The Poverty Trap

Susan is a single mother with three children. She is a cashier at a food market earning $7.75 per hour and works up to 2,000 hours per year. She is eligible for government benefits, so if she does not earn any income, she will receive a total of $17,050 per year. She can work and still receive government benefits, but for every $1 of income, her government stipend is $1 less. The government has decided to change the benefits policy of every $1 of income earned to reduce the government’s stipend by 60 cents. How will this change Susan’s benefits received? What are her new choices?

To complete the table given, we need to keep in mind, that:

1) The rate of Susan’s income is $7,75 per hour.

2) Government benefits per year if Susan doesn’t work at all are $17,050 per year.

Therefore, if Susan works all 2,000 hours in a year, she will earn: 2,000 * 7,75 = $15,500. The government will add $1,550 in such case to make it $17,050 in total.

However, if decides not to work at all, she will still receive $17,050 from the government.  

If she works 1,700 hours in a year, the numbers will change as follows: 1,700 * 7,75 = $13,175. The government will add $3,875 in such case to make it $17,050 in total.

If she works 1,500 hours in a year, the numbers will change as follows: 1,500 * 7,75 = $11,625. The government will add $5,425 in such case to make it $17,050 in total.

If she works 1,200 hours in a year, the numbers will change as follows: 1,200 * 7,75 = $9,300. The government will add $7,750 to make it $17,050 in total.

If she works 900 hours in a year, the numbers will change as follows: 900 * 7,75 = $6,975. The government will add $10,075 to make it $17,050 in total.

If she works 600 hours in a year, the numbers will change as follows: 600 * 7,75 = $4,650. The government will add $12,400 to make it $17,050 in total.

Finally, if she works 300 hours in a year, the numbers will change as follows: 300 * 7,75 = $2,325. The government will add $14,725 to make it $17,050 in total.

Using these numbers, we can create the following table:

Number of Work Hours	Earnings from Work	Gov-t Benefits	Total Income
2,000	$15,500	$1,550	$17,050
1,700	$13,175	$3,875.	$17,050
1,500	$11,625	$5,425	$17,050
1,200	$9,300	$7,750	$17,050
900	$6,975	$10,075	$17,050
600	$4,650	$12,400	$17,050
300	$2,325	$14,725	$17,050
0	0.00	$17,050	$17,050

In the situation, when the government has decided to change the benefits and will deduct only 60 cents per one dollar, let’s see how the numbers change when Susan works all 2000 hours in a year. We will use the following formula: 2000 * $7,75 + ($17,050-$15,500*$0,60) = $23,250 (her total income). Using the same pattern, let’s make a revised poverty trap table:

Number of Work Hours	Earnings from Work	Gov-t Benefits	Total Income
2,000	$15,500	$7,750	$23,250
1,700	$13,175	$9,145	$22,320
1,500	$11,625	$10,075	$21,700
1,200	$9,300	$11,470	$20,770
900	$6,975	$12,865	$19,840
600	$4,650	$14,260	$18,910
300	$2,325	$15,655	$17,980
0	$0.00	$17,050	$17,050

What are the advantages of Susan working?

In the first situation, where the government deducts $1 per each dollar she earns at work, I cannot see a lot of advantages in Susan working. The only good thing is her ability to gain work experience and make new connections so that in the future she will probably be promoted or will be able to find another job easily.

In the second situation, where the government deducts only $0,60 per each dollar she earns at work, she can earn much more than she would without working. Therefore, she not only gains work experience and makes new connections, but also earns more money which is a great stimulus not to skip work.

Finally, in all situations, it is always safer to have a job than not to have any. What if the government decides to stop paying the benefit or changes its amount?

What are disadvantages of Susan working?

In the first situation, the biggest disadvantage is that working all 2000 hours a year simply doesn’t make any sense. It is discouraging because working becomes simply a waste of time. There are other things Susan could do instead of working. For example, how about learning something or getting a new profession? Moreover, keep in mind that she is a happy mother of three kids. She will not have enough time to spend with them for nothing.

In the second situation, she will also spend less time with her children. Moreover, as soon as she will not be able to look after them on her own, she will probably need to add new expenses to her list such as the nursery. She will also have to spend some money on transportation to and from work, and more money will go into her appearance as soon as women tend to care more about how they look when they need to go outside.

What are the advantages of Susan receiving government benefits?

It doesn’t matter whether she has issues with working or not, Susan can be ensured that her kids will always have food and other things to satisfy their basic needs. Also, thanks to the benefits, Susan can decide how much time she can afford to spend with the kids. Children always need their mothers, and it is a good thing that they can be together even if their mother can’t earn much.

What are the disadvantages of Susan receiving government benefits?

As soon as the benefits are high enough, they are not motivating her to work too much. She receives her income without producing anything and becomes economically inefficient. Susan can become dependent on the government benefits and, what is worst, her children will not see a good role model of a person who works and earns money – they will probably not learn how to do it efficiently, too.

Based on your findings from the Poverty Trap Table, should Susan continue to work or only receive government benefits? Why or why not?

If I were Susan, I would definitely not work in such a situation. There are several reasons for that. First, she should better spend more time raising her kids. Second, she should better learn something – there are many opportunities even online nowadays – to be able to find a better job in the future, where it will make more sense to work.

Based on your findings from the Revised Poverty Trap Table, should Susan continue to work or only receive government benefits? Why or why not?

Despite the disadvantages of working in her situation, I believe that after the government decided to change the benefits policy, Susan should continue to work. She will be able to earn more, her life will be more stable, and she will be a good role model for her kids.

What are your recommendations for Susan from the poverty trap?

I think Susan should find a healthy balance of working and raising kids. She can also find a way to learn something new or get a new profession. She can also try to work on promotion at the current workplace to get higher wages in the future. To reduce the costs of food, she can find markets with lower prices or even make a small garden on her own. She can also consider looking for a job online so that she can not only spend time with her kids but also earn some money.