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Assignment 5: Fighting Poverty

Due in your discussion section the week of December 1.

(excerpted from Bradley Schiller, The Microeconomy Today)

A.

1. Using the rules of the post-1981 (Reagan) welfare system, complete the following table relating income to hours worked. Assume the welfare recipient can earn $6 per hour and receives $1000 each of Medicaid, food stamps, and housing aid so long as she is on welfare. The recipient loses Medicaid when welfare benefits cease, and her food-stamp benefits are reduced by 30 cents for every wage dollar received. Assume an initial cash benefit level of $4800.

Hours Worked	Wages	Cash Welfare Benefits	In-Kind Benefits	Total Real Income
0	________	_________________	_____________	_____________
500	________	_________________	_____________	_____________
1000	________	_________________	_____________	_____________
2000	________	_________________	_____________	_____________

2. What do you conclude about the incentives to work under this system?

 

B. Find the poverty thresholds for 1994 for one person and for three persons in the Statistical Abstract.

1. Estimate your annual living expenses, broken down into the following categories:

rent/housing____

food_____

school-related (tuition, fees, books, supplies, tuition) _____

other____

Total_____

What proportion of your budget is spent on food?

Are you living in poverty?

2. The federal minimum wage is now $5.15 an hour. How much would a worker earning this minimum wage make in a year, assuming he or she worked 40 hours a week, 50 weeks a year? How does this compare to the poverty line for a family consisting of three persons?

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