Final answer:
A government antipoverty program that guarantees a minimum income can create a poverty trap by reducing welfare benefits one-to-one with earned income, hence discouraging work. Modifying the reduction rate to 50 cents per dollar earned or setting work requirements could maintain incentives to work and reduce the poverty trap, albeit at a higher cost.
Step-by-step explanation:
The discussion revolves around an antipoverty program designed to assist families with a guaranteed minimum income. Considering a scenario where the government ensures a family with a single mother and two children an income of $18,000, we see the principles of economic support and welfare systems at play. This setup is graphically depicted as a horizontal line at the $18,000 mark. The policy has a one-to-one withdrawal rate, meaning for every additional $1,000 the mother earns, the government reduces its support by $1,000. This creates what is known as a "poverty trap", where the incentive to work is reduced because the gains from employment are offset by a reduction in government assistance. A more gradual phase-out of support payments may increase the incentive to work, despite increasing the cost of the antipoverty program.
Another aspect of this hypothetical scenario involves potential changes to the program to avoid the poverty trap. Instead of reducing government payments by a dollar for every dollar earned, the system could reduce government assistance by $0.50 for every $1 earned, therefore retaining a greater incentive to work. Furthermore, including stipulations such as work requirements or a time limit on benefits can encourage employment while still providing necessary support to those in need.
The trade-off is clear: the government faces a choice between a less costly program that could discourage work and a more expensive one that encourages employment and potentially offers long-term benefits to the economy and society.