A common refrain when talking about unemployment benefits is the Iron Triangle of Welfare.
If we are only going to spend a fixed amount on welfare payments, then there is a trade-off between the size of the payment and the incentive to work – where the incentive to work is captured by how much of their new found labour earnings they get to keep. It is even a common point that I make when I’m off lecturing on the topic.
But what if I told you that empirical evidence suggests unemployment benefit recipients who are working don’t appear very responsive to what are essentially huge (50 percentage point) increases in their tax rate?
What does this mean? A number of things so lets have a chat.Read more