poverty trap

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Poverty Trap

An obstacle or disincentive for a person to work to raise himself/herself out of poverty. For example, an increase in income from a job may reduce the welfare benefits for which one is eligible. Likewise, a lack of affordable educational opportunities may prevent one from acquiring skills necessary to earn more money.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

poverty trap

a situation where an unemployed person receiving SOCIAL SECURITY BENEFITS is not encouraged to seek work because his or her aftertax earnings potential in work is less than the benefits currently obtained by not working. Given that social security benefits represent the ‘bottom line’ (that is, the provision of some socially and politically ‘acceptable’ minimum standard of living), the problem is how to reconcile this with the ‘work ethic’. One suggested way is for government to provide employers with employment subsidies that allow them to pay wages higher than the minimum level of social security, even though the MARGINAL REVENUE PRODUCT ofthe work undertaken does not warrant it. It will thus be to people's economic advantage to obtain employment, and in so doing it is hoped they will acquire work experience and skills that will improve their long-run earnings potential.

Alternatively, the overlap between entitlement to social security benefits (based on one set of income scales) and the threshold level of income at which people start to pay tax (based on a different set of income scales) can be removed by the introduction of a NEGATIVE INCOME TAX. A negative income tax system replaces means-tested social security benefits on the one hand, and PROGRESSIVE TAXES on the other, with a single unitary tax system. Under this unitary tax system, people pay taxes when they are in employment and earning more than a stipulated minimum income and receive a tax rebate to bring their income up to the stipulated minimum level when they are either unemployed or earning less than the minimum. See alsoSUPPLY-SIDE ECONOMICS.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
It should be noted that a declining hazard rate, even with unobserved heterogeneity controlled, does not conclusively prove the existence of a welfare trap. Using simulation models, Contini and Negri (2007) have shown that a declining hazard rate can exist even in the absence of welfare duration dependence, because it may be that time in poverty or unemployment, rather than time on welfare, that leads to declining exit rates.
Our work in and around the bakery led to a consensus among our group that "solving the welfare trap" takes significantly longer than political debate and even academic research has indicated.
We find the Prime Minister's use of the expression "welfare trap" deeply troubling.
We should be lowering taxation for married working parents and getting rid of the welfare trap.
"A key obstacle preventing people from returning to work and hindering the creation of employment by SMEs is the social welfare trap.
He added the Government should make it a priority to tackle the social welfare trap keeping people on the dole for more than a year.
Speaking at the Dublin Chamber of Commerce Dinner, he claimed the payment would "remove many of the welfare traps facing families".
Bringing up kids, obesity, welfare traps they have nannied us into submission.
He argues that in North America social insurance programs tend to be applicable only after family and market sources of family support fail, and the "welfare traps" often ensue as a result.