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The U.S. as Welfare State: Government Entitlements Now 35% of Wages


Monday March 14th, 2011   •   Posted by David Theroux at 9:34pm PDT   •  

In “Is the U.S. Becoming a Welfare State?”, Daniel Indiviglio reports in The Atlantic that U.S. government entitlement programs now account for a whopping 35% of wages, up from 26% in 2008.

Uncle Sam has been aggressively increasing Americans’ allowance recently. Government entitlement programs have grown to account for 35% of wages, according to a new analysis by Madeline Schnapp, director of macroeconomic research at investment research firm TrimTabs. The magnitude of government assistance has increased in large part due to high unemployment. But she argues that even when unemployment declines, we aren’t like to see this percentage drop much.

Here’s the key chart from Schnapp, which shows the percentage of social welfare benefits, from programs such as Social Security, Medicare, Medicaid, and unemployment insurance, as a percentage of total wages and salaries (based on data from the Bureau of Economic Analysis):

Before focusing on the current ratio of government transfer payments to total wages, what happened from 2001 through 2002? At that time, transfer payments rose from about 21% to 26%. That appears to coincide with the recession that occurred during that time. Although unemployment eventually declined back down to 4.4% after rising to 6.3%, transfer payments remained steady around 26% of wages. Then, they rose to 35% during the recent recession, where they remain today.

While some might expect this ratio to decline as the unemployment rate wanes, that isn’t what we saw in the last recession. And Schnapp remains unconvinced that we’ll see transfer payments decline all the way back to pre-recessionary levels even when we reach full employment again in a couple of years. . . .


For the full article, please click here.


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