This is a pretty good illustration of how income support can reduce incentive to work as much more than income taxes.
That said, I think you can conclude one of two things:
1) social welfare programs should be less generous; or
2) such programs should extend up lower middle income to make it easier to move from low income to above.
Two charts from the UK, admittedly sprayed with too much chartjunk, but illustrating the poverty trap in Britain. (A previous post on high marginal tax rates for low income people has more charts like this.)
Most of UK benefits are not time-limited, so people get stuck for life, and then for generations.
The original article, by Fraser Nelson, “Why the Poles keep coming” in the Spectator, is worth reading. The article starts with the puzzling fact that
Britain’s employment figures are strong but most of the rise in employment so far under this government is accounted for by foreign-born workers (as was 99pc of the rise in employment under Labour).
The author had the same epiphany that led me to economics all those years ago. No, it’s not culture, or “laziness.” Treat poor people as intelligent, responding to incentives, just like you and me, but with a lot bleaker choices. Try to look at the world through their eyes if you want to understand their behavior:
if I was in a position of a British single mother I have not the slightest doubt that I would choose welfare. Why break your back on the minimum wage for longer than you have to, if it doesn’t pay? Some people do have the resolve to do it. I know I wouldn’t.
…Until our policymakers start to see things through the eyes of those ensnared in welfare traps, nothing will change.
More great quotes:
If you had designed a system to keep the poor down, in would not look much different to the above.
…the cash-strapped British government is still creating still the most expensive poverty in the world.
Hat tip: Dan Mitchell writing at Cato@Liberty. His post is worth reading, as are the links. (Alas, the Spectator only cites the source of the graphs as ” an internal government presentation,” so I don’t know who to properly credit.)
Benefits trap art
John H. Cochrane
Thu, 27 Dec 2012 23:18:00 GMT