Non take-up of social benefits is a major challenge for many welfare systems. While a number of studies show that information deficits and hassle costs contribute to non-take-up, welfare stigma is also often suggested as a further explanation. The idea is that individuals eligible to claim a social transfer refrain from doing so because they do not want to send a negative signal about their ability, work motivation, or social attitudes, and because the resulting stigmatization may not only impair their self-worth but may also lead to inferior treatment by others.
In their recently published article, BCCP fellows Jana Friedrichsen, Tobias Koenig, and Renke Schmacker, study in a lab experiment if people refrain from taking up a redistributive transfer due to social image concerns. They find that a significant number of subjects do not take up the transfer to avoid the inference of being low-skilled (ability signalling) and willing to live off others (free-rider signalling).
In the experiment, individuals who are ranked last in the income distribution must decide whether or not they would like to take up a transfer from their group members under varying conditions. First, the authors vary the visibility of the take-up decision, i.e. whether the transfer can be taken up in private or whether it requires them to walk through the lab and pick up a yellow slip of paper. Second, the authors manipulate whether the take-up decision is informative about the claimant’s ability. While in one treatment the income distribution is based on performance in a general knowledge quiz, in another treatment income is determined randomly. Third, they vary whether the take-up decision reveals something about the willingness to live at the expense of other group members. Therefore, in one treatment taking up a transfer reduces the income of others and in another treatment the transfer is subsidized by the experimenter.
Comparing these treatments, the authors find that subjects are 30 percentage points less likely to take up a public compared to a private transfer. Moreover, both ability signalling and free-rider signalling contribute to this effect, while other explanations like transaction costs can be ruled out by design. However, when subjects vote on the transfer mechanism to be implemented, less than half of the subjects prefer a public transfer.
While further research is needed to assess the external validity of these findings in real-world welfare systems, the study suggests that reducing the visibility of application and delivery of welfare benefits may increase take-up. This is particularly relevant for programs with a high visibility like food stamps or social housing.
The full paper “Social Image Concerns and Welfare Take-Up” is published in the Journal of Public Economics.