Listen to some voices on the right of the political spectrum, and you might start to worry that the more social safety net programs there are, such as state-sponsored health insurance, food stamps, and welfare, the less incentive people will have to strive and make sacrifices. If you can get by at an acceptable level of comfort without the stresses of work, won't more people be tempted to forgo hard work and content themselves with living off the government instead?

It sounds like a rational enough argument at first glance, but it's also one that you can begin to test empirically. From time to time, states change their eligibility requirements for these programs, either expanding or restricting who can benefit. Those right above and right below the cutoff make for ready-made test and control groups who are very similar in most ways except for one crucial difference--one bunch gets a helping hand from the government and one doesn't.

More Food Stamps = More New Businesses

This sort of natural experiment is the basis of thought-provoking research by Harvard Business School professor Gareth Olds. Raised by parents who relied on government assistance before starting a business, Olds was intrigued by how safety net programs impact entrepreneurship generally. He saw an opportunity to take a rigorous scientific look at this potential relationship in SCHIP, the government program offering health insurance to children in moderate income families that was launched in 1997.

"To research the link between SCHIP and entrepreneurship, Olds studied 1992-2011 data from the United States Census Bureau's Current Population Survey and Survey of Income and Program Participation," HBS Working Knowledge reports. "He compared data for households that fell just above the SCHIP income eligibility threshold with those that fell just below it, before and after the program took effect." 

What did the data show? "The program increased the self-employment rate by 23 percent among eligible households compared with non-eligible households," according to Working Knowledge. "The rate of new business births rose by 13 percent among households that qualified for SCHIP. The survival rate of new businesses rose by 8 percent." These new businesses weren't ill-advised experiments or marginal side projects either--the numbers show they contributed meaningfully to household income.

Olds then turned to food stamps, looking at the effect of an expansion of SNAP (Supplemental Nutrition Assistance Program, a.k.a. food stamps) in the mid-2000s. "He found that newly eligible households were 20 percent more likely to include an entrepreneur as a result of the policy," according to Working Knowledge. "Incorporated business ownership increased by 16 percent among the newly eligible." 

Taken together, these studies address the worry "that people will deliberately keep their incomes low so that they can 'camp out' and keep the benefits," Olds commented. The verdict from this research at least is clear: This fear is probably unfounded.

Do the results of Olds's studies surprise you?

Published on: Sep 17, 2014
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