It is clear from (4.3) that r,, is positive i.e. an individual’s resentment is

increasing in the size of the bcncfit. This cxprcssion will therefore be positive

provided that rescntmcnt is decreasing in stigma. i.e. r, is negative. From

(4.3) WC also see that r,= - h’h:, which is negative if and only if each

individual’s ‘optimal’ benctit level is increasing in stigma. The partial

derivative. h:. can be obtained by totally differentiating the first-order

condition for h*. which is given by

178 T. Beslep and S. Coate. Lndrrstandrng wrlfure srigmo

-pr;P’=u’( -)(m +b*m,)/‘(N-n). (4.6)

It is straightforward to establish that 6: is positive. Hence, in contrast to the

statistical discrimination view, under the taxpayer resentment view stigma

dwaps increuses when the brnejit lecel is rtrised. The intuitive argument

behind this is simple. Raising benefit levels will cause further resentment

among those who already regard benefit levels as excessive and will also

increase the number of resenters.

Since it focuses on financing aspects of welfare programs, the taxpayer resentment model. unlike that discussed in the previous section, makes

stigma sensitive to the income of the rich. Differentiating (4.4) reveals that

Ss*/?y = (N - n) j rp dG(/c)/d. 0

(4.7)

where d = [I -(N -n) js r,, dG(/c)] > 0. From (4.3). the sign of ry is opposite to

that of h:. Moreover, it is straightforward to verify that h: is positive.

Putting all of this togcthcr we see that LJ~ incrctJ.w in (he incomr oj‘ t/w rich

rduws dfirre .vti~qmcJ Jinth~r tfrc IcJspcJprr resenttnent ok%‘. Once again, there is a simple intuitive argument behind this. A taxpayer’s rcscntmcnt depends

on the diffcrcncc bctwccn the actual benefit level and the bcnctit level he

would choose. An incrcasc in income rcduccs the taxpayer’s marginal utility

of incomc making him more inclined to bc gcncrous to the poor and thcrcby

reducing his rcscntmcnt.

Another variable. which had no cffcct on wclfarc stigma under the

statistical discrimination view, was the number of poor. From (4.4) we see

1ht

(N -II) i r,dG(p) - 7 r dG(p) I’ (1. (4.X) 0 0 I

It is clear from (4.8) that thcrc are two cffccts at work here. First, an increase

in the number of poor individuals reduces the number of taxpayers and hence reduces the number of potential stigmatizcrs. This effect is picked up in

the second part of the numerator. Second. the resentment levels of remaining

taxpayers incrcasc since h * is decreasing in II. The net result for stigma

dcpcnds upon the relative magnitudes of these two efTects. To summarize

then, ldsr f/w luxptrgrr rc’.SCnft?JenI CieW (111 incraJ.Se in the nur?Jher o/’ the poor

mcJy either increlJ.sr or du-ruse WelJiJrr sti+yncJ.

The next question concerns how the wage of the poor affects the level of welfare stigma. From (4.4) we have

T. Brsley ad S. Coutr. L'delrrsronding wlfkre stigma 179

~B*;S~=(n:-n,jr,dG(~c),J. 0

(4.9)

As in the previous case. the sign of r. is opposite to that of b:. i.e. the

change in the taxpayers’ optimal benetit level when the wage of the poor

increases. It is straightforward to verify that b: is positive - an increase in

the wage of the poor reduces the number of non-needy individuals who

choose to claim benefits, thereby reducing the cost of raising benefit levels.

Thus we have established, as we did for the statistical discrimination view

above, that welfkre stigma is lower when the poor hare higher wnges under the

taxpayer resentment view.

The final question of interest concerns the effect of varying ;‘, the fraction

of needy poor in the population. From (4.4) we now obtain:

As usual. the sign of ry is opposite to that of h:. However. in this instance the

sign of the latter is ambiguous. There arc two opposing effects. First. a rise in

7 increases the total number of welfare claimants, thereby reducing the

marginal utility of income of the rich. This ‘income effect’ reduces the

optimal benefit lcvcl as vicwcd by any rich individual. Second. thcrc arc

incontivc effects. A rise in 7 rcduccs the number of non-needy individuals

who will bc attracted on to wclfarc by higher bcncfit Icvcls. This results in an

increase in the optimal bcncfit lcvcl which any rich individual would choose.

