Working Paper: NBER ID: w12366
Authors: Robert Moffitt
Abstract: Work requirements in means-tested transfer programs have grown in importance in the U.S. and in some other countries. The theoretical literature which considers their possible optimality generally operates within a traditional welfarist framework where some function of the utility of the poor is maximized. Here we consider a case where society is paternalistic and instead has preferences over the actual work allocations of welfare recipients. With this social welfare function, optimality of work requirements is possible but depends on the accuracy of the screening mechanism which assigns work requirements to some benefit recipients and not others. Numerical simulations show that the accuracy must be high for such optimality to occur. The simulations also show that earnings subsidies can be justified with the type of social welfare function used here.
Keywords: Welfare; Work Requirements; Paternalism; Social Welfare
JEL Codes: H21; I38
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| accurate screening mechanism (C52) | optimal outcomes in terms of social welfare (D69) |
| work requirements (I38) | utility of welfare recipients (I38) |
| societal preferences (P36) | welfare function (D69) |
| inaccuracies in the screening process (C83) | suboptimal distributions of utility among welfare recipients (D63) |
| work requirements (I38) | reallocating benefits from non-workers to workers (J32) |
| inaccurate screening (C52) | utility losses for low-ability individuals (J79) |
| work requirements (I38) | net negative impact on social welfare (D69) |