Journal of Labor Research

, Volume 18, Issue 2, pp 367–372 | Cite as

Even the underprivileged are rational: The incentive effects of welfare

  • E. Frank Stephenson

Abstract

Tanner and Moore (1995) calculate welfare equivalent wages for the six most common social programs for each of the 50 states and the District of Columbia. They assert that individuals who choose public assistance over work are responding rationally to incentives of the welfare system, but they offer no evidence. I present statistically significant support for Tanner and Moore’s assertion. Among potential welfare recipients, a one dollar increase in the welfare equivalent wage is found to increase the welfare take-up rate by approximately 2.7 percentage points and decrease the labor force participation rate by approximately 2.5 percentage points.

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References

  1. Danziger, Sheldon, Robert Haveman, and Robert Plotnick. “How Income Transfers Affect Work, Savings, and the Income Distribution: A Critical Review.” Journal of Economic Literature 19 (September 1981): 975–1028.Google Scholar
  2. McMahon, Walter W. “Geographical Cost of Living Differences: An Update.” AREUEA Journal 19 (Fall 1991):426–50.Google Scholar
  3. Moffitt, Robert. “Incentive Effects of the U.S. Welfare System: A Review.” Journal of Economic Litera-ture 30 (March 1992): 1–61.Google Scholar
  4. Tanner, Michael, and Stephen Moore. “Why Welfare Pays,” Wall Street Journal, September 28, 1995.Google Scholar

Copyright information

© Springer 1997

Authors and Affiliations

  • E. Frank Stephenson
    • 1
  1. 1.North Carolina State UniversityRaleigh

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