Thus WI iruwuw irl I/W Jicrction (!/‘ the* poor who urc nw~y nury c*ithcr imrcusc

or rlwrcww wljiuv .sfig:,nu untlcr the* llr.~pu~w rcsc~ttmw~ lkw.

Thcsc comparative static results reveal some gcncrnl features about how

the taxpayer resentment model works. Thcrc arc two csscntial components

involved in evaluating the comparative statics. First. thcrc are effects on the

rich that operate via a change in their income. Second, thcrc arc effects that

operate via changes in the composition of welfare claimants and the

incentives to claim welfare. As the fraction of undeserving claimants and the

incentive to go on wclfarc incrcascs, the willingness of the rich to support the

poor will bc rcduccd.

As we have made clear throughout. it is in the income elTects that the two

views that we have idcntificd arc crucially diffcrcnt. The taxpayer rescntmcnt

view injects some sensitivity of stigma to economic influences on those who

have to finance programs. This seems to us to constitute the most significant

difference between the views and offers some promise for empirical analysis

by testing whether stigma-related disutility of participation depends upon the

incomes and fortunes of the tax-paying public. Apart from this, many of the

predictions of the models are similar. which re-emphasizes the point that

they should be viewed as complementary explanations of welfare stigma.

As a final comment on the taxpayer resentment view. it is important to

note that the predictions developed above would not necessarily hold up if

benefit levels were allowed to be determined endogenously. Consider, for

example. what would happen in a median voter model where the latter is a

member of the non-poor population. This would imply that those individuals

whose concern for the poor was below the median would resent welfare

recipients. Changes in any of the exogenous variables would then result in a

changed benefit level. For the sake of concreteness, consider a decrease in

taxpayers’ income. This would decrease the median voter’s desired level of

benefits and. after a suitable lag, result in a cut in benefits. After the benefit

reduction the group of resenting taxpayers would. of course, be the same as

before the income fall: however, it is not immediately clear how the

resentment level of these individuals might change. Each might be further or

closer to their desired benefit level than they were before the income fall.

S. Stigma and program design

A commonly cited concern of policy-makers it to reform welfare programs

to reduce the lcvcl of stigma. The task of this section is to discuss what the

two views of stigma idcntificd above imply about the relationship bctwocn

welfare stigma and program design. The first question we examine is whether

clTorts to improve targeting to the needy poor will reduce stigma. To

formalize this idea. imagine that the opportunities of a fraction r of the poor

could bc correctly idcntificd, i.e. the govcrnmcnt could tell whether they

could earn a wage of f0 or zcru. Suppose, furthermore. that any poor person

who is found to be capable of working is denied the benefit. Under this

SChClllC, only il fraction ( I - r) of the nun-needy poor who would like to

claim welfare will be able to do so. In the model of section 2, r is zero. Here

we show that if r can bc raised costlcssly, welfare stigma will fall under both

of the views that we have identified.

If a fraction r of individuals can be identified in the way we described,

then the number of poor who claim welfare is

rrI’~tI~~+(l -r)(l -i’)(l -d& (5.1)

where 0 is still dclincd by (2.4). In the taxpayer resentment model, it follows

from (4.4) that

?S*,'c'T = (N - tf) j rr dG(/~)/‘id, (5.2)

T. Bus1e.v and S. Cuure. L’nclerstamlin~ wrl_fure stigma 181

while from (4.3) we find rr= -h’b:. It is intuitively clear that b: is positive.

Increasing 1 reduces both the fraction of claimants who are undeserving and

the incentive problems associated with raising benefits. It follows, therefore,

that rr is negative, implying that stigma is reduced.

In the statistical discrimination model.

(5.3)

Provided that the denominator is positive, this has the same sign as S~~,/~T

which is negative. Hence. improved targeting to reduce the number of‘

wdeserr*ing clainwnts will retliicr~ wljiu-e srigmu ctndtv both the trrxprryer

rcsentmrnf cmcl stcllisticxrl tlisc.rinriricition views.

In interpreting this result. it is important to bear in mind that we have

assumed away additional costs incurred by raising r. These are likely to be of

two kinds. First. there may be additional administrative costs resulting from

having to make more detailed investigations of individuals’ circumstances.

