Supplemental Nutrition Assistance Program (SNAP) Linkages with the General Economy
The Supplemental Nutrition Assistance Program (SNAP) is linked to the general economy in 2 ways:
- SNAP expenditures stimulate economic activity during an economic downturn, and
- economic conditions affect SNAP caseloads and expenditures.
SNAP is a counter-cyclical government assistance program--it provides assistance to more low-income households during an economic downturn or recession and to fewer households during an economic expansion. The rise in SNAP participation during an economic downturn results in greater SNAP expenditures which, in turn, stimulate the economy.
SNAP Stimulates Economic Activity During an Economic Downturn
When households spend their SNAP benefits, the direct effects are increased economic activity by the producers of the goods and services being purchased, as well as by the retail, wholesale and transportation system that delivers the goods and services. In an economic downturn when resources are underemployed, increased SNAP benefits start a multiplier process with an economic impact that is greater than the initial stimulus (direct effect). The multiplier effect results from inter-industry and induced consumption effects. Inter-industry effects arise from an increase in economic activity among those industries that provide input supplies to producers and a delivery system for purchased goods. Induced consumption effects arise from increased consumption expenditures by households that receive an increase in earnings from the additional work generated by new economic production activity.
In The Food Assistance National Input-Output Multiplier (FANIOM) Model and Stimulus Effects of SNAP, Hanson uses an input-output multiplier model to calculate the economic impact of SNAP benefits during an economic downturn. The results are similar to those found by macro-econometric models that account for the underutilization of labor and capital during an economic downturn, and allows for an accommodating monetary policy that keeps interest rates from rising. The report found that:
- An increase of $1 billion in SNAP expenditures is estimated to increase economic activity (GDP) by $1.79 billion. In other words, every $5 in new SNAP benefits generates as much as $9 of economic activity.
- The jobs impact estimates from the Food Assistance National Input-Output Multiplier (FANIOM) range from the creation of 9,000 to 18,000 full-time-equivalent (FTE) jobs plus self-employment resulting from a $1-billion increase in SNAP benefits. The jobs impact estimate of 9,000 FTE jobs plus self-employment, or 10,000 full-time plus part-time jobs plus self-employment, is the preferred estimate.
- Although SNAP benefits are spent exclusively on food, the estimated impact of SNAP benefits on agriculture assumes that food expenditures increase by 26 percent of the increase in SNAP benefits, with SNAP recipients shifting cash expenditures from food to nonfood purchases.
- A $1-billion increase in SNAP benefits with the type III multiplier and import adjustment generates $92.6 million of agricultural production, $32.3 million of agricultural GDP or value added, and close to 1,000 agricultural jobs (FTE-jobs plus self-employment). The increase in agricultural GDP is distributed between livestock (38 percent) and crop production (62 percent). The 1,000 agricultural jobs impact from a type III multiplier is a high end estimate, while the jobs impact estimate of 765 FTE-jobs plus self-employed from a type I multiplier is a more conservative estimate.
Economic Conditions Affect SNAP Caseloads and Expenditures
The effect of economic conditions on SNAP caseloads and expenditures can be viewed from several broad perspectives:
- Effect of economic conditions and program policy on SNAP caseloads
- Determinants of SNAP participation by eligible households
- Dynamics of SNAP participation: entry, exit, and duration
- Food price inflation and the purchasing power of SNAP benefits
Effect of economic conditions and program policy on SNAP caseloads
There is a strong historical relationship between the unemployment rate--a key indicator of economic conditions--and SNAP caseloads. However, the relationship between SNAP caseloads and the unemployment rate is influenced by changes in program policy and other factors.
Statistical methods to estimate the impact of economic conditions on SNAP caseloads take into account the influence of program policy and other exogenous factors on the caseloads. In Effects of Economic Conditions and Program Policy on State Food Stamp Program Caseloads, 2000-2006, Mabli and others found that for the time period 2000 to 2006, a 1-percentage point increase in the unemployment rate led to a 5.6 percent to 6.3 percent increase in participation, including a lagged effect from the unemployment rate. Given average participation levels over this period, the impact amounts to an increase of 1 to 1.3 million participants per 1-percentage point increase in the unemployment rate. Based on an econometric model where the effects of program policy changes are taken into account, change in economic conditions accounts for about 50 percent of the change in SNAP caseloads.
