12 Incentives to Fail I: Maximizing Short-Term Gains
Many people change their behavior for valid reasons, especially during significant trends. Changes in social policy from 1960 to 1970 influenced various social outcomes, such as higher youth unemployment and increased welfare dependency. These outcomes were predictable based on the new incentives created by these policies. People, regardless of wealth, seek to maximize their benefits, but those with less money may make different decisions due to their circumstances. The poor have fewer resources and need quicker results, leading to choices that may seem irrational to wealthier individuals but are logical given their situation. For example, a farmer in a developing country might stick with rice, despite better options, because the risk of starvation from a failed crop is too high. This reasoning applies equally to Americans facing poverty, where explanations often overlook how poverty influences decision-making. Understanding the motivations behind these choices requires examining the immediate pressures faced by those with fewer resources rather than imposing external judgments about what decisions should be made.
Dramatis Personae
The story focuses on a young couple, Harold and Phyllis, who are just starting their lives after graduating from high school. They come from low-income families and have no plans for college or special skills. Phyllis is pregnant, and they will have to make tough choices about their future. The narrative will explore the decisions they face in 1960 and again in 1970, considering what seems rational for them in their circumstances while leaving out broader social issues and personal backgrounds.
Options in 1960
Harold and Phyllis face financial struggles and limited options in 1960. Harold’s parents have no money, and he cannot rely on Phyllis for support because AFDC benefits do not allow a man in the house. If Phyllis has a baby, she can receive $23 a week in AFDC, which is not enough for them to live on. Harold can only find a low-paying job at a dry cleaning shop, earning $40 a week. Phyllis also has three options: supporting herself, going on AFDC while keeping the baby, or marrying Harold. Each option has challenges, and despite the low wages, marrying Harold seems to be the best choice for economic stability. If she is not on AFDC, she could work without penalties.
Options in 1970
In 1970, Harold and Phyllis are in a tough spot similar to ten years earlier. Harold does not want to stay in school, Phyllis is pregnant, and Harold can only find a low-paying job at a dry-cleaners. However, changes in welfare programs give them new options.
The Aid to Families with Dependent Children (AFDC) program now provides better support for Phyllis. She can get weekly cash and food benefits that add up to more money than what Harold would earn working a minimum-wage job. If Phyllis decides to work, she can keep some of her earnings while still receiving benefits. Harold's income does not affect her eligibility for welfare as long as he is not the child's legal guardian.
Since a recent court ruling states that having a man live in the house does not disqualify Phyllis from receiving benefits, they can live together without getting married. For Harold, there is little reason to marry Phyllis or work full-time, as staying unmarried allows them to earn more money together.
For Phyllis, choosing whether to keep the baby or give it up is clearer now. Keeping the baby makes more financial sense than giving it away. If she marries Harold, she would lose her welfare benefits without gaining any real financial security, since Harold's job does not pay much.
In the end, Harold and Phyllis make choices based on the new economic realities. The welfare system can provide more stability than a low-wage job, which leads them to decisions that differ from traditional expectations. Their story shows how people adapt to their surroundings and make choices that help improve their lives, without suggesting that they are irresponsible.
What About Work Incentives?
AFDC experienced significant changes in the 1960s that affected work incentives for recipients. In 1961, federal law allowed payments to families with unemployed fathers, a change adopted by many states. The 1966 guidelines prohibited unannounced home visits to check eligibility, leading to legal challenges that eventually influenced national practices. In 1967, Congress introduced the "thirty-and-a-third" rule, letting women keep the first $30 of their earnings without losing benefits and taking a smaller percentage thereafter. While intended to encourage work, this rule inadvertently increased welfare dependency by making it more attractive for non-recipients to enroll. Economist Frank Levy highlighted that changes in welfare rules could reduce overall workforce participation, as the incentives for some women to enter welfare masked the gains for those already in the system. Ultimately, well-intended policies had broader, unintended consequences on work and welfare dynamics.
Timing of the Changes in Incentives
In the 1960s, significant changes occurred in welfare incentives and regulations. In 1961, federal law allowed AFDC payments for families with unemployed fathers, leading to adoption by many states. The mid-1960s saw new guidelines against at-home checks and legal challenges to restrictive eligibility rules. By 1974, stricter child support laws were enacted. During this time, the real dollar value of AFDC benefits rose dramatically, especially from 1965 to 1970, before slowing down again in the late 1970s.
A Predictable Trendline
The analysis predicts trends in the AFDC caseload from the 1950s to the 1980s. It suggests that the caseload remained stable in the 1950s, increased slowly in the early 1960s, rose rapidly in the late 1960s, and stabilized again in the 1970s. This pattern reflects changes in incentives during these decades. Key reasons for these trends include more people who were eligible actively seeking assistance and a shift in poor people's attitudes toward applying for aid, viewing welfare as a right rather than a privilege.
