The Effect of Social Benefit Reform on Educational Inequality

Abstract

Abstract Cross-country research argues that the design of welfare states and social protection systems shapes the intergenerational transmission of inequality. Studies that examine this relationship within a country are however lacking from the literature. Based on a quasi-experimental research design using difference-in-differences estimation and data from the Socio-Economic Panel, I analyse whether the educational disadvantage of children of long-term unemployment assistance recipients increased after changes to eligibility criteria, benefit levels, and conditionality were introduced in Germany in 2005. I find that differences in the probability to enter the academic secondary school track between children of parents receiving long-term unemployment assistance one year before the transition and children of parents not receiving unemployment or social benefits increased by 13 percentage points. In part, this was driven by the introduction of means-testing that changed the composition of unemployment assistance recipients. However, further decreases in the financial conditions of these already disadvantaged families following reductions in benefit levels appear as the main driver of the observed effect. Changes in parental subjective wellbeing due to increased benefit conditionality and stigma do not seem to play a significant mediating role. The findings highlight the important contribution of social policy to social mobility and equality of opportunity.