Deck 3: Labour Supply and Public Policy: Work Incentive Effects of Alternative Income Maintenance Schemes

Question 1

Which of the following statements concerning the work incentive (or disincentive) effects under a wage subsidy program and under a negative income tax program is true?

A) The wage subsidy program has a greater positive effect on the incentive to work.
B) Both these programs have the same effects in this regard.
C) The negative income tax program is neutral in regards to these effects.
D) The negative income tax program has a greater positive effect on the incentive to work.
E) The wage subsidy program is neutral in regards to these effects.

Answer 1

A

Question 2

In the treatment group, at the outset of the program, the proportion of welfare recipients working full-time was 6 percent, after one year, 30 percent of the program group was working full time.
In the control group, at the outset of the program, the proportion of welfare recipients working full-time was 6 percent, after one year, 15 percent of the program group was working full time.
Based on Reference 03-02, we can estimate that the impact of the program on labour market participation is:

A) 6 percent.
B) 24 percent.
C) 30 percent.
D) 9 percent.
E) 15 percent.

Answer 2

E

Question 3

The difference between a conventional welfare program and a negative income tax program is that:

A) Individuals have to be living below the poverty line in order to qualify for the negative income tax program.
B) For the negative income tax program, the benefits received have to be repaid once the worker is working full time for wages.
C) The former type of program is transferred to the recipient by the government, while the latter is taxed away from the recipient by the government.
D) Recipients in the negative income tax program will receive more from the guarantee income than they will pay out in taxes.
E) For the negative income tax program, the worker receives a wage supplement for each hour that he/she works.

Answer 3

D

Question 4

The following diagrams of budget constraints pertain to the next three questions. The vertical axis is Income and the horizontal axis is Leisure.

Which of the diagrams of budget constraints above depicts the Wage Subsidy program?

A) a
B) b
C) c
D) d

Question 5

Another term for a guaranteed annual income plan is:

A) a minimum income policy.
B) a negative income tax.
C) total job security.
D) social insurance.
E) a child tax benefit.

Question 6

If a social benefit is universal, then which of the following is true?

A) The program is used by everybody.
B) It can be received by anyone in the country, meeting certain criteria, such as age.
C) The benefit is available to everyone, but recipients have to apply for them.
D) The amount of the benefit does not depend on the recipient's income.
E) The benefit can only be received by those who meet the income eligibility conditions.

Question 7

What is the effect of a demogrant on the budget contraint?

A) It places a kink in the budget line
B) It makes the budget line flatter
C) It makes the budget line steeper
D) It shifts the budget line outward.
E) It changes the shape of the indifference curve

Question 8

The following diagrams of budget constraints pertain to the next three questions. The vertical axis is Income and the horizontal axis is Leisure.

Which of the diagrams of budget constraints above depicts the Earned Income Tax Credit program?

A) a
B) b
C) c
D) d

Question 9

For which of the following programs does the recipient receive a supplement from the government for each hour worked?

A) A negative income tax program
B) A wage subsidy program
C) A work-sharing program
D) An unemployment insurance program
E) Guaranteed Income Supplement

Question 10

Which of the following programs is superior in terms of its ability to direct payments to those individuals or families in greatest need of assistance?

A) Social assistance or welfare
B) Canada Pension Plan
C) Unemployment insurance
D) Wage subsidies
E) None of the choices are correct

Question 11

What is the approximate rate at which lost earnings are replaced by Canada's unemployment insurance system?

A) 0 % of earnings up to a certain threshold, and 55 % for wages above that level
B) 55 % of all earnings
C) 55 % of all earnings up to a certain threshold, and 0 % for wages above that level
D) 100 % of all earnings up to a certain threshold, and 0 % for wages above that level
E) 75 % of all earnings

Question 12

Which of the following factors may affect the welfare participation rate?

A) The view of the political party in power
B) The level of the basic benefit
C) Unemployment rate
D) The total number of caseload
E) All of the above choices are correct

Question 13

The reason for which worker's disability insurance can potentially have adverse effects on work incentives is that:

A) the income that it provides enables one to reach a certain income level without any work obligation.
B) the opportunity cost of leisure increases.
C) the taxes that finance the benefits can have negative effects on labour demand.
D) the recipient is allowed to work as many hours as he/she can without losing any of the benefits.
E) All the answer choices are correct.

