Wednesday, March 13, 2013

How I know Work Requirements are Mean

By Robert H.

People who want to couple wealth redistribution with work requirements (making people look for a job to get UI, redistributing wealth with wage subsidies rather than hand outs, whatever) often say they are trying to fix incentives.  Just giving a low income person money removes a lot of his incentive to work.  So it makes sense to require the people we are giving money to to work.  From an "economic efficiency" standpoint, anyway.

But this is pretty much the only place I hear that argument?  For example, the money we are giving the poor person was taxed (or borrowed, in which case it will be payed for with a tax later).  If it was taken as an income tax, it lowered the incentive for rich and middle class people to work, since their post-tax salary is going to be less for the marginal hour worked.  So why not just require them to work more hours!  Make people in the top tax bracket work 80 hour work weeks, the bracket below that 60 hours, etc., with a big tax penalty for people who don't work  the "right" amount.  Problem solved!  Instituting a sales or VAT tax?  Command people to consume more!  Problem solved!  Spending money on a sugar subsidy?  Just order people to eat more sugar substitutes!  Problem solved!   It's a bright new day for economics, and we can finally tax and subsidize people with no dead weight loss!

This is crazy, and would not work.  Everyone knows it wouldn't work.  Bureaucratic orders simply aren't a substitute for actual market incentives, and if you are going to tax or subsidize someone you should just accept that that is going to screw up incentives and move on.  But, for some reason, when we turn to subsidizing poor people, free-market types see it as a self-evidently correct to try to stamp out the disincentive to work.  Why does so much effort go into coming up with ways to give a poor person money while requiring them to work more hours, and so little effort go into figuring out ways to tax a rich person's income in a way that requires he work more hours?  I can't really explain that, other than as moralizing (people don't deserve hand outs unless they are willing to work) attitudinal bias (of course ordering those poor people to work makes sense.   Of course it doesn't make sense with us middle class and rich people) or a sort of fuzzy argument form history (panem et circenses!).

I honestly feel like I am missing something, though.

1 comment:

  1. It's a good question. Saez argues that the key insight is whether or not the labor disincentive is concentrated on entry to the labor market or hours worked. If most people will either work 40 hours a week or not work, negative tax rate model may be welfare maximizing. If they are choosing hours worked, then a guaranteed income that is taxed away will be best.

    He works out a solution with realistic elasticities here:

    When he takes it to data, he will end up mostly agreeing with you. Skip to p.1064 for the punchline.