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Workfare in an Efficiency Wage Model

  • Volker Meier


The impacts of introducing work requirements for welfare recipients are studied in an efficiency wage model. If the workfare package is not mandatory, it will reduce employment, profits, and utility levels of employed and unemployed workers. In contrast, mandatory effort requirements will generally raise both employment and profits and reduce the tax rate. The impact on the net wage is ambiguous. Changes of utility levels of employed and unemployed workers have the same sign as the variation in the net wage. The possibility of a Pareto improvement may explain the widespread support for welfare to work experiments.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 674.

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Date of creation: 2002
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Handle: RePEc:ces:ceswps:_674
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  1. Claus Thustrup Kreiner & Torben Tranæs, 2003. "Optimal Workfare with Voluntary and Involuntary Unemployment," EPRU Working Paper Series 03-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Aug 2004.
  2. Fredriksson, Peter & Holmlund, Bertil, 2003. "Optimal Unemployment Insurance Design:Time Limits, Monitoring, or Workfare?," Working Paper Series 2003:17, Uppsala University, Department of Economics.
  3. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June.
  4. Coate, Stephen, 1995. "Altruism, the Samaritan's Dilemma, and Government Transfer Policy," American Economic Review, American Economic Association, vol. 85(1), pages 46-57, March.
  5. Timothy Besley & Stephen Coate, 1995. "The Design of Income Maintenance Programmes," Review of Economic Studies, Oxford University Press, vol. 62(2), pages 187-221.
  6. Robert Moffitt, 2001. "The Temporary Assistance for Needy Families Program," Economics Working Paper Archive 463, The Johns Hopkins University,Department of Economics.
  7. Rebecca M. Blank, 2002. "Evaluating Welfare Reform in the United States," NBER Working Papers 8983, National Bureau of Economic Research, Inc.
  8. Dye, Ronald A. & Antle, Rick, 1986. "Cost-minimizing welfare programs," Journal of Public Economics, Elsevier, vol. 30(2), pages 259-265, July.
  9. Robert Haveman & Barbara Wolfe, 2000. "Welfare to Work in the U.S.: A Model for Other Developed Nations?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 7(1), pages 95-114, February.
  10. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, vol. 78(4), pages 691-700, September.
  11. Katherine Cuff, 2000. "Optimality of workfare with heterogeneous preferences," Canadian Journal of Economics, Canadian Economics Association, vol. 33(1), pages 149-174, February.
  12. Chambers, Robert G., 1989. "Workfare or welfare?," Journal of Public Economics, Elsevier, vol. 40(1), pages 79-97, October.
  13. David T. Ellwood, 2000. "Anti-Poverty Policy for Families in the Next Century: From Welfare to Work--and Worries," Journal of Economic Perspectives, American Economic Association, vol. 14(1), pages 187-198, Winter.
  14. Nancy E. Rose, 2001. "Public employment programs, workfare, and welfare reform," Review of Radical Political Economics, Union for Radical Political Economics, vol. 33(3), pages 281-286, September.
  15. Brett, Craig, 1998. "Who Should Be on Workfare? The Use of Work Requirements as Part of an Optimal Tax Mix," Oxford Economic Papers, Oxford University Press, vol. 50(4), pages 607-22, October.
  16. R. A. Moffitt, . "Explaining Welfare Reform: Public Choice and the Labor Market," Institute for Research on Poverty Discussion Papers 1195-99, University of Wisconsin Institute for Research on Poverty.
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