The Ugly Truth About Social Welfare Payments and Households’ Subjective Well-Being

Abstract

Background: Implicitly, social welfare payments (SWPs) are a transfer from the wealthy (those in high-income quintiles) to the poor (in low-income quintiles) to reduce poverty and create a more equal distribution of income. Previous studies have shown that resources, such as income (including SWPs), are pooled within households creating positive externalities. Studies on the subjective well-being (SWB) effect of SWPs are scarce, and no previous study has investigated whether the expected positive relationship holds across all household income quintiles.

Aim: This study determines whether the expected positive relationship between SWB and SWPs holds across all household income quintiles.

Setting: The data for this study were obtained from the National Income Dynamics Study (NIDS), which is representative of the state of affairs in South Africa.

Methods: We use a pooled ordered probit and quasi-experimental models to investigate the relationship.

Results: Surprisingly, all forms of SWPs are accessed across all household income quintiles, and the trend over time shows an increase. As expected, the relationship between SWP and SWB is positive, except in those households in the highest income quintile receiving an SWP who experience a negative effect on well-being.

Conclusions: Our study explains the lack of progress in decreasing inequality and lower levels of SWB. Additionally, our findings are of interest to the ongoing broader debates around the effects of SWPs globally on poverty, inequality and SWB. Many checks and balances should be in place to ensure only the most vulnerable access SWPs.