Financial incentives and welfare reform in the United States

This paper uses a microsimulation model to ask whether welfare recipients i n the United States would work full-time if offered an earnings supplement that was conditioned on full-time employment. The simulations suggest that the earnings supplement would increase full-time employment, with little ad ditional cash transfer cost to the government. In contrast, financial incen tives currently being used by many of the states are increasing employment and income, but are encouraging primarily part-time employment. Encouraging full-time employment is particularly important in light of new time limits on welfare receipt. Faced with a loss of welfare benefits, many recipients may find that part-time earnings do not allow them to be economically self -sufficient. (C) 2001 by the Association of Public Policy Analysis and Mana gement.