An Empirical Study of Formula Income Transfers and the Work Decision of the Poor

The problem of estimating the changes in work effort which might be expected from the introduction of one of the new programs of income maintenance is the focus of this article. Utilizing information on work behavior contained in a cross-section sample of low-income workers and assuming that worker preferences are structured in a particular manner, one can draw conclusions regarding possible changes in work effort and income. A finding of the study is that a worker's behavior in response to the introduction of a formula transfer program depends critically on his response to changes in property income and the wage rate. The results indicate that little change in work effort may be expected on the part of the population as a whole from the introduction of a low rate formula plan.