| Welfare has forever been a source of social discontent. Federal and State governments have administered several variations of welfare policies since welfare's inception in 1935. The most current policy, TANF, has adopted strong work requirements and time limited welfare as its major reforms. Our paper analyzes the work decision of current, potential, and former welfare recipients. We determine which factors reduce welfare dependency through work incentive. Theoretically, we model welfare recipient work choice as a utility maximization problem. Given the optimal choice of work hours we then derive several government policy corollaries and firm labor corollaries. The decision to work depends on non-wage versus in-kind benefit level, labor market conditions, and pecuniary income.; Empirically, our analysis has discovered two expenditure categories, policy variables, which increase work effort. Childcare and the EITC are significantly, and positively correlated with hours worked. If governments are to spend additional money and have to decide which categories to allocate its budget to, these two categories seem logical. Employer provided insurance creates work incentive, and may imply that individuals become less welfare dependent given an insurance alternative to Medicaid. Why? Because they no longer fear losing their health insurance benefits for themselves and their children. Given this information, the government may want to pass legislation requiring firms to offer health insurance. Even if the State or Federal government subsidizes part of the bill, overall the cost of the subsidy may be less then the cost of keeping those individuals on welfare for long periods of time.; Welfare recipients, like most individuals in society, suffer most in recessionary times and are much better off economically in expansionary times. In the past, the government as well as previous literature has not acknowledged the business cycle. Our results suggest that they both should do just that. |
