Government Entitlement Programs Amount to Over One-Third of Total Wages

March 15, 2011

Government entitlement programs amount to 35 percent of total wages, according to a new analysis by Madeline Schnapp, director of macroeconomic research at investment research firm TrimTabs.  The magnitude of government assistance has increased in large part due to high unemployment.  But Schnapp argues that even when unemployment declines, we aren't like to see this percentage drop much, reports Daniel Indiviglio, associate editor for the Atlantic Business Channel.

From 2001 through 2002, transfer payments rose from about 21 percent to 26 percent.  That appears to coincide with the recession that occurred during that time.  Although unemployment eventually declined back down to 4.4 percent after rising to 6.3 percent, transfer payments remained steady around 26 percent of wages.  Then, they rose to 35 percent during the recent recession, where they remain today.  While some might expect this ratio to decline as the unemployment rate wanes, that is not what we saw in the last recession.

  • Transfer payments in the United Kingdom are currently around 44 percent of wages and salaries -- that's up from 36 percent in 2007, before the global recession hit.
  • So if this ratio remains around 35 percent even after the unemployment rate declines, then the U.S. government's transfer payment burden will begin to resemble that of a European welfare state.

Source: Daniel Indiviglio, "Is the U.S. Becoming a Welfare State?" The Atlantic, March 9, 2011.

For text:

http://www.theatlantic.com/business/archive/2011/03/is-the-us-becoming-a-welfare-state/72217/

 

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