Suppose in the state of California the welfare benefits of a TANF recipient is changed between the years 2019 to 2020. Prior to 2020, a single mom with two kids under the age of 18 years would receive $6,000 of guaranteed benefit if enrolled for the TANF assistance. Under this program, for the first $12,000 earned by the participant there will be now benefit reduction applied. Once the income of the participant exceeds $12,000, the benefit reduction rate of 20% will kick in for every hour of work, till the mom is out of the benefit program. a. Draw the budget constraint faced by a participant in the year 2019. Assume that a typical worker spends her money earned in the labor market on consuming food (F). The hourly wage rate is $30 per hour and she can, in total, work (L) for 2000 hours per year. In your graph, be sure to indicate slopes of the various parts of the budget constraint. b. The state of California realizes that they need to tighten some of the elements of their TANF program in order to promote more labor market participation. So, in 2020 the state decided to make the following changes. The guaranteed benefit will be reduced to $5000. But for the first $6,000 earned by the participant there will be no benefit reduction applied. Once the income of the participant exceeds the $6,000 mark, the benefit reduction rate of 25% will kick in till the participant is out of the TANF program. Now, on the same graph, draw the budget constraint faced by a participant in 2020. In your graph, be sure to indicate slopes of the various parts of the budget constraint. c. In this part, discuss the possible labor supply behaviors of three individuals Anita, Bob and Cody in the year 2020 following the changes in the TANF program. In 2019, Anita worked for 300 hours, Bob worked for 500 hours and Cody worked for 900 hours. For each of these participants, explain their respective income and substitution effects (in terms of whether they will be working more or working less) as succinctly as possible. d. Do you think such a change in this policy would be effective in inducing labor market participation? Provide some explanations based on your observations in part c. Suppose in the state of California the welfare benefits of a TANF recipient is changed between the years 2019 to 2020. Prior to 2020, a single mom with two kids under the age of 18 years would receive $6,000 of guaranteed benefit if enrolled for the TANF assistance. Under this program, for the first $12,000 earned by the participant there will be now benefit reduction applied. Once the income of the participant exceeds $12,000, the benefit reduction rate of 20% will kick in for every hour of work, till the mom is out of the benefit program. a. Draw the budget constraint faced by a participant in the year 2019. Assume that a typical worker spends her money earned in the labor market on consuming food (F). The hourly wage rate is $30 per hour and she can, in total, work (L) for 2000 hours per year. In your graph, be sure to indicate slopes of the various parts of the budget constraint. b. The state of California realizes that they need to tighten some of the elements of their TANF program in order to promote more labor market participation. So, in 2020 the state decided to make the following changes. The guaranteed benefit will be reduced to $5000. But for the first $6,000 earned by the participant there will be no benefit reduction applied. Once the income of the participant exceeds the $6,000 mark, the benefit reduction rate of 25% will kick in till the participant is out of the TANF program. Now, on the same graph, draw the budget constraint faced by a participant in 2020. In your graph, be sure to indicate slopes of the various parts of the budget constraint. c. In this part, discuss the possible labor supply behaviors of three individuals Anita, Bob and Cody in the year 2020 following the changes in the TANF program. In 2019, Anita worked for 300 hours, Bob worked for 500 hours and Cody worked for 900 hours. For each of these participants, explain their respective income and substitution effects (in terms of whether they will be working more or working less) as succinctly as possible. d. Do you think such a change in this policy would be effective in inducing labor market participation? Provide some explanations based on your observations in part c
