Can You Explain With Example The Incentive Problems Of The Poor In The Welfare State?

One of the major obstacles faced by poor families is that the rules in most welfare programs severely reduce the incentives of low-income adults to seek work. If a poor person on welfare gets a job, the government will trim back food stamps, income support payments, and rent subsidies, and the person might even lose medical benefits. We might say the poor people face high marginal tax rates because welfare benefits are sharply reduced as earning rise.


The following calculation for a family of three living in Pennsylvania in the 1990s illustrates the problem. We choose the example of Pennsylvania because benefits in that state are close to the national average. If the mother did not have a job, the family would receive welfare benefits of $4584 and food stamps worth $1549, for a total disposable income of $6133. Suppose the parent takes a full time job, earning $8000 a year. She would lose all the welfare benefits, but would retain $1306 worth food stamps. After child care and work related expenses of $2400, disposable income would equal to $6906.

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The problem is that perceived loss as opposed to breaking the chain of being on public assistance. It would be more beneficial for anyone to be making their own way rather than being paid to stay at home. At the income level described above, well below the poverty line, most if not all government programs such as medicare, school lunches and breakfast programs along with a host of others would still be available including daycare.

There is 800 more dollars a year in the house, but no one stays at the same wage if they show a little desire to succeed. In this state they could make twice that and still qualify for most if not all the mentioned programs, it is just easier for some people to not work than to try and better them selves. It is also a vicious circle to break out of which is why there are third going on fourth generation welfare recipients.

Lastly the government is a deterrent to getting out of the system, there is not now nor ever has been a good government program that was not over run with waste and corruption and this one was a great idea at the time, 1964, but it never has attained any of the goals it set out to achieve.

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