The effect of social benefit reform on educational inequality

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. Using difference-in-differences estimation and data from the Socio-Economic Panel, I analyse whether children of unemployment assistance recipients have lower educational attainment after changes to eligibility criteria, benefit levels and conditionality were introduced in Germany in 2005. I find that differences in the probability to attend the academic secondary school track between children of unemployment assistance recipients and children living in families, where no benefits are claimed, increased by 13 percentage points. In part, this was driven by the introduction of means-testing that changed the composition of unemployment assistance recipients towards the more disadvantaged. However, a further worsening in the financial conditions of these already disadvantaged families following reductions in benefit criteria appear as the main driver of the observed effect. By contrast, changes in parental subjective wellbeing due to increased benefit conditionality and stigma do not appear to play a significant mediating role.