Jones, who is currently unemployed, is a participant in three means-tested welfare programs: food stamps, rent stamps, and day care stamps. Each program grants him $150 per month in stamps, which can be used like cash to purchase the good or service they cover.
a. If benefits in each program are reduced by 40 cents for each additional dollar Jones earns in the labor market, how will Jones's economic position change if he accepts a job paying $120 per week?
b. In light of your answer to part a, explain why means-testing for welfare recipients has undesirable effects on work incentives.