By not working, welfare recipients may be responding rationally to the incentives our public policy makers have established.

Contrary to stereotypes, there is no evidence that people on welfare are lazy. Indeed, surveys of welfare recipients consistently show their desire for a job. But there is also evidence that many are reluctant to accept available employment opportunities. Despite work requirements included in the 1996 welfare reform, the U.S. Department of Health and Human Services says less than 42% of adult welfare recipients participate in work activities nationwide. Why the contradiction?

Perhaps it’s because, while poor people are not lazy, they are not stupid either. If you pay people more not to work than they can earn at a job, many won’t work.
A new study by the Cato Institute found that in many states, it does indeed pay better to be on welfare than it does to work.

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In Washington, D.C., and 10 particularly generous states — Hawaii, Vermont, Connecticut, Massachusetts, New York, New Jersey, Rhode Island, Maryland, New Hampshire and California — these seven programs provide a mother with two young children an annual benefit worth more than $35,000 a year. The value of the package in a medium-level welfare state is $28,500.

That may sound low, but it’s important to remember that welfare benefits are not taxed, whereas wages are. So to put the welfare benefit package in perspective, we calculated the amount of money our recipient would have to earn in pretax income to bring home an equal amount of money if she took a 40-hour-per-week job.

After computing the federal income tax, the state income tax and payroll taxes, as well as taking into account federal and state earned income tax credits and the child tax credit, we came to the inescapable conclusion that welfare pays very well.