One of the reasons for Mississippi’s slow economic growth is that too many people don’t work. And the numbers bear that out: the state’s labor force participation rate, defined as the percentage of the population 16 and over that is employed or looking for work, is 58 percent compared to a national rate of 63 percent.
That means more than four out of 10 Mississippi adults don’t have a job and yet somehow are eating and keeping a roof over their head. Some of that is easily explained: Retirees, college students or stay-at-home moms. But many in that category are receiving government benefits, and that gives them reasons not to work because they’ll lose some of their benefits.
An interesting study from a nonpartisan state agency attempts to measure exactly how big that effect is. The University Research Center published “Is There an Incentive for Mississippians Receiving Public Assistance to Work?” in August.
Most welfare programs require participants to work at least 20 hours per week. The study looked at how much their income would increase by going from 20 hours to 30 hours and 30 hours to 40 hours and how much that increase in income would decrease their benefits. It did this analysis based on five different hourly wages – $7.25, $8.50, $10, $12 and $15 – for five different households: a single adult, one adult and one child, one adult and three children, two adults and one child and two adults and four children.
The amount lost in benefits when working more varied widely based on those factors. For example, a single adult making $10 per hour who went from working 30 hours a week to 40 hours would make $5,200 more in wages per year but would lose $4,683 in benefits. That creates a huge disincentive to work.
However, a single parent with three children who went from 20 hours per week to 30 hours per week would make $3,770 extra per year and also gain $38 in extra benefits. That’s a big incentive to work. But overall the study found a large incentive not to work. The median effective marginal tax rate across the 50 different scenarios was 63 percent. That is, for every additional dollar someone made, they lost 63 cents on average in reduced government benefits and taxes.
“The trade-off between work and leisure leads to very little reward if 63 percent of the additional income that a family earns is lost to a combination of taxes and program reduction,” the study said.
That all may be music to conservatives’ ears that would support their contention that the government should cut welfare benefits, but the study’s recommendations go a different direction. It said policymakers could consider expanding TANF, which very few people are eligible for now, or starting a state Earned Income Tax Credit.
The idea, particularly with the Earned Income Tax Credit, is to give poor people an incentive to work more by reducing their income taxes to offset a loss in government benefits. That’s a tax cut we bet state GOP leaders won’t be so eager to endorse.