Recent studies of American federalism have emphasized the division of government functions between the national government and the states. But the effects of federalism depend not only on the balance of functional authority but also on the structure of federalist institutions. The institutional structure of Aid to Dependent Children, created by the Social Security Act of 1935, comprised a system of state operational control unhindered by federal supervision. The effect of this federal bargain was the exclusion of African-Americans from welfare benefits in the South. But the federal structure of the programme also shaped implementation in the North, where decentralization allowed its capture by urban machines, which used welfare as a political benefit. New techniques for ecological inference establish these results. Administrative institutions structured the entry of African-Americans into the American welfare state and created the conditions for the welfare ‘crisis’ of the 1960s and later.