Were these taken into account, the stigma level might be increased under the

taxpayer resentment view because of the income effect induced by raising

taxes. Second. and perhaps more importantly, under both views the tests

implied by a more targeted program might hcightcn the sense that poor

individuals have been treated differently. thus increasing the psychic costs of

being on welfare.” This effect is currently absent from our model.

One altcrnativc to incrcascd scrutinization of welfare applicants is to

impose a work rcquircmcnt to make the program .sc’!/ll~lr.~c’li,t.~.~’ Work

rcquircmcnts may serve to screen bclwcon groups of individuals with

diffcrcnt abilities to cam. In the prcsonl conlcxt. assuming that needy

individuals arc ‘employable’. this screening would lake place bctwccn the

needy and non-needy welfare claimants.” Consider a workfare program

which demands that a welfare claimant supply one unit of labor lo claim the

bcnctit. This would attain perfect largcting, since all non-needy individuals

would be deterred from claiming. i.e. if ;I needy individual had to work, then

he would be better off supplying his labor to the private sector. Hence,

wd$rw wodd rrtlwr wljiwc~ .sli,qmci in fhr tnspayer resentmrnt modd id

would rlimintrre ir in ~lrc s~c~tisticul di.sc.ri,tlintrriorr mdd. The last statement is

true since. under a workfare scheme, the fraction of deserving claimants

“In practvx. some fraction of the nsedy are likely IO bc ‘unemployables’. is. those who sirher c:mnot work due IO physlcul or social disabtlily. or who rocicry deems should not work. such as mothers with young children. If these: individuals cannot easily be distinguishrd from tht: employahles. then the screening cxx for workfare is wcukunod. since it may screen out some of the needy. I-or further divxsslon ser Wesley and Coalc (1991).

181 T: Beslev and S. Cane. L’nderslanding welfare strgma

would be equal to one. *’ Stigma may remain under the taxpayer resentment

view because some of the rich continue to regard the benefit level as

excessive. even though it is paid only to the deserving.

It is important to remember that, even if we adopt the statistical

discrimination view, workfare may result in the needy poor being worse off, for while they may be treated with more respect by the rest of the

population. they now have to work. The assumption that there are no costs

to making the needy work is also extreme. Some of them may, for example.

have children who require day care which is costly to provide. Moreover,

workfare is likely to entail significantly higher administrative costs than

welfare.

6. Concluding remarks

This paper has developed and explored two theories of welfare stigma. The

first theory, which we have called the statistical discrimination view, was

otiered as a formalization of the sociological approach to welfare stigma. The

second. a taxpayer rcscntmcnt view, was based more on the consequences of

having to raise taxes to finance wclfarc programs. Both theorics arc

‘equilibrium’ theories, with the Icvcl of wclfarc stigma being dcrivcd cndoge-

nously. This allows the dctcrminants of wclfarc stigma to be made prccisc.

While WC have prcscntcd the two thcorics as substitutes, WC bclievc that both

capture some aspects of stigma.

Wc have also sxamincd the relationship bctwccn program design and

welfare stigma. Both thcorics suggest that the key to reducing stigma is to

rcducc the fraction of undoserving claimants rccciving bcncfits. This might bc

done cithcr by increasing the scrutiny each claimant is subjcctcd to or by

instigating ;I workfarc program which would make the system self-targeting.

Thcrc arc two main questions pertaining to welfare stigma which WC have

not addressed and yet seem worthy of attention. The first focuses on the

response of wclfarc claimants to less favorable treatment by other mcmbcrs

of society. As Gofl’man argues. individuals are likely to respond to stigma in

a variety of ways. They may. for example. try to camouflage the fact they are

on welfure. and may be more likely to interact with others who are claiming

benefits. More importantly for our purposes, they may eventually adopt the characteristics they arc assumed to have by those who stigmatize them. This

may help explain the phenomenon of wl/irre drpenclrncv.24

The second question concerns the appropriate policy stance to take on

stigma. In the previous section WC assumed that a legitimate objective of

program design was to reduce welfare stigma. When the government has

“Stigma would. of course. remain undrr the sralisricnl discrimination view if needy individuals wcrr deemed IO bc lacking in some other characteristic.

2’Scr I3lanh ( I’HW).

imperfect information about welfare claimants. however, stigma may serve a

useful policy role. As our model illustrates. it serves to reduce the number of undeserving claimants on welfare. It may be a less costly way of achieving this objective than the alternatives of increased scrutiny of claimants or workfare.

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