The Benefits to Taxpayers from Increases in Students - RAND ...

Spending on Social Support Programs 43
As discussed in Chapter Two, greater educational attainment leads to better
opportunities in the job market. Higher levels of education result in both higher likelihood
of employment and higher earnings when employed. The decision to participate
in a social support program is dictated by a comparison of the benefits available from
that program and the earnings forgone in the labor market. The more educated the
individual, the more he or she can command in the labor market. Therefore, increased
education makes social support program participation less attractive. Moreover, most
social support programs have stringent participation criteria related to current income
or assets. Anything that improves a person’s earnings potential reduces his or her participation
in social support programs. Further, the benefits provided to participants in
most social support programs are inversely related to the participant’s income. Higher
earning participants receive lower benefits in most social support programs.
The converse is true for most social insurance programs. Eligibility for some social
insurance programs depends on having been employed for some period of time, and
the amount of benefits provided to a beneficiary sometimes depend on the amounts
paid into the program by the beneficiary or on behalf of the beneficiary. Because more
highly educated individuals are more likely to be employed and likely to earn more
when employed, more highly educated people are more likely to qualify for social
insurance and likely to receive higher benefits when they draw on the program.
Program utilization and benefits are a function of income and individual attributes,
including education level. But again, education level directly affects earnings
and, consequently, directly affects both participation in welfare programs and the
amount received when participating. Accordingly, we develop two types of reduced
form models: those that estimate the relationship between program participation and
education level and other personal characteristics, and those that estimate the relationship
between program benefits and education and other personal characteristics
We obtained program participation data from the 2002 SIPP for the eight programs
we consider. The SIPP also provides data on the amount of benefit received by
the individual or family for welfare, food stamps, Unemployment Insurance, SSI, and
Social Security. In each of these programs, we use a two-part model to assess the effect
of educational attainment on program benefits. In the first stage, we model program
utilization as a function of educational attainment, age, gender, race/ethnicity, and
place of birth. In the second stage, for those who are program participants, we model
annual income from the particular program as a function of educational attainment,
age, gender, race/ethnicity, and place of birth. Finally, we combine results from both
models to derive program benefits by education level.
For Medicare and Medicaid, we use 2002 utilization data from the SIPP and 2002
program benefit data from the Centers for Medicare and Medicaid Services of the U.S.
Department of Health and Human Services. Because these data are not stratified by
education or any other variable we’re interested in, we assume that that Medicare and
Medicaid cost per user is constant across education levels and demographic groups. We
use average payment per beneficiary or service user for inpatient and outpatient ser-