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Why Does Anyone Work?

As Americans celebrated the Labor Day weekend, nearly 94 million people of working age actually had nothing to celebrate. That’s because they aren’t in the labor force. They’re not working and they’re not looking for a job. The latest Bureau of Labor Statistics reports that the labor force participation rate is now 62.6 percent, a 38 year low.

Why is that? The generosity of welfare benefits must surely be one of the reasons. A 2013 Cato Institute study by Michael Tanner and Charles Hughes found that a mother with two children participating in seven common welfare programs would enjoy more income than what she would earn from a minimum-wage job in 35 states, even after accounting for the Earned Income Tax Credit and Child Tax Credit. In Connecticut, Hawaii, Massachusetts, New Jersey, New York, Rhode Island, Vermont, and the District of Columbia, welfare pays more than a $20-an-hour job. In five additional states, it yields more than a $15-an-hour job.

These results are confirmed by other work. A Congressional Budget Office study, looking at Pennsylvania, found that the loss of benefits creates very high marginal tax rates, discouraging labor-force entry and work hours. The report found that an adult with one child faced a marginal tax rate of 47 percent for taking a job paying the minimum wage in 2012. They faced a marginal tax rate of 95 percent once their earnings disqualified them from Medicaid.

John C. Goodman is a Senior Fellow at the Independent Institute, President of the Goodman Institute for Public Policy Research, and author of the widely acclaimed Independent books, A Better Choice: Healthcare Solutions for America, and the award-winning, Priceless: Curing the Healthcare Crisis. The Wall Street Journal and the National Journal, among other media, have called him the “Father of Health Savings Accounts.”

New from John C. Goodman!
A BETTER CHOICE: Healthcare Solutions for America
Obamacare remains highly controversial and faces ongoing legal and political challenges. Polls show that by a large margin Americans remain opposed to the healthcare law and seek to “repeal and replace” it. However, the question is: Replace it with what?

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