Earlier analysis, reviewed in Issues in Food Assistance: How Unemployment Affects the Food Stamp Program, used data for 1980 to 1998 and found that a 1-percentage point increase in the unemployment rate led to a 6 percent to 9 percent increase in Food Stamp Program (FSP/SNAP) caseloads when the effects of program policy changes are controlled for. This impact amounts to an increase of 1 to 1.5 million participants for a 1-percentage point increase in the unemployment rate, given average participation over the period. (See also Determinants of the Food Stamp Program Caseload).
Determinants of SNAP participation by eligible households
Not all households eligible to participate in SNAP actually participate, and the percentage of eligible households that participate varies over the history of the program. Individuals in some households may not know about their eligibility, while others may know about SNAP eligibility but choose not to participate. Understanding the reasons that some eligible households do not participate in SNAP helps USDA administer the program and reach out to those needing food assistance who are eligible for SNAP benefits.
Trends in Supplemental Nutrition Assistance Program Participation Rates: 2002 to 2009 16x16 - PDF --On average, 56.5 percent of households eligible to participate in SNAP have chosen to participate between 1980 and 2009. The highest participation rates for households were 70 percent in 1994 and 72 percent in 2009. After the 1994 high, the participation rate fell to 48 percent in 2001/2002 but rose to 72 percent in 2009. At the same time, the participation rate for benefits to participants averaged 70 percent of the benefits that would have been issued if all eligible households had participated over the years 1980 to 2009, with a maximum of 87 percent in 1995 and 91 percent in 2008 and 2009. After the 1995 peak, the benefit participation rate fell to 65 percent in 2001/2002, then rose to 91 percent in 2008 and 2009.
The fact that the benefit participation rate is larger than the household participation rate means that the average benefit for eligible non-participants if they participate in SNAP would be smaller than the average benefit of participants. Findings show that lower benefit amounts due to higher income is one of the primary reasons that households chose not to participate. Economic conditions, as measured by the unemployment rate, also influence the decision to participate. A higher unemployment rate is associated with a higher participation rate. For more information about the determinants of SNAP participation, see Understanding the Determinants of Supplemental Nutrition Assistance Program Participation 16x16 - PDF and Effect of State Food Stamp and TANF Policies on Food Stamp Program Participation.
Dynamics of SNAP participation: entry, exit, and duration
Patterns of entering and exiting from the SNAP program drive changes in SNAP caseloads over time. Analysis of factors-and economic conditions are important factors-that lead individuals to enter and exit SNAP as well as influence how long they typically participate are the subject of research on the dynamics of SNAP participation.
One study-- Dynamics of Food Stamp Program Participation, 2001-2003 16x16 - PDF --found that 16.6 percent of entrants had an unemployed family member in the four months prior to entry, and another 43.0 percent experienced a decrease in earnings but not through unemployment. The odds of a low-income household entering SNAP increased by 18 percent for each percentage point increase in the State unemployment rate. Similarly, individuals who experience a transition from unemployment to employment are 1.52 times more likely to exit the FSP than individuals who remain unemployed.
Another set of studies-- Dynamics of Supplemental Nutrition Assistance Program Participation in the Mid-2000s 16x16 - PDF and Determinants of Supplemental Nutrition Assistance Program Entry and Exit in the Mid-2000s 16x16 - PDF found that 16.6 percent of entrants had an unemployed family member in the four months prior to entry, and another 27.4 percent experienced a decrease in earnings but not through unemployment. Of SNAP participants who exited the program, 46.4 percent experienced an increase in earnings within the previous four months. The probability of entering SNAP was greater in States with higher unemployment rates, with the odds of a low-income household entering SNAP increasing by 4 percent for each percentage-point increase in the State unemployment rate.
Food price inflation and the purchasing power of SNAP benefits
Rising food prices affect the food purchasing power of SNAP benefits for households as well as the total expense of the program to the Federal Government. The way benefits are currently adjusted for food price inflation and how benefits have been adjusted over the history of the program has changed.
SNAP is designed to provide low-income families with more food purchasing power to obtain a nutritionally adequate diet. As in most other Federal Government assistance programs, benefits are adjusted in response to rising prices--in this case, rising food prices. The current method of adjustment, which occurs annually in October, can result in a shortfall between the maximum food stamp (SNAP) benefit and the cost of a nutritionally adequate diet (as specified by USDA's Thrifty Food Plan) due to food price inflation during the year. Alternative adjustment methods that have been used in the past can reduce the shortfall but will raise program costs. For more information on this issue, see Rising Food Prices Take a Bite Out of Food Stamp Benefits.