Question 14

All of the following describe a demogrant except:

A) an income grant to a specific demographic group
B) a lump-sum transfer
C) A grant whose amount varies with the worker's wage
D) the simplest income maintenance program
E) A demogrant shifts the potential income constraint vertically upward by the amount of the grant.

Question 15

All of the following government programs are types of income maintenance programs except:

A) unemployment insurance.
B) negative income tax schemes.
C) wage subsidy.
D) the child tax credit.
E) social assistance.

Question 16

All of the following are sources of concern with income maintenance programs except that:

A) They might lower employment.
B) They might reduce work incentives.
C) They might reduce wages.
D) They might be fiscally costly.
E) They might increase wages.

Question 17

What does the term negative refer to in a negative income tax scheme?

A) The program does not involve any disincentives to working.
B) The individual receives a subsidy or a credit rather than paying taxes for a certain number of hours worked.
C) The program involves fewer disincentives to working than does a conventional welfare or social assistance program.
D) The individual does not have to pay income tax for any of his/her earnings.
E) None of the choices are correct

Question 18

Since 1990, the welfare benefit rate in Ontario has shown:

A) a decreasing then increasing trend.
B) a decreasing trend.
C) an increasing then decreasing trend.
D) an increasing trend.
E) no trend.

Question 19

The following diagrams of budget constraints pertain to the next three questions. The vertical axis is Income and the horizontal axis is Leisure.

Which of the diagrams of budget constraints above depicts the Negative Income Tax program?

A) a
B) b
C) c
D) d

Question 20

As American economic condition worsens in 2008, we can expect all following changes, except:

A) an increase in the unemployment rate.
B) an increase in the welfare beneficiary rate
C) an increase in the welfare caseload
D) a decrease in the job vacancy rate
E) an increase in the basic benefit of welfare

Question 21

Nonexperimental evidence has suggested that:

A) individuals with low predictable earnings and relative temporary characteristics are less likely to use welfare.
B) most people who initiate welfare benefits will stay on welfare after one year.
C) individuals with low predictable earnings and relative permanent characteristics are less likely to use welfare.
D) the longer one is on welfare, the more likely one is to leave.
E) most people who initiate welfare benefits will leave welfare in one year.

Question 22

Which of the following statements concerning subsidies for child care expenses is true?

A) They change the slope of the budget line.
B) They tend to increase the reservation wage of working.
C) They cause a strong substitution effect toward more working activity.
D) They reduce the fixed costs of working.
E) They discourage labour force participation.

Question 23

Which of the following programs is an example of a demogrant?

A) The Guaranteed Income Supplement
B) Quebec Pension Plan (QPP) Benefits
C) The Child Tax Benefit
D) Old Age Security (OAS)
E) Canada Pension Plan (CPP) Benefits

Question 24

Which of the following is NOT a way to improve work incentives for welfare recipients?

A) Raise the benefit level.
B) Alter the preferences that certain recipients might have for leisure compared to work.
C) Increase the market wages for jobs for which welfare recipients might be qualified to perform.
D) Provide welfare recipients with job training and counselling services.
E) Reduce the very high implicit tax rate that is applied to earnings of welfare recipients.

Question 25

Congratulations! You have just been appointed to be the social policy czar by the prime minister. Your mission, whom you have no choice but to accept, is to reform these programs because they are presently not affordable and rife with inefficiencies. There is one fundamental issue that underlies the reform of workers' compensation, welfare/social assistance, and unemployment insurance, and that is the conflicting objectives of providing adequate income protection on one hand and providing more efficient incentive structure on the other hand.
• Explain the nature of the disincentive effects that are involved with demogrant payments and the disincentive effects that are involved with tax and/or subsidy measures that vary directly with the number of hours worked. Do not get bogged down in technical details, and do not give graphs. Your response should be set in the framework of the labour supply model, which means a discussion of th income effect and the substitution effects.
• Explain the motivation of two variants of social assistance programs, the negative income tax program and wage subsidies. How are they supposed to improve the incentive structure?
Restrict your analysis to an intuitive explanation of the economic behavioural mechanisms.

Question 26

Consider a worker who has small children. All of the following are effects of child care expenses except:

A) that they increase the hours of work for labour market participates.
B) that they might increase labour force participation.
C) that they might decrease labour force participation.
D) that they increase reservation wages.
E) that they reduce the hours of work for labour market participates.