Why People Aren’t Working

Among the unemployed who had earned near minimum wage (shown in red in the chart), a majority had a job-acceptance penalty rate of at least 100 percent, meaning that accepting a job with the same pretax pay as they had before layoff would not increase their disposable income. If they were to accept such a job, all the compensation would go to the Treasury in additional personal income taxes, additional payroll taxes and reduced unemployment insurance benefits (under the stimulus, unemployment insurance benefits alone were more than half of the pretax pay from the previous job), and in some cases reduced benefits from the Supplemental Nutrition Assistance Program, known as SNAP, and Medicaid.

Only 18 percent of those earning near minimum wage had a job-acceptance penalty rate of less than 80 percent.

Casey Mulligan on fixed poverty rates vs. fewer incentives for the unemployed.

Comments (8)

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  1. Buster says:

    A friend of mine told me his wife was laid off awhile back. As a condition for unemployment compensation, she had to interview a certain number of times a month. She had a job interview where she missed her flight and arrived 90 minutes late. She forgot her resume’ and was still offered the job. She declined because she didn’t really want to go back to work yet. She was not penalized on her unemployment benefits because the new job paid only $75,000 and she had been earning $100,000.

  2. Neil Caffrey says:

    That’s what happens when the Govt offers perverse incentives to Americans!

  3. Mae says:

    Christmas themed graph.. nice

  4. Sharon says:

    “One might wonder exactly how, in theory, poverty rates remained fixed when millions of people lost their jobs…” I don’t think there’s many people out there with this concern anymore. When you look at the amount of benefits unemployed people get for simply not working, then you have your answer. There is no incentive for people to work anymore, there is only incentive NOT to work. How absurd. Flash News: This only creates and promotes mediocrity!!

  5. NotMyUsualHandle says:

    IMHO Our welfare programs are poorly designed. Maybe we should try a wage subsidy and healthcare for working poor with deductibles that rise with income slowly.

  6. Neil Caffrey says:

    It’s frustrating to hear these things.

  7. Mae says:

    It’s a catch 22..

  8. Diogenes says:

    “the new job paid only $75,000 and she had been earning $100,000”

    First, because you’re collecting the unemployment insurance that through your employer you paid for doesn’t obligate you to be taken advantage of by an employer who offering to pay you 25% less than you’re worth.

    Second, that 100,000 a year job pays 8,300 a month. The maximum benefit in Texas, for example, is 1,800 a month. Who do you know who likes the idea of 80% pay reduction?

    Third, I don’t believe that chart. A head of household working near the minimum wage is essentially destitute. The difference between the 300 a week they make on minimum wage and 62 a month they would get on unemployment is the difference between barely existing and homelessness. Before you talk about how great it is for minimum wage worker to be on unemployment, try to feed yourself on the 4 or 5 dollars SNAP benefit.