In its latest budget, the federal government has signaled it wants to create a new program called the Canada Parents Benefit or CPB for short. The purpose of the CPB is to provide financial supports to low-income parents to improve the quality of life for them and their children while also improving labour market participation by the low-income parent. The CPB will target the primary caregiver parents in their household regardless of whether they are a single parent or in a two-parent household.

The CPB will also be aimed at low-income working parents (e.g. those who make $10 per hour). Only parents who make less than $32,000 per year will be eligible for the program. If the combined total of CPB benefits and parent's work income is greater than $32,000 annually, the benefits simply won't be paid to a parent.

The federal government is considering two program designs:

1.The primary caregiver parent will receive $40 per day (up to a max of $200 per week) from the CPB. For every dollar earned, the CPB payment will be 'clawed back' (i.e. the benefit reduced) by $0.50 until the CPB payment to the recipient is $0.

2.There will be no claw back or reduction of the CPB. The primary caregiver parent will simply receive $40 per day (up to a max of $200 per week) from the CPB.

Q: Will CPB, under Program Design #2, improve outcomes for recipient parents? Does the answer depend on how much the parent works (e.g. if they work less or more than a typical 8-hour day and/or if they work less or more than a standard five-day work week)? What is the limitation of this program design? To support your answer, draw the Paid Work vs Household Work Graph for a recipient low income parent. Assume that recipient parents earn $10 per hour, are not paid a higher hourly wage rate after 8 hours of paid work and can do paid/unpaid work for up to 16 hours per day.