Answer to Question #296553 in Microeconomics for nabil

Question

A 1996 bill reforming the federal government’s anti-

poverty programs limited many welfare recipients to

only two years of benefits.

a. How does this change affect the incentives for

working?

b. How might this change represent a trade-off

between equality and efficiency?

Answer 1

a. How does this change affect the incentives for working?

People will be more motivated to find work (less/more) immediately as a result of this change than if welfare benefits would continue indefinitely. There would be no incentive to pursue job if welfare benefits extended indefinitely. However, because the program is only two years long, there is a strong motivation for people to find job before the two years are over, at which time they will no longer be eligible for government aid.

b. How might this change represent a trade-off between equality and efficiency?

The loss of benefits after two years will lead to a less equitable distribution of income. Furthermore, the economy will be more efficient as a result of the changes in job incentives. The economy is more efficient as a result of increased incentive for the unemployed to seek work and contribute to the nation's output. This change in the government's antipoverty initiative decreases income equality because those who cannot find work will receive no income at all; however, the economy is more efficient as a result of the increased motivation for the unemployed to find work and contribute to the nation's output.