In the last lecture, we talked about trying to design an income transfer program that helped people who are unable to work but did not discourage work effort among those who are able.Consider three alternative policies:

1. Reducing the level of welfare benefits
2. Reducing the claw-back rate on welfare benefits
3. Offering wage subsidies to all low-wage workers

For each alternative policy, use carefully labelled diagrams to illustrate:

• its benefits or costs for individuals who areunableto work
• its effects on the labour supply of those who are receiving welfare but areableto work
• its effects on the labour supply of those who are working (i.e. not receiving welfare)

If you were able to implement only one of these policies, which would you choose? Explain briefly.