Safety Nets and Incentives
Acton Institute Powerblog

Safety Nets and Incentives

Over at the Economix blog, University of Chicago economist Casey B. Mullin takes another look at some of the recent poverty numbers. He notes the traditional interpretation, that “the safety net did a great job: For every seven people who would have fallen into poverty, the social safety net caught six.”

But another interpretation might have a bit more going for it, actually, and fits in line with my previous analogy between a safety net as a trampoline vs. a foam pit:

Another interpretation is that the safety net has taken away incentives and serves as a penalty for earning incomes above the poverty line. For every seven persons who let their market income fall below the poverty line, only one of them will have to bear the consequence of a poverty living standard. The other six will have a living standard above poverty.

Of course, most people work hard despite a generous safety net, and 140 million people are still working today. But in a labor force as big as ours, it takes only a small fraction of people who react to a generous safety net by working less to create millions of unemployed. I suspect that employment cannot return to pre-recession levels until safety-net generosity does, too.

The conclusion ought to be that policies that provide incentives for people to not seek out work as vigorously as they otherwise might, even if such incentives are unintended consequences, are morally suspect and economically questionable.

Jordan J. Ballor

Jordan J. Ballor (Dr. theol., University of Zurich; Ph.D., Calvin Theological Seminary) is director of research at the Center for Religion, Culture & Democracy, an initiative of the First Liberty Institute. He has previously held research positions at the Acton Institute and Vrije Universiteit Amsterdam, and has authored multiple books, including a forthcoming introduction to the public theology of Abraham Kuyper. Working with Lexham Press, he served as a general editor for the 12 volume Abraham Kuyper Collected Works in Public Theology series, and his research can be found in publications including Journal of Markets & Morality, Journal of Religion, Scottish Journal of Theology, Reformation & Renaissance Review, Journal of the History of Economic Thought, Faith & Economics, and Calvin Theological Journal. He is also associate director of the Junius Institute for Digital Reformation Research at Calvin Theological Seminary and the Henry Institute for the Study of Christianity & Politics at Calvin University.