ECONOMIC

Public assistance is specifically designed to provide income supplementsfor those who would otherwise have little income. Since public assistance isheavily concentrated in the lowest income groups and the benefits per recipientare a very large fraction of the income of the poor, public assistance hasa strong income redistribution effect. Social security and railroad retirementpayments are largely received by aged families and younger families headedby a widow. Although these families tend to have low current income, thebenefits are larger for those who had higher earnings in the past.The target populations for the other forms of transfer payments, that is,the unemployed, those injured on the job, retired Government employees,and veterans, are not necessarily poor. Except for the lowest and highestincome groups, approximately 17 percent of the families in each groupreceived funds in 1970 from one or more of these four sources. Again exceptfor the extremes of the distribution, there is virtually no change in dollarbenefits per recipient for higher-income groups. The higher the other incomeof the family, the smaller the proportion of income derived from suchbenefits. These transfers have a mild income redistribution effect.Within the category of other payments, unemployment compensation ismore important for middle-income families ($4,000 to $15,000) than forthe poorest and wealthiest of families. The members of the poorest familiesordinarily have too little work experience to qualify for unemployment compensation.The income earners in the highest-income families have lowerrates of unemployment.Income Inequality Before and After the TransfersTable 49 presents a measure of income inequality, the variance in thenatural logarithm of income, for family money income and family moneyincome minus particular transfers (see supplement to this chapter). Thispermits a determination of the extent to which the different types of transfersreduce income inequality. Such an approach implicitly assumes that thetransfers do not give rise to labor market or family formation responses byTABLE 49.—The effect of money transfers on family income inequality, 1970Type of incomeAll incomeAll, excluding "other" transferAll, excluding social securityAll, excluding public assistance 3All, excluding social security and public assistance 3All, excluding all transfer incomeIncomeinequality 10.74.771.16.851.451.571 Income inequality is measured by the variance in the natural log of income. (See Supplement to this chapter).2 "Other" transfers include unemployment benefits, workmen's compensation, government employee pensions, andveterans benefits. The income classes used were: Under $2,000; $2.000-$2,999; $3,000-$3,999; $4,000-$4,999; $5,000-$5,999; $6,000-$6,999; $7,000-$7,999; $8,000-$9,999; $10,000-$14,999; $15,000-$24,999; and $25,000 and over.3 Public assistance includes AFDC and assistance to the aged, blind, and disabled.Sources: Department of Health, Education, and Welfare (Social Security Administration) and Council of EconomicAdvisers.178