Many people change their behavior for valid reasons, especially during significant trends. Changes in social policy from 1960 to 1970 influenced various social outcomes, such as higher youth unemployment and increased welfare dependency. These outcomes were predictable based on the new incentives created by these policies. People, regardless of wealth, seek to maximize their benefits, but those with less money may make different decisions due to their circumstances. The poor have fewer resources and need quicker results, leading to choices that may seem irrational to wealthier individuals but are logical given their situation. For example, a farmer in a developing country might stick with rice, despite better options, because the risk of starvation from a failed crop is too high. This reasoning applies equally to Americans facing poverty, where explanations often overlook how poverty influences decision-making. Understanding the motivations behind these choices requires examining the immediate pressures faced by those with fewer resources rather than imposing external judgments about what decisions should be made.
Dramatis Personae
The story focuses on a young couple, Harold and Phyllis, who are just starting their lives after graduating from high school. They come from low-income families and have no plans for college or special skills. Phyllis is pregnant, and they will have to make tough choices about their future. The narrative will explore the decisions they face in 1960 and again in 1970, considering what seems rational for them in their circumstances while leaving out broader social issues and personal backgrounds.
Options in 1960
Harold and Phyllis face financial struggles and limited options in 1960. Harold’s parents have no money, and he cannot rely on Phyllis for support because AFDC benefits do not allow a man in the house. If Phyllis has a baby, she can receive $23 a week in AFDC, which is not enough for them to live on. Harold can only find a low-paying job at a dry cleaning shop, earning $40 a week. Phyllis also has three options: supporting herself, going on AFDC while keeping the baby, or marrying Harold. Each option has challenges, and despite the low wages, marrying Harold seems to be the best choice for economic stability. If she is not on AFDC, she could work without penalties.
Options in 1970
In 1970, Harold and Phyllis are in a tough spot similar to ten years earlier. Harold does not want to stay in school, Phyllis is pregnant, and Harold can only find a low-paying job at a dry-cleaners. However, changes in welfare programs give them new options.
The Aid to Families with Dependent Children (AFDC) program now provides better support for Phyllis. She can get weekly cash and food benefits that add up to more money than what Harold would earn working a minimum-wage job. If Phyllis decides to work, she can keep some of her earnings while still receiving benefits. Harold's income does not affect her eligibility for welfare as long as he is not the child's legal guardian.
Since a recent court ruling states that having a man live in the house does not disqualify Phyllis from receiving benefits, they can live together without getting married. For Harold, there is little reason to marry Phyllis or work full-time, as staying unmarried allows them to earn more money together.
For Phyllis, choosing whether to keep the baby or give it up is clearer now. Keeping the baby makes more financial sense than giving it away. If she marries Harold, she would lose her welfare benefits without gaining any real financial security, since Harold's job does not pay much.
In the end, Harold and Phyllis make choices based on the new economic realities. The welfare system can provide more stability than a low-wage job, which leads them to decisions that differ from traditional expectations. Their story shows how people adapt to their surroundings and make choices that help improve their lives, without suggesting that they are irresponsible.
What About Work Incentives?
AFDC experienced significant changes in the 1960s that affected work incentives for recipients. In 1961, federal law allowed payments to families with unemployed fathers, a change adopted by many states. The 1966 guidelines prohibited unannounced home visits to check eligibility, leading to legal challenges that eventually influenced national practices. In 1967, Congress introduced the "thirty-and-a-third" rule, letting women keep the first $30 of their earnings without losing benefits and taking a smaller percentage thereafter. While intended to encourage work, this rule inadvertently increased welfare dependency by making it more attractive for non-recipients to enroll. Economist Frank Levy highlighted that changes in welfare rules could reduce overall workforce participation, as the incentives for some women to enter welfare masked the gains for those already in the system. Ultimately, well-intended policies had broader, unintended consequences on work and welfare dynamics.
Timing of the Changes in Incentives
In the 1960s, significant changes occurred in welfare incentives and regulations. In 1961, federal law allowed AFDC payments for families with unemployed fathers, leading to adoption by many states. The mid-1960s saw new guidelines against at-home checks and legal challenges to restrictive eligibility rules. By 1974, stricter child support laws were enacted. During this time, the real dollar value of AFDC benefits rose dramatically, especially from 1965 to 1970, before slowing down again in the late 1970s.
A Predictable Trendline
The analysis predicts trends in the AFDC caseload from the 1950s to the 1980s. It suggests that the caseload remained stable in the 1950s, increased slowly in the early 1960s, rose rapidly in the late 1960s, and stabilized again in the 1970s. This pattern reflects changes in incentives during these decades. Key reasons for these trends include more people who were eligible actively seeking assistance and a shift in poor people's attitudes toward applying for aid, viewing welfare as a right rather than